Stat trek binomial

Fall 2018 MAR 4804/P80 (TUES)

Financial/Analytical Question #4: (FAQ#4). You should specifically identify any assumptions that you make and justify the decision(s) made.

Complete each of the following.

PART 1:

For each of the following 4 alternatives:

i) calculate the expected value (EV) of the coin flip option and briefly explain your logic. Note the amount certain is also an expected value (EV);

ii) calculate the minimum number of successes (HEADS) for the coin flip option to equal or exceed the amount certain;

iii) use Stat Trek to calculate the probability that the minimum number of successes above will be achieved;

(HINT: Google “Stat Trek Binomial Calculator”)

iv) for each of the 3 alternatives, which option would you choose (i.e. the “coin flips” or the “amount certain”)? Briefly explain?

ALTERNATIVE#1

a) $50,000

OR

b) 10 coin flips each of which has a

i) 50% chance of $8,500 (Heads)

ii) 50% chance of $2,500 (Tails)

EV = $ (for 10 flips)

MINIMUM NUMBER OF SUCCESSES =

STAT TREK PROBABILITY =

YOUR CHOICE of the amount certain or the Coin Flips = (brief explanation)

ALTERNATIVE#2

. a) $50,000

OR

b) 100 coin flips each of which has a

i) 50% chance of $750 (Heads)

ii) 50% chance of $100 (Tails)

EV = $ (for 100 flips)

MINIMUM NUMBER OF SUCCESSES =

STAT TREK PROBABILITY =

YOUR CHOICE of the amount certain or the coin Flips = (brief explanation)

ALTERNATIVE#3

.a) $50,000

OR

b) a 1000 coin flips with a

i) 50% chance of $76 (Heads)

ii) 50% chance of $25 (Tails)

EV = $ (for 1000 flips)

MINIMUM NUMBER OF SUCCESSES =

STAT TREK PROBABILITY =

YOUR CHOICE of the amount certain or the coin Flips = (brief explanation)

Binomial Calculator: Online Statistical Table

Use the Binomial Calculator to compute individual and cumulative binomial probabilities. For help in using the calculator, read the Frequently-Asked Questions or review the Sample Problems.

To learn more about the binomial distribution, go to Stat Trek's tutorial on the binomial distribution.

· Enter a value in each of the first three text boxes (the unshaded boxes).

· Click the Calculate button.

· The Calculator will compute Binomial and Cumulative Probabilities.

Probability of success on a single trial

Number of trials

Number of successes (x)

Binomial Probability: P(X = 7)

Cumulative Probability: P(X < 7)

Cumulative Probability: P(X < 7)

Cumulative Probability: P(X > 7)

Cumulative Probability: P(X > 7)