7304AFE Business Statistics

Practice Questions (Final Exam)

Question 1

(a) Distinguish between the following terms encountered in statistical inference:

(i) population and sample;

Answer

(ii) Type I error and Type II error;

Answer

(iii) confidence interval and level of significance:

Answer

(iv) null hypothesis and alternative hypothesis;

Answer

(v) rejection region and acceptance region.

Answer

(vi) power of a test and probability of a Type I error

Answer
(b) (i) A random sample of 230 houses from a certain suburb yielded 115 which contained a ‘fax’
machine. Establish a 90% confidence interval for the true proportion of houses in this suburb
which contain ‘fax’ machines. Give the confidence interval limits correct to 2 decimal places.
Answer

(ii) What size sample would need to be taken for the survey to be expected to yield a result which
is within 2% of the true proportion with a probability of 0.95?
Answer

(c) The list price of a certain article was obtained from a random sample of ten (10) independent outlets.

The results were as follows:

$16.90, 17.00, 16.80, 16.90, 17.10, 16.80, 16.90, 16.80, 16.90, 16.90

Analysis using the ‘Tools’ facility in Excel yielded the following information in respect of the sample

Price

Mean 16.9
Standard Error 0.029814
Median 16.9
Mode 16.9
Standard Deviation 0.094281
Sample Variance 0.008889
Kurtosis 1.185268
Skewness 0.994369
Range 0.3
Minimum 16.8
Maximum 17.1
Sum 169
Count 10
 (i) Write down the best point estimate of the average list price of the article from all such outlets.
Answer

(ii) Establish a 95% confidence interval for the population mean.

Answer

Question 2

(a) A sales manager of a hardware warehouse monitors sales trends in the plumbing section by random
sampling 12 sales invoices at the end of each month. Historically, the monthly average sales invoice
value has been stable at $120.

Last month, the sample yielded an average value of $112.85 with a standard deviation of $20.80. Does
this evidence support at the 5% level of significance the contention that the long term average sales
invoice value has decreased? Use the following template to answer the question.
Answer

1. H0 :

2. HA :

3. Level of Significance:

4. Test Statistic and Associated Sampling Distribution.

5.Calculation and Decision.

6. Conclusion.

(b) It is claimed that at least 50% of subscribers to a magazine read a particular advertisement it contains.
To test this belief a random sample of 250 subscribers is chosen and 110 indicate that they had read the
advertisement.
(i) For the above survey, what is the minimum population proportion (P) of subscribers it is
claimed would read the advertisement?

Answer

ˆ
Find the proportion of subscribers in the sample ( P) that indicate they read the advertisement.

Answer

(ii) On the basis of this survey result and using the p - value method is the claim justified at the
5% level of significance? Use the following template to arrive at your conclusion.

Answer

1. H0 :

2. HA:

3. Level of Significance:

4. Test Statistic and Associated Sampling Distribution:

5. Critical value(s) and Decision rule:

6. Sample value of the test statistic and Conclusion:

Question
3
(a) An advertising agency that serves a certain radio station wishes to estimate the mean amount
of time that the station's audience spends listening to the radio on a daily basis. From past
studies the standard deviation is estimated to be 45 minutes. What sample size is needed if the
agency wants to be 90% confident of being correct to within 5 minutes of the true value.
Answer.

(b) The average cost of a night’s motel accommodation for one person in a certain tourist region is
claimed by the local tourism council to be not more than $50. A random sample of 16 motels
in the area yielded a mean cost of $55 per night with a standard deviation of $10.80 for this
type of accommodation. Are the results of the survey consistent with the tourism council’s
claim at the 5% level of significance?

Answer

1. Ho:

2. HA:

3. Level of Significance:

4. Test Statistic and Associated Sampling Distribution:

5. Critical value(s) and Decision rule:

6. Sample value of the test statistic and Conclusion:

7. Necessary assumptions:
Question
4
(a) In order to help make a financial decision, an investor observes 25 returns on one type of
investment and 35 returns on a second type of investment. The sample means are 12.5 and
11.3. Assume that the returns are normally distributed, with standard deviations σ1 = σ2 = 5.
Estimate the difference in mean returns, with 95% confidence.
Answer.

(i) Write down the best point estimate of the difference in mean returns.
Answer

(ii) Establish a 95% confidence interval for the population mean difference in mean returns.
Answer

(b) A baby-food producer claims that her product is superior to that of her leading competitor, in that
babies gain weight faster with her product. As an experiment, 10 healthy newborn infants are
randomly selected. For two months, five of the babies are fed the producer’s product and the
other five are fed the competitor’s product. Each baby’s weight gain (in grams) is shown in the
accompanying table.

Weight gain (grams)

Producer’s product Competitor’s product
900 960
1080 720
840 900
1110 870
1200 810
 Using the output presented below, can we conclude that the average weight gain for babies fed
on the producer’s baby food is greater than the average weight gain for babies fed on the
competitor’s food? (Use α = 0.05.)

t-Test: Two-Sample Assuming Equal Variances

Producer's product Competitor's poduct

Mean 1026 852
Variance 22680 8370
Observations 5 5
Pooled Variance 15525
Hypothesized Mean Difference 0
df 8
t Stat 2.208
P(T<=t) one-tail 0.029
t Critical one-tail 1.860
P(T<=t) two-tail 0.058
t Critical two-tail 2.306

t-Test: Two-Sample Assuming Unequal Variances

Producer's product Competitor's poduct

Mean 1026 852
Variance 22680 8370
Observations 5 5
Hypothesized Mean Difference 0
df 7
t Stat 2.208
P(T<=t) one-tail 0.031
t Critical one-tail 1.895
P(T<=t) two-tail 0.063
t Critical two-tail 2.365

Answer

1. Ho:

2. HA:

3. Level of Significance:

4. Test Statistic and Associated Sampling Distribution:

5. Critical value and Decision rule in terms of the p-value:

 6. Conclusion:

7. Necessary assumptions:

Question 5 (a)

The following data were obtained in a study of the relationship between annual income levels and annual
savings (both expressed in thousands of dollars) of factory workers employed by a manufacturing company.

Worker A B C D E F G H I J K L M N O P
Income (X) 27.5 32.6 29.8 38.5 24.5 42.6 33.8 25.8 26.7 35.8 37.6 45.2 38.2 29.4 32.4 28.8
Savings (Y) 0.6 1.2 0.7 1.5 0.7 1.8 1.1 0.9 1.0 0.9 1.1 1.8 1.3 0.8 1.1 0.8

A plot using Excel yielded the diagram below:

S c a tte r D ia g ra m

1 .8

1 .6

1 .4

1 .2

1
Y

0 .8

0 .6

0 .4

0 .2

(i) Identify the independent variable and dependent variable by name.

Answer

Independent Variable:

Dependent Variable:
(ii) Complete the following table and then calculate Sx and Sy and Sxy :

Income(X) Savings (Y) 2 2 XY

X Y
27.5 0.6 756.25 0.36 16.5

2 2
∑X= ∑Y = ∑X = ∑Y = ∑XY =

Calculation of Sx :

Calculation of Sy :

Calculation of Sxy:
(iii) Use the information from the table in (ii) to calculate the sample correlation coefficient
between the two variables rainfall and yield.

Answer.

(iv) Test whether the correlation coefficient found in (iii) is significant at the 5% level of

significance. Answer
(v) Calculate the coefficient of determination. What information does this give concerning the linear
relationship between the two variables?

Answer

(vi) Based on the results obtained in parts (ii) and (iii) and other information provided is it reasonable to
assume the relationship between the variables is linear? Give reasons for your answer. Compare this
with the information from the scatter diagram.

Answer

(vii) Assuming that the regression model of the form Yi = β0 + β1Xi + εi is valid find the least squares
ˆ ˆ ˆ ˆ
equation of the form y = β o + β 1 X where β o is an estimate of β0 and β 1 is an estimate of
β1. Answer
ˆ
For β 1

ˆ
For β o

Sample regression equation:

(viii) Calculate the sum of squares of errors SSE and the standard error of estimate s e and find the standard
ˆ
error of the slope coefficient estimate β 1 .

Answer

Calculation of SSE and se

ˆ
Calculation of the standard error of the slope coefficient estimate β 1 .

(ix) Test whether the regression coefficient β1 is significant at the 5% level of

significance Answer
 ˆ
(x) What information does β 1 about the relationship between the two variables.

(xi) Estimate the mean savings when X = $35,000.

(b) The following data were obtained by a manufacturing company investigating the relationship between
the number of worker hours associated with production runs of varying lot sizes.

Lot Size (x) 20 20 30 30 40 40 50 50 60 60 70 70 80 80

Worker Hours (y) 50 55 73 67 87 95 108 112 128 135 148 160 170 162

An analysis using Excel yielded the information below:

Scatter Diagram

180

160

140

120

100
Y

80

60

40

20

X
 Hours v Lot Size

Regression Statistics
Multiple R 0.993906537
R Square 0.987850204
Adjusted R Square 0.986837721
Standard Error 4.69739036
Observations 14

ANOVA
df SS MS F Significance F
Regression 1 21528.64286 21528.64286 975.6708929 7.29457E-13
Residual 12 264.7857143 22.06547619
Total 13 21793.42857

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 12.53571429 3.380349753 3.708407473 0.002989494 5.170565 19.90086357
Lot Size 1.960714286 0.062771519 31.23573103 7.29457E-13 1.823946897 2.097481674

(i) Is it reasonable to assume the relationship between the variables is linear?

Justify your answer with reference to the above analysis (plot and estimation
results).
Answer

(ii) If it is assumed that a regression line of the form E[Y|X] = β0 + β1x is valid,
write down the equation which enables the worker hours to be predicted from
a knowledge of the prevailing
lot size.
Answer

(iii) Is the estimate of β1 significant at the 5% level? Justify your answer by reference to the above
analysis.
Answer
 (iv) Estimate the number of worker hours corresponding to a lot size of 45. Obtain the 95% prediction
interval corresponding to a lot size of 45. Also, Obtain the 95% prediction interval corresponding to an
average lot size of 45.
Answer

(v) What is the value of the coefficient of determination? What information does it provide
concerning the regression problem?
Answer

(vi) What is the value of the correlation coefficient and what information does
provide concerning the relationship between the two variables.
Answer

Also,

Exercises 19.11, 19.12, 19.13 & 19.14