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AMS 311 (Fall, 2009)
Joe Mitchell
PROBABILITY THEORY
Homework Set # 9 – Solution Notes
(1).
(20 points)
The average number of bank failures in the USA is two per week.
(a). Estimate the probability,
p
,thatatleastFvebankfa
i
luresoccurintheUSAnextweek
.(What inequality are you
using?)
Let
X
be the number of bank failures that occur in the USA next week. We know that
E
(
X
)=2.
We use Markov’s inequality to get a bound on
p
:
0
≤
p
=
P
(
X
≥
5)
≤
E
(
X
)
5
=
2
5
(b).
Assume now (for parts (b), (c), and (d)) that you are told that the variance of the number of bank failures in
the USA in any one week is 4. Now give an improved estimate of
p
(using an inequality).
Now we know that
var
(
X
) = 4. So we apply the onesided Chebyshev inequality, with
μ
=
E
(
X
) = 2 and
a
=3:
0
≤
P
(
X
≥
5) =
P
(
X
≥
2+3)
≤
4
4+3
2
=
4
13
(You could have used a 2sided Chebyshev, which would result in a weaker bound as follows:
P
(
X
≥
5)
≤
P
(
X
≥
5or
X
≤
1) =
P
(

X

2
≥
3)
≤
4
3
2
=
4
9
.)
(c).
Give a Central Limit Theorem estimate for the probability
q
that during the academic year (considered to be 31
weeks total, fall and spring) there are more than 75 bank failures in the USA.
Let
Y
i
be the number of bank failures in
week
i
,for
i
=1
,...,
31. Let
Y
=
∑
31
i
=1
Y
i
denote the total number of bank failures during the academic year. Then,
E
(
Y
)=31
·
E
(
Y
i
)=31
·
2 = 62 and
var
(
Y
)=31
·
var
(
Y
i
) = 124 (using the fact that the
Y
i
’s are independent). Then,
using the Central Limit Theorem estimate, we get
q
=
P
(
Y>
75) =
P
(
Y

62
√
124
>
75

62
√
124
)
≈
P
(
Z>
1
.
17) = 1

Φ(1
.
17) = 1

.
879 =
.
121
(d). Use an inequality to get the best bounds you can on the probability
q
estimated in part (c).
We can apply the onesided Chebyshev inequality to get
0
≤
P
(
Y>
75) =
P
(
Y>
62 + 13)
≤
124
124 + 13
2
=
.
4232
(Note that Markov inequality gives
P
(
Y>
75)
≤
62
75
, which is weaker than what we get above.)
(2).
(15 points)
The cash register is broken at the bagel shop, so transactionsaredonebyhandandrecorded
.Yourlazy
employee, Joe, charges customers exactly (e.g., if they owe
$
3.61, he makes sure they pay exactly
$
3.61); however, lazy
Joe only records in the notebook the dollar amount of each transaction (e.g.,
$
3forthe
$
3.61 transaction), omitting the
cents. Assume that Joe serves 20 customers today. ±ind an upper bound on the probability that the total shown in Joe’s
notebook is at least
$
15 less than the actual amount of money those 20 customers paidtoJoe
.
Let
X
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This note was uploaded on 06/06/2010 for the course EC 11 taught by Professor All during the Spring '10 term at UCLA.
 Spring '10
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