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Chapter 5, Using Excel:
Discrete Probability Distributions: Binomial Distributions
• Expected Value: There is no single function command to get expected values so you must build the
table in an Excel Spreadsheet.
– Example 1: I buy one of 200 raffle tickets for $10. The sponsors then randomly select one of
the tickets. If they pick mine, the sponsors give me $100. Otherwise I get nothing. What is the
expected value of this raffle to me?
– Example 2: Suppose you have a certain investment opportunity. From this investment, there is
20% chance of a $1500 profit, a 30% chance of a $1000 profit, a 30% chance of a $500 profit, and
a 20% chance of losing $1000. What is the expected profit from this investment opportunity?
Example 1
Outcomes
I win
I don't win
x = value
90
-10
P(x)
0.005
0.995
x * P(x)
0.45
-9.95
-9.5 ← Expected Value
Outomes
1500
1000
500
-1000
x = Profit
1500
1000
500
-1000
P(x)
0.2
0.3
0.3
0.2
x*P(x)
300
300
150
-200
550 ← Expected Value
Example 2
• Binomial Probabilities:
– Use the function BINOMDIST(s,n,p,TRUE/FALSE).
*
*
*
*
*
s = The number of successes.
n = The number of trials.
p = The probability of a single success.
Use TRUE if you want the cumulative probability: P (x ≤ s | n, p)
Use FALSE if you want the exact probability: P (x = s | n, p)
– Example
P (x ≤ 7, n = 10, p = .8) = BINOMDIST(7, 10, 0.8, TRUE) = 0.322
and
P (x = 7, n = 10, p = .8) = BINOMDIST(7, 10, 0.8, FALSE) = 0.201