Question

Sam's monthly bills are normally distributed with mean 2700 and standard deviation 230.9. He receives two paychecks of $1500 each in a month, post taxes and withholdings. What is the probability that his expenses will exceed his income in the following month?Ð) 10%. B) 16%.C) 21%.D) 29%.E) 37%.

Answer 1

A) 10%

Explanation:

Normal Probability Distribution

Problems of normal distributions can be solved using the z-score formula.

In a set with mean
`\mu` and standard deviation
`\sigma`, the z-score of a measure X is given by:

`Z = (X - \mu)/(\sigma)`

The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the p-value, we get the probability that the value of the measure is greater than X.

Sam's monthly bills are normally distributed with mean 2700 and standard deviation 230.9.

This means that
`\mu = 2700, \sigma = 230.9`

What is the probability that his expenses will exceed his income in the following month?

Expenses above 2*1500 = $3000, which is 1 subtracted by the p-value of Z when X = 3000.

`Z = (X - \mu)/(\sigma)`

`Z = (3000 - 2700)/(230.9)`

`Z = 1.3`

`Z = 1.3` has a p-value of 0.9032.

1 - 0.9032 = 0.0968 that is, close to 10%, and thus the correct answer is given by option A.