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2.2Probabilities

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LEARNING OBJECTIVES
At the end of this lesson the students shall be able to:
• illustrate probability distribution;
• apply probability distribution concept to business scenarios and
problems.
As a manager, why would you be so interested in understanding
probability distribution?
SAMPLE PROBLEM
Let’s consider an account receivable auditor examining customer
accounts for a client. Past records indicate that the mean amount per
account is $5,000 and that this particular random variable has a
deviation of $1,000.
1. Employees of Williams Manufacturing are given the opportunity to
have money deducted from their pay and deposited in a Christmas Club
savings account at the Credit Union. Of all employees who participate
as club members, 20 percent have $5 deducted per pay check, 33
percent have $10 deducted, 36 percent have $15 deducted, and 11
percent have $20 deducted. What is the expected value of a member’s
deduction per pay check?
2. A financial analyst computed the return on stockholder’s equity for
all the companies listed on the New York Stock Exchange. She found
that the mean of this distribution was 10 percent, with a standard
deviation of 5 percent. She is interested in examining further those
companies whose return on stockholder’s equity is between 16 and 22
percent. Of the approximately 1,300 companies listed on the exchange,
how many are of interest to her?
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