The Normal Distribution

A random variable X whose distribution has the shape of anormal curve is called a normal random variable.

Normal Curve

This random variable X is said to be normally distributed with mean standard deviation if its probability distribution is given by

and

Properties of a Normal Distribution

1. 2. 3. 4.
Note:

The normal curve is symmetrical about the mean ; The mean is at the middle and divides the area into halves; The total area under the curve is equal to 1; It is completely determined by its mean and standard deviation variance 2)

(or

In a normal distribution, only 2 parameters are needed, namely

and

Area Under the Normal Curve using Integration

The probability of a continuous normal variable X found in a particular interval [a, b] is the area under the curve bounded by x = a and x = b and is given by

and the area depends upon the values of

and .

[See Area under a Curve for more information on using integration to find areas under curves. Don't worry - we don't have to perform this integration - we'll use the computer to do it for us.]

The Standard Normal Distribution

It makes life a lot easier for us if we standardize our normal curve, with a mean of zero and a standard deviation of 1 unit. If we have the standardized situation of

= 0 and

= 1, then we have:

Standard Normal Curve

= 0,

=1

We can transform all the observations of any normal random variable X with mean and variance to a new set of observations of another normal random variable Z with mean 0 and variance 1 using the following transformation:

We can see this in the following example.

Example Say

= 2 and

= 1/3 in a normal distribution.

The graph of the normal distribution is as follows:

= 2,

= 1/3

The following graph represents the same information, but it has been standardized so that = 0 and = 1:

= 0,
The two graphs have different axes).

=1

and , but have the same shape (if we tweak the

The new distribution of the normal random variable Z with mean 0 and variance 1 (or standard deviation 1) is called a standard normal distribution. Standardizing the distribution like this makes it much easier to calculate probabilities.

If we have mean

and standard deviation , then

Since all the values of X falling between x1 and x2 have corresponding Z values between z1 and z2, it means: The area under the X curve between X = x1 and X = x2 equals: The area under the Z curve between Z = z1 and Z = z2. Hence, we have the following equivalent probabilities:

P(x1 < X < x2) = P(z1 < Z < z2)

Example Considering our example above where

= 2,

= 1/3, then

One-half standard deviation = /2 = 1/6, and Two standard deviations = 2 = 2/3

s.d. to 2 s.d. to the right of to = 2 will be represented by the area

So
from

. This area is graphed as follows:

= 2,

= 1/3

The area above is exactly the same as the area

z1 = 0.5 to z2 = 2

in the standard normal curve:

= 0,

=1

Percentages of the Area Under the Standard Normal Curve

A graph of this standardized (mean 0 and variance 1) normal curve is shown.

In this graph, we have indicated the areas between the regions as follows:

-1 Z 1 68.27% -2 Z 2 95.45% -3 Z 3 99.73%

This means that 68.27% of the scores lie within 1 standard deviation of the mean.

This comes from: Also, 95.45% of the scores lie within 2 standard deviations of the mean.

This comes from: Finally, 99.73% of the scores lie within 3 standard deviations of the mean.

This comes from: The total area from - < z < is 1.

The z-Table
The areas under the curve bounded by the ordinates z = 0 and any positive value of zare found in the z-Table. From this table the area under the standard normal curve between any two ordinates can be found by using the symmetry of the curve aboutz = 0. We can also use Scientific Notebook, as we shall see. Go here for the actual z-Table.

EXAMPLE 1 Find the area under the standard normal curve for the following, using the z-table. Sketch each one. (a) between z = 0 and z = 0.78 (b) between z = -0.56 and z = 0

(c) between z = -0.43 and z = 0.78 (d) between z = 0.44 and z = 1.50 (e) to the right of z = -1.33. Answer EXAMPLE 2 Find the following probabilities: (a) P(Z > 1.06) (b) P(Z < -2.15) (c) P(1.06 < Z < 4.00) (d) P(-1.06 < Z < 4.00) Answer From the z-table: (a) This is the same as asking "What is the area to the right of 1.06 under the standard normal curve?" We need to take the whole of the right hand side (area 0.5) and subtract the area from z = 0 to z = 1.06, which we get from the z-table.

(b) This is the same as asking "What is the area to the left of -2.15 under the standard normal curve?"

This time, we need to take the area of the whole left side (0.5) and subtract the area from z = 0 to z = 2.15 (which is actually on the right side, but the z-table is assuming it is the right hand side.)

(c) This is the same as asking "What is the area between 1.06 and 4.00 under the standard normal curve?"

(d) This is the same as asking "What is the area between -1.06 and 4.00 under the standard normal curve?" We find the area on the left side from z = -1.06 to z = 0 (which is the same as z = 0 to z = 1.06), then add the area between z = 0 to z = 1.04 (on the right side):

EXAMPLE 3 It was found that the mean length of 100 parts produced by a lathe was 20.05 mm with a standard deviation of 0.02 mm. Find the probability that a part selected at random would have a length (a) between 20.03 mm and 20.08 mm

(b) between 20.06 mm and 20.07 mm (c) less than 20.01 mm (d) greater than 20.09 mm. Answer

X = length of part
(a) 20.03 is 1 standard deviation below the mean;

20.08 is

standard deviations above the mean

So the probability is 0.7745.

(b) 20.06 is 0.5 standard deviations above the mean; 20.07 is 1 standard deviation above the mean

So the probability is 0.1498.

(c) 20.01 is 2 s.d. below the mean.

So the probability is 0.0228.

(d) 20.09 is 2 s.d. above the mean, so the answer will be the same as (c),

P(X > 20.09) = 0.0228.

EXAMPLE 4 A company pays its employees an average wage of $3.25 an hour with a standard deviation of 60 cents. If the wages are approximately normally distributed, determine a. the proportion of the workers getting wages between $2.75 and $3.69 an hour; b. the minimum wage of the highest 5%. Answer

X = wage

(a)

So about 56.6% of the workers have wages between $2.75 and $3.69 an hour.

(b) W = minimum wage of highest 5%

x = 1.645 (from table)

Solving gives: x = 4.237 So the minimum wage of the top 5% of salaries is $4.24. EXAMPLE 5 The average life of a certain type of motor is 10 years, with a standard deviation of 2 years. If the manufacturer is willing to replace only 3% of the motors that fail, how long a guarantee should he offer? Assume that the lives of the motors follow a normal distribution. Answer

X = life of motor x = guarantee period

Normal Curve:

= 10, = 2

We need to find the value (in years) that will give us the bottom 3% of the distribution. These are the motors that we are willing to replace under the guarantee.

P(X < x) = 0.03

The area that we can find from the z-table is 0.5 - 0.03 = 0.47 The corresponding z-score is z = -1.88. Since , we can write:

Solving this gives x = 6.24. So the guarantee period should be 6.24 years.

Application - The Stock Market

Sometimes, stock markets follow an uptrend (or downtrend) within 2 standard deviations of the mean. This is called moving within the linear regression channel. Here is a chart of the Australian index (the All Ordinaries) from 2003 to Sep 2006.

Image source: incrediblecharts.com.

The upper gray line is 2 standard deviations above the mean and the lower gray line is 2 standard deviations below the mean. Notice in April 2006 that the index went above the upper edge of the channel and a correction followed (the market dropped). But interestingly, the latter part of the chart shows that the index only went down as far as the bottom of the channel and then recovered to the mean, as you can see in the zoomed view below. Such analysis helps traders make money (or not lose money) when investing.