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Statistics and integration problem

  1. Aug 4, 2011 #1
    Statistics and integration problem (urgent)

    can anyone help me with (6)?
     

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    Last edited: Aug 4, 2011
  2. jcsd
  3. Aug 4, 2011 #2

    lanedance

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    what is the cumulative probability of a profit < 0?
     
  4. Aug 4, 2011 #3
    sorry, what does cumulative probability mean?
    In (3), I assumed the region is when the x axis is negative which is 0.025 probabiltiy.
    In (4), I used (3) as the same answer.
    In (5), I used the calculator to work out putting integral with -10 lower bound and 0 upper bound. I got 0.028
    but it doesn't make much sense at all...
     
  5. Aug 4, 2011 #4

    lanedance

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    so you want to find P(X<=0) where X is the profit

    Knowing it is a normal distribution with mean 2 and SD 1, this is the probability of being 2 D's from the mean

    this means it should be a about 2.2-2.3% probability, though you should be able to look it up in a table no worries to get an exact number - also see below
    http://en.wikipedia.org/wiki/File:Standard_deviation_diagram.svg

    as mentioned for a 4% probability we intepret t his as a (1 in 1/0.04=25year ) event

    what does this translate into for a 2.3% event (or whatever number you come up with?)
     
  6. Aug 4, 2011 #5
    sorry, I still don't get the idea how to change it into years that the bank would make a loss.
     
  7. Aug 4, 2011 #6

    lanedance

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    For the 4% case
    1/25 = 0.04 = 4%
    work backwards from that

    The idea is that in 1 year in 25 is 4% of that time period. If the probability of an event is 4%, we would expect it to occurs 1 year in every 25 on average
     
  8. Aug 4, 2011 #7
    what i have done is, use 1 divided by the answer of (5) P = 0.0228
     
  9. Aug 4, 2011 #8

    lanedance

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    sounds like a good idea - do you get a reasonable answer?
     
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