
Concept explainers
Iris setosa is a beautiful wildflower that is found in such diverse places as Alaska, the Gulf of St. Lawrence, much of North America, and even in English meadows and parks. R. A. Fisher, with his colleague Dr. Edgar Anderson, studied these flowers extensively. Dr. Anderson described how he collected information on irises:
I have studied such irises as I could get to see, in as great detail as possible. measuring iris standard after iris standard and iris fall after iris fall, sitting squat-legged with record book and ruler in mountain meadows, in cypress swamps, on lake beaches, and in English parks. [E. Anderson. "The Irises of the Gaspé Peninsula." Bulletin. American IrisSociety, Vol. 59 pp. 2-5, 1935.]
The data in Table 7-10 were collected by Dr. Anderson and were published by his friend and colleague R. A. Fisher in a paper titled "The Use of Multiple Measurements in Taxonomic Problems" (Annals of Eugenics. part II. pp. 179-188, 1936). To find these data, visit the Carnegie Mellon University Data and Story Library (DASI.) web site. From the DASI. site, look under Biology and select Fisher's Irises Story.
Let x be a random variable representing petal length. Using a TI-84Plus/TI-83Plus/TI-n spire calculator, it was found that the sample
(a) Examine the histogram for petal lengths. Would you say that the distribution is approximately mound-shaped and symmetric? Our sample has only 50 irises; if many thousands of irises had been used, do you think the distribution would look even more like a normal curve? Let x be the petal length of Iris setosa. Research has shown that x has an approximately
(b) Use the
(c) Compute the
(d) Suppose that a random sample of 30 irises is obtained. Compute the probability that the average petal length for this sample is between 1.3 and 1.6 cm. Compute the probability that the average petal length is greater than 1.6 cm.
(e) Compare your answers to parts (c) and (d). Do you notice any differences? Why would these differences occur?
TABLE 7-10 | Petal Length in Centimeters for Iris serosa | |||
1.4 | 14 | 1.3 | 1.5 | 1.4 |
1.7 | 1.4 | 1.5 | 14 | 1.5 |
1.5 | 1.6 | 14 | 1.1 | 1.2 |
1.5 | 1.3 | 1.4 | 1.7 | 1.5 |
1.7 | 1.5 | 1 | 1.7 | 1.9 |
1.6 | 16 | 1.5 | 1.4 | 16 |
1.5 | 1.5 | 1.4 | 1.5 | |
1.2 | 1.3 | 1.4 | 1.3 | 1.5 |
1.3 | 1.3 | 1.3 | 1.6 | 1.9 |
1.4 | 1.6 | 1.4 | 1.5 | 14 |
FIGURE 7-36
Petal Length (cm) for Iris setosa (TI-84Plus/TI-83Plus/TI-n spire)
(a)

To explain: Whether the distribution is approximately mound-shaped and symmetrical.
Answer to Problem DHGP
Solution: Yes, the distribution is approximately mound-shaped and symmetrical.
Explanation of Solution
Calculation:
From the histogram for petal lengths, the distribution is approximately bell-shaped or mound-shaped and symmetrical because approximately the left half of the graph being the mirror image of the right half of the graph.
Our sample has only 50 irises; if many thousands of irises had been used, the distribution would look more similar to normal curve because the sample is very largeand the distribution of the sample will be approximately normally distributed.
(b)

To find: The 68%, 95% and 99% interval and compare the computed percentages with those given by empirical rule..
Answer to Problem DHGP
Solution: The 68%, 95% and 99% interval are (1.3, 1.7), (1.1, 1.9), (0.9, 2.1) respectively.
Explanation of Solution
Let x be the petal length of Iris Setosa and x has an approximately normal distribution, with mean
We know that, 68% of the observations will fall within one standard deviation of mean.
The 68% interval is,
95% of the observations will fall within two standard deviation of mean.
The 95% interval is,
99.7% of the observations will fall within two standard deviation of mean.
The 99.7% interval is,
There are 33 data values fall within the interval 1.3 and 1.7, so the percentage of data within the interval 1.3 and 1.7 is
There are 46 data values fall within the interval 1.1 and 1.9, so the percentage of data within the interval 1.3 and 1.7 is
All data values fall within the interval 0.9 and 2.1, so the percentage of data within the interval 1.3 and 1.7 is
(c)

To find: The probability that a petal length is between 1.3 and 1.6 cm and the probability that a petal length is greater than 1.6 cm.
Answer to Problem DHGP
Solution: The probability that a petal length is between 1.3 and 1.6 cm is 0.5328. The probability that a petal length is greater than 1.6 cm is 0.3085.
Explanation of Solution
Let x be the petal length of Iris Setosa and x has an approximately normal distribution, with mean
We convert the interval
Using Table 3 from the Appendix to find the
Hence, the probability that a petal length is between 1.3 and 1.6 cm is 0.5328.
We convert the interval
Using Table 3 from the Appendix
Hence, the probability that a petal length is greater than 1.6 cm is 0.3085.
(d)

To find: The probability that average petal length is between 1.3 and 1.6 cm and the probability that average petal length is greater than 1.6 cm.
Answer to Problem DHGP
Solution: The probability that average petal length is between 1.3 and 1.6 cm is 0.9972. The probability that averagepetal length is greater than 1.6 cm is 0.0027.
Explanation of Solution
Let x has an approximately normal distribution, with mean
We convert the interval
Using Table 3 from the Appendix
Hence, the probability that average petal length is between 1.3 and 1.6 cm is 0.9972.
We convert the interval
Using Table 3 from the Appendix
Hence, the probability that a petal length is greater than 1.6 cm is 0.0027.
(e)

To explain: The comparison of part (c) and part (d).
Answer to Problem DHGP
Solution:
The standard deviation of the sample mean is much smaller than the population standard deviation.
Explanation of Solution
In part (c), x has a distribution that is approximately normal with
In part (b),
The central limit theorem tells us that the standard deviation of the sample mean is much smaller than the population standard deviation.
Want to see more full solutions like this?
Chapter 7 Solutions
Understanding Basic Statistics
- Faye cuts the sandwich in two fair shares to her. What is the first half s1arrow_forwardQuestion 2. An American option on a stock has payoff given by F = f(St) when it is exercised at time t. We know that the function f is convex. A person claims that because of convexity, it is optimal to exercise at expiration T. Do you agree with them?arrow_forwardQuestion 4. We consider a CRR model with So == 5 and up and down factors u = 1.03 and d = 0.96. We consider the interest rate r = 4% (over one period). Is this a suitable CRR model? (Explain your answer.)arrow_forward
- Question 3. We want to price a put option with strike price K and expiration T. Two financial advisors estimate the parameters with two different statistical methods: they obtain the same return rate μ, the same volatility σ, but the first advisor has interest r₁ and the second advisor has interest rate r2 (r1>r2). They both use a CRR model with the same number of periods to price the option. Which advisor will get the larger price? (Explain your answer.)arrow_forwardQuestion 5. We consider a put option with strike price K and expiration T. This option is priced using a 1-period CRR model. We consider r > 0, and σ > 0 very large. What is the approximate price of the option? In other words, what is the limit of the price of the option as σ∞. (Briefly justify your answer.)arrow_forwardQuestion 6. You collect daily data for the stock of a company Z over the past 4 months (i.e. 80 days) and calculate the log-returns (yk)/(-1. You want to build a CRR model for the evolution of the stock. The expected value and standard deviation of the log-returns are y = 0.06 and Sy 0.1. The money market interest rate is r = 0.04. Determine the risk-neutral probability of the model.arrow_forward
- Several markets (Japan, Switzerland) introduced negative interest rates on their money market. In this problem, we will consider an annual interest rate r < 0. We consider a stock modeled by an N-period CRR model where each period is 1 year (At = 1) and the up and down factors are u and d. (a) We consider an American put option with strike price K and expiration T. Prove that if <0, the optimal strategy is to wait until expiration T to exercise.arrow_forwardWe consider an N-period CRR model where each period is 1 year (At = 1), the up factor is u = 0.1, the down factor is d = e−0.3 and r = 0. We remind you that in the CRR model, the stock price at time tn is modeled (under P) by Sta = So exp (μtn + σ√AtZn), where (Zn) is a simple symmetric random walk. (a) Find the parameters μ and σ for the CRR model described above. (b) Find P Ste So 55/50 € > 1). StN (c) Find lim P 804-N (d) Determine q. (You can use e- 1 x.) Ste (e) Find Q So (f) Find lim Q 004-N StN Soarrow_forwardIn this problem, we consider a 3-period stock market model with evolution given in Fig. 1 below. Each period corresponds to one year. The interest rate is r = 0%. 16 22 28 12 16 12 8 4 2 time Figure 1: Stock evolution for Problem 1. (a) A colleague notices that in the model above, a movement up-down leads to the same value as a movement down-up. He concludes that the model is a CRR model. Is your colleague correct? (Explain your answer.) (b) We consider a European put with strike price K = 10 and expiration T = 3 years. Find the price of this option at time 0. Provide the replicating portfolio for the first period. (c) In addition to the call above, we also consider a European call with strike price K = 10 and expiration T = 3 years. Which one has the highest price? (It is not necessary to provide the price of the call.) (d) We now assume a yearly interest rate r = 25%. We consider a Bermudan put option with strike price K = 10. It works like a standard put, but you can exercise it…arrow_forward
- In this problem, we consider a 2-period stock market model with evolution given in Fig. 1 below. Each period corresponds to one year (At = 1). The yearly interest rate is r = 1/3 = 33%. This model is a CRR model. 25 15 9 10 6 4 time Figure 1: Stock evolution for Problem 1. (a) Find the values of up and down factors u and d, and the risk-neutral probability q. (b) We consider a European put with strike price K the price of this option at time 0. == 16 and expiration T = 2 years. Find (c) Provide the number of shares of stock that the replicating portfolio contains at each pos- sible position. (d) You find this option available on the market for $2. What do you do? (Short answer.) (e) We consider an American put with strike price K = 16 and expiration T = 2 years. Find the price of this option at time 0 and describe the optimal exercising strategy. (f) We consider an American call with strike price K ○ = 16 and expiration T = 2 years. Find the price of this option at time 0 and describe…arrow_forward2.2, 13.2-13.3) question: 5 point(s) possible ubmit test The accompanying table contains the data for the amounts (in oz) in cans of a certain soda. The cans are labeled to indicate that the contents are 20 oz of soda. Use the sign test and 0.05 significance level to test the claim that cans of this soda are filled so that the median amount is 20 oz. If the median is not 20 oz, are consumers being cheated? Click the icon to view the data. What are the null and alternative hypotheses? OA. Ho: Medi More Info H₁: Medi OC. Ho: Medi H₁: Medi Volume (in ounces) 20.3 20.1 20.4 Find the test stat 20.1 20.5 20.1 20.1 19.9 20.1 Test statistic = 20.2 20.3 20.3 20.1 20.4 20.5 Find the P-value 19.7 20.2 20.4 20.1 20.2 20.2 P-value= (R 19.9 20.1 20.5 20.4 20.1 20.4 Determine the p 20.1 20.3 20.4 20.2 20.3 20.4 Since the P-valu 19.9 20.2 19.9 Print Done 20 oz 20 oz 20 oz 20 oz ce that the consumers are being cheated.arrow_forwardT Teenage obesity (O), and weekly fast-food meals (F), among some selected Mississippi teenagers are: Name Obesity (lbs) # of Fast-foods per week Josh 185 10 Karl 172 8 Terry 168 9 Kamie Andy 204 154 12 6 (a) Compute the variance of Obesity, s²o, and the variance of fast-food meals, s², of this data. [Must show full work]. (b) Compute the Correlation Coefficient between O and F. [Must show full work]. (c) Find the Coefficient of Determination between O and F. [Must show full work]. (d) Obtain the Regression equation of this data. [Must show full work]. (e) Interpret your answers in (b), (c), and (d). (Full explanations required). Edit View Insert Format Tools Tablearrow_forward
- Glencoe Algebra 1, Student Edition, 9780079039897...AlgebraISBN:9780079039897Author:CarterPublisher:McGraw HillHolt Mcdougal Larson Pre-algebra: Student Edition...AlgebraISBN:9780547587776Author:HOLT MCDOUGALPublisher:HOLT MCDOUGALMathematics For Machine TechnologyAdvanced MathISBN:9781337798310Author:Peterson, John.Publisher:Cengage Learning,
- Functions and Change: A Modeling Approach to Coll...AlgebraISBN:9781337111348Author:Bruce Crauder, Benny Evans, Alan NoellPublisher:Cengage Learning



