Conceptual Assignment (Week 1) :

(Assignment to be submitted) (25 marks)

• Probability Distribution and Decision Analysis Pg- QM 1 to 3

Conceptual Assignment for Week 1(based on Descriptive Statistics, Probability Distributions

and ‘Decision Tree Analysis’) (25 marks)(each question carries 2.5 marks)
1. A study of long distance phone calls made from the corporate offices of Pepsi bottling group Inc, in
Gurgaon revealed the length of the calls, in minutes following the normal distribution. The mean
length of time per call was 4.2 minutes and standard deviation was 0.60 minutes
a) What proportion of calls last between 4.2 and 5 minutes?
b) What proportion of calls last more than 5 minutes?
c) What proportion of calls last between 5 and 6 minutes?
d) How much minimum time it took for approximately top 15 % of total calls?
2. Toby’s trucking company determined that the distance travelled per truck per year is normally
distributed with a mean of 50 thousand miles and a standard deviation of 12 thousand miles.
a) What proportion of trucks can be expected to travel between 34 and 50 thousand miles in
the year?
b) What percentage of trucks can be expected to travel either below 30 or above 60
thousand miles in the year?
c) How many miles will be travelled by at least 80% of the trucks?

3. According to Air transport Association of America the average operating costs of an MD-80 jet airliner
is $2087 per hour. Suppose the operating costs of an MD- 80 jet airliner are normally distributed with
a standard deviation of $175 per hour.
a) At what operating costs would only 20% of the operating costs be less?
b) At what operating costs would 65% of the operating costs be more?
c) What operating costs would be more than 85% of the operating costs

4. Assume that the number of calories in a Mcdonald's Egg muffin is normally distributed random
variable with mean of 290 calories and a standard deviation of 14 calories.
a) What is the probability that the particular serving contains fewer than 300 calories?
b) What is the probability that the particular serving contains more than 250 calories?
c) What is the probability that the particular serving contains between 275 and 310 calories?
d) How much are the calories consumed if 70% of the muffin is eaten?

5. The profit and loss from an investment is normally distributed with a mean of $ 11200 and a standard
deviation of $8250.
a) What is the probability that the profit will be between $10000 and $20000?
b) Find x such that the probability that the profit will exceed x is 25%?
c) If the loss exceeds $10000 the company will have to borrow additional cash. What is
the probability that the company will have to borrow additional cash?

6. In a survey with a sample of 200 private clinics , the daily number of patients treated follows a normal
distribution with its mean and standard deviation as 75 and 15 respectively
a. What is the probability that the daily number of patients treated is less than 80. Also find the
number of clinics having the daily number of patients treated less than 80.
b. What is the probability that the daily number of patients treated is more than 60. Also find the
number of clinics having the daily number of patients treated more than 60.
c. How many patients are expected to arrive if the clinic operates with 75% of its capacity
d. What is the probability that the daily number of patients treated is between 65 and 85. Also find
the number of clinics having the daily number of patients treated more than 60.
7. All insurance companies offering unit linked insurance policies, charge certain amount of money by
way of meeting initial expenses. However the percentages of such expense ratio vary from company
to company. The following table gives the expense ratio including allocation charges for some
companies and some maturity period.
1 year 10 years 15 years 20 years 25 years 30 years
HDFC Unit Linked 6.4 2.7 1.8 1.5 1.3 1.2
Endowment
Bajaj Allianz New Unit 4.8 2.9 2.4 2.2 2.1 2.0
Gain
Tata AIG Invest Assure II 7.4 3.6 2.8 2.4 2.2 2.1
Kotak Safe Investment 3.7 2.4 2.1 1.9 1.8 1.7
plan
ICICI Pru Life Term super 5.4 3.5 3.0 2.8 2.6 2.6
Maximizer
SBI Unit Plus II Regulator 5.6 2.9 2.3 2.0 1.9 1.8
Birla Sun Life Classic Life 3.5 2.2 1.9 1.7 1.6 1.5
Premier
Comment on the comparative assessment of insurance policies based on Descriptive Statistics

8. The following data relates to productivity of staff and productivity of assets in selected foreign banks
in India for the year 2001-02 and 2005-06. The list published in Economic Times dated 30 th Oct 2006.
Please assume same number of employees in 2001-02 and 2005-06. Average business per
employee and Average Return on assets is asked for the entire Industry.

Bank Number of Business per Employee( in Rs. Return on assets %

Employees Lakhs)
2005-06 2005-06 2001-02 2005-06 2001-02
ABN Amro 3093 905.82 840.16 1.03 1.72
American 1773 239.53 237.22 1.45 0.27
Express Bank
Citi Bank 3250 1607.92 1566.82 3.07 3.60
Deutsche 678 1016.83 986.22 1.04 2.24
Bank
Standard 5390 837.29 794.41 2.49 2.03
Chartered
Bank

i. Calculate the average business per employee.

ii. Calculate average Return on Assets.
iii. Compare the variation Business per employee for years 2005-06 & 2001-02.
iv. Discuss the variability in return on Assets for years 2005-06 & 2001-02.

9. The Glaxo Company has developed a new product in its R& D laboratory. The company has the
option of setting up production facility to market this product straight away. If the product is successful
then over the three years expected product life, the returns will be Rs. 120 lakh with a probability of
0.70. if the market does not respond favorable then the returns will be only Rs. 15 lakh with a
probability of 0.30. The company is considering whether it should test market this product building a
small pilot plant. The chance that the test market will yield favorable response is 0.80. If the test
market gives favorable response then the chance of successful total market improves to 0.85.
If the test market gives poor response then the chance of success in the total market is only 0.30.
As before, the returns from a successful market will be Rs. 120 lakhs and from an unsuccessful
market only Rs.15 lakh. The installation cost to produce for the total market is Rs. 40 lakhs and the
cost of test marketing pilot plant is Rs. 5 lakh. Draw a decision tree diagram to carry out necessary
analysis to determine the optimal decisions.
10. XYZ company is considering whether it should tender for two contracts (MS1 and MS2) on offer from
a government department for the supply of certain components. The company has three options:
tender for MS1 only; or
tender for MS2 only; or tender
for both MS1 and MS2.
If tenders are to be submitted the company will incur additional costs. These costs will have to be
entirely recouped from the contract price. The risk, of course, is that if a tender is unsuccessful the
company will have made a loss. The cost of tendering for contract MS1 only is £50,000. The
component supply cost if the tender is successful would be £18,000.
The cost of tendering for contract MS2 only is £14,000. The component supply cost if the tender is
successful would be £12,000.
The cost of tendering for both contract MS1 and contract MS2 is £55,000. The component supply cost
if the tender is successful would be £24,000.
For each contract, possible tender prices have been determined. In addition, subjective assessments
have been made of the probability of getting the contract with a particular tender price as shown
below. Note here that the company can only submit one tender and cannot, for example, submit two
tenders (at different prices) for the same contract.

Option Possible Tender prices (£) Probability of getting contract

MS1 130000 0.20
115000 0.85
MS2 75000 0.15
65000 0.80
60000 0.95
MS1 & MS2 190000 0.05
140000 0.65

In the event that the company tenders for both MS1 and MS2 it will either win both contracts (at the price
shown above) or no contract at all.
• Draw the decision tree?
• What are the downside and the upside of your suggested course of action based on decision
tree?