Statistics for

Business and Economics

7th Edition

Chapter 2

Describing Data: Numerical

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-1
 Describing Data Numerically
Describing Data Numerically

Central Tendency Variation

Arithmetic Mean Range

Median Interquartile Range

Mode Variance

provides numerical information about a Standard Deviation

“typical” observation in the data.
Coefficient of Variation
gives information on the spread or
variability of the data values.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-2
 2.1
Measures of Central Tendency
(merkezi eğilim ölçüleri)
They are usually
Overview computed from
sample data rather
Central Tendency than from
population data.

Mean Median Mode

x i
x i 1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-3
 Arithmetic Mean
(aritmetik ortalama)
 The arithmetic mean (mean) is the most
common measure of central tendency
 For a population of N values:
N

x
x1  x 2    x N
i Population
μ  i1
values
N N
Population size

n
For a sample of
x size n: 

i
x1  x 2    x n Observed
x i 1
 values
n n
Sample size
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-4
 Arithmetic Mean
(continued)

 The most common measure of central tendency

 Mean = sum of values divided by the number of values
 Affected by extreme values (outliers)(uç değerler)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Mean = 3 Mean = 4
1  2  3  4  5 15 1  2  3  4  10 20
 3  4
5 5 5 5

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-5
 Median (medyan, ortanca)
 In an ordered list, the median is the “middle”
number (50% above, 50% below)

0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10

Median = 3 Median = 3

 Not affected by extreme values

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-6
 Finding the Median

 The location of the median:

n 1
Median position  position in the ordered data
2
 If the number of values is odd, the median is the middle number
 If the number of values is even, the median is the average of
the two middle numbers

n 1
 Note that is not the value of the median, only the
2
position of the median in the ranked data

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-7
 Mode (mod)
 A measure of central tendency
 Value that occurs most often
 Not affected by extreme values
 Used for either numerical or categorical data
 There may be no mode
 There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6

No Mode
Mode = 9
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-8
 Example (from your book, pp.66-67)

 The 10 accounting final exam grades are as

follows:

88 51 63 85 79 65 79 70 73 77

Find the mean, median and mode.

 Review Example
 Five houses on a hill by the beach
$2,000 K
House Prices:

$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000

$100 K

$100 K

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-10
 Review Example:
Summary Statistics

House Prices:
 Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
 Median: middle value of ranked data
Sum 3,000,000
= $300,000

 Mode: most frequent value

= $100,000

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-11
 Which measure of location
is the “best”?
 Categorical data are best described by the median
and mode.
 Clothing retailers (the size of the items sold most often,
the mode,the one in heaviest demand)
 Numerical data are best described by the mean.
 Mean is generally used, unless extreme values
(outliers) exist . . .
 Then median is often used, since the median is not
sensitive to extreme values.
 Example: Median home prices may be reported for a region
– less sensitive to outliers

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-12
 Shape of a Distribution

 Describes how data are distributed

 Reveals whether data are evenly spread from
its middle or center.

 Measures of shape
 Symmetric (simetrik)
 Skewed (çarpık)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-13
 Symmetry:
The shape of a distribution is said to be symmetric
if
the observations are balanced or approximately
evenly distributed, about its middle.

Symmetric
Mean = Median
 Shape of a Distribution

 A distribution is skewed or asymmetric, if the

observations are not symmetrically distributed on
either side of the middle.

Left-Skewed Right-Skewed
Mean < Median Median < Mean

Negatively skewed distribution Positively skewed distribution

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-15
 Geometric Mean
(geometrik ortalama)
 Geometric mean
 Used to measure the rate of change of a variable
over time

x g  (x 1  x 2    x n )  (x1  x 2    x n )
n 1/n

 Geometric mean rate of return

 Measures the status of an investment over time

rg  (x 1  x 2  ...  x n ) 1/n
1

 Where xi is the rate of return in time period i

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-16
 Business analyst and economists who are
interested in growth over a number of time
periods use the geometric mean.

 Applications of the geometric mean in finance

includes compound interest over several
years, total sales growth and population
growth.
 Example

An investment of $100,000 rose to $150,000 at the

end of year one and increased to $180,000 at end
of year two:

X1  $100,000 X 2  $150,000 X3  $180,000

50% increase 20% increase

What is the mean percentage return over time?

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-18
 Example
(continued)

Use the 1-year returns to compute the

arithmetic mean and the geometric mean:

Arithmetic
mean rate of (50%)  (20%)
X  35% Misleading result
return: 2

Geometric rg  (x1  x 2 )1/n  1

mean rate of
return:  [(50)  (20)]1/2  1 More
 (1000)1/2  1  31.623  1  30.623% accurate
result
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-19
 Example (from your book, p.72)

 Ten economists were asked to predict the

percentage growth in the Consumer Price Index over
the next year. Their forecasts were as follows:

3.6 3.1 3.9 3.7 3.5 3.7 3.4 3.0 3.7 3.4

a) Compute the sample mean.

b) Compute the sample median.
c) Find the mode.
 Example (from your book, p.72)

 A random sample of 5 weeks showed that a

cruise agency received the following number
of weekly specials to the Caribbean:

20 73 75 80 82

a) Compute the mean, median and mode.

b) Which measure of central tendency best
describes the data?
 Example (from your book, p.72-73)

 The demand for bottled water increases during the

hurricane season in Florida. A random sample of 7
hours showed that the following numbers of 1-gallon
bottles were sold in one store:

40 55 62 43 50 60 65

a) Describe the central tendency of the data.

b) Comment on symmetry or skewness.
 Measures of Variability
2.2
(değişkenlik ölçüleri)

Variation

Range Interquartile Variance Standard Coefficient of

Range Deviation Variation

 Measures of variation
give information on the
spread (yayıklık) or
variability (değişkenlik)
of the data values.
Same center,
different variation
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-23
 Range (aralık)
 Simplest measure of variation
 Difference between the largest and the
smallest observations:

Range = Xlargest – Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 14 - 1 = 13

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-24
 Disadvantages of the Range
 Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5

 Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-25
 Quartiles
(dörde bölenler veya kartiller)
 Quartiles split the ranked data into 4 segments
with an equal number of values per segment

25% 25% 25% 25%

Q1 Q2 Q3
 The first quartile, Q1, is the value for which 25% of
the observations are smaller and 75% are larger
 Q2 is the same as the median (50% are smaller, 50%
are larger)
 Only 25% of the observations are greater than the
third quartile

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-26
 Quartile Formulas

Find a quartile by determining the value in the

appropriate position in the ranked data, where

First quartile position: Q1 = 0.25 (n+1)

Second quartile position: Q2 = 0.50 (n+1)

(the median position)

Third quartile position: Q3 = 0.75 (n+1)

where n is the number of observed values

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-27
 Quartiles

 Example: Find the first quartile

Sample Ranked Data: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 = is in the 0.25(9+1) = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5
Q2 = 16 Q3 = 19.5

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-28
 Example (from your book, pp.74)

 Find the first and third quartiles of the ten

accounting final exam grades.

51 63 65 70 73 77 79 79 85 88
 Interquartile Range

 Can eliminate some outlier problems by using

the interquartile range

 Eliminate high- and low-valued observations

and calculate the range of the middle 50%
of the data

 Interquartile range = 3rd quartile – 1st quartile

IQR = Q3 – Q1

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-30
 Interquartile Range

Example:
X Median X
minimum Q1 (Q2) Q3 maximum
25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-31
 Population Variance
(ana kütle varyansı)

 Average of squared deviations of values from

the mean
N
 Population variance:
 (x  μ)
i
2

σ 
2 i1
N
Where μ = population mean
N = population size
xi = ith value of the variable x

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-32
 Sample Variance
(örneklem varyansı)

 Average (approximately) of squared

deviations of values from the mean
n
 Sample variance:
 (x i  x) 2

s 
2 i 1
n -1
Where X = arithmetic mean
n = sample size
Xi = ith value of the variable X

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-33
 Population Standard Deviation
(ana kütle standart sapması)

 Most commonly used measure of variation

 Shows variation about the mean
 Has the same units as the original data

 Population standard deviation:

 i
(x  μ) 2

σ i1
N
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-34
 Sample Standard Deviation
(örneklem standart sapması)

 Most commonly used measure of variation

 Shows variation about the mean
 Has the same units as the original data

 Sample standard deviation: n

 i
(x  x) 2

S i1
n -1

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-35
 Calculation Example:
Sample Standard Deviation

Sample
Data (xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16

(10  X )2  (12  x)2  (14  x)2    (24  x)2

s
n 1

(10  16) 2  (12  16) 2  (14  16) 2    (24  16) 2


8 1

126 A measure of the “average”

  4.2426
7 scatter around the mean
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-36
 Example (from your book, pp. 77)

 Suppose that we randomly sample ten

executives and obtain the following daily
exercise times (in minutes):

20 35 28 22 10 40 23 32 28 30

Compute the variance and standard deviation.

 There are numerous applications of standard
deviation in business.
 Investors may want to know compare the risk

of different assets.
 If two assets have the same mean rates of

return,
then the asset with the smaller standard
deviation has less risk than
the asset with the larger standard deviation.
Example (from your book, pp.78-79)

The asset B is a more risky investment…

 Example (from your book, pp.83)

 Compute the variance and standard deviation

of the following sample data:

6 8 7 10 3 5 9 8
 Example (from your book, pp.83)

 Compute the variance and standard deviation

of the following sample data:

3 0 -2 -1 5 10
 Measuring variation

Small standard deviation

Large standard deviation

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-42
 Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338

Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 0.926

Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.570

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-43
 Advantages of Variance and
Standard Deviation

 Each value in the data set is used in the

calculation

 Values far from the mean are given

extra weight
(because deviations from the mean are
squared)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-44
 Coefficient of Variation
(değişim katsayısı)
 Measures relative variation
 Always in percentage (%)
 Shows variation relative to mean (expresses
the standard deviation as a percentage the
mean)
 Can be used to compare two or more sets of
data measured in different units

 s 
CV     100% if x 0
x 
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-45
 Comparing Coefficient
of Variation
 Stock A:
 Average price last year = $50

 Standard deviation = $5

s  $5
CVA     100%   100%  10%
x  $50 Both stocks
 Stock B: have the same
standard
 Average price last year = $100
deviation, but
 Standard deviation = $5 stock B is less
variable relative
to its price
s  $5
CVB     100%   100%  5%
x  $100
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-46
 Comparing Coefficient
of Variation (pp.80)
 Stock A:
 Average closing price = $4

 Standard deviation = $2

Stock B:
 Average closing price = $80

 Standard deviation = $8

s  $2
CVA    100%  100%  50% The market value of
x  $4 stock A fluctuates
more from period to
s  $8
CVB    100%  100%  10% period than does that
of Stock B.
x  $80
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-47
 Weighted Mean
2.3
(ağırlıklı ortalama)

 The weighted mean of a set of data is

n

w x i i
w 1x1  w 2 x 2    w n x n
x i1

n n

Where wi is the weight of the ith observation
and n  w i

 Use when data is already grouped into n classes, with

wi values in the ith class

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-48
 Example (from your book, pp.85)

 Please find the grade point average

 Approximations for Grouped Data
Suppose data are grouped into K classes, with
frequencies f1, f2, . . . fK, and the midpoints of the
classes are m1, m2, . . ., mK

 For a sample of n observations, the mean is

K

fm
K
i i where n   fi
x i1
i1
n

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-50
 Approximations for Grouped Data
Suppose data are grouped into K classes, with
frequencies f1, f2, . . . fK, and the midpoints of the
classes are m1, m2, . . ., mK

 For a sample of n observations, the variance is

K

i i
f (m  x) 2

s2  i 1
n 1

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-51
 Example (from your book,pp.87)
 Coffee shop customers were randomly surveyed and
asked to select a category that described the cost
of their recent purchase. The results were as
follows:

Find the sample mean

and standard
deviations of these
cost.
 Example (from your book,pp.88)
 A manufacturer of portable radios obtained a sample
of 50 radios from a week’s output. The radios
checked and the number of defects was recorded as
follows:

Calculate the sample

mean and standard
deviation.
 The Sample Covariance
(örneklem covaryansı)
2.4

 The covariance measures the strength of the linear

relationship between two variables

 The population covariance:

N

 (x   i x )(y i   y )
Cov (x , y)   xy  i 1
N
 The sample covariance:
n

 (x  x)(y i i  y)
Cov (x , y)  s xy  i 1
n 1
 Only concerned with the strength of the relationship
 No causal effect is implied

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-54
 Interpreting Covariance

 Covariance between two variables:

Cov(x,y) > 0 x and y tend to move in the same direction

Cov(x,y) < 0 x and y tend to move in opposite directions
Cov(x,y) = 0 x and y are independent

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-55
 Coefficient of Correlation
(korelasyon katsayısı)
 Measures the relative strength of the linear
relationship between two variables

 Population correlation coefficient:

Cov (x , y)
ρ
σXσY
 Sample correlation coefficient:

Cov (x , y)
r
sX sY

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-56
 Features of
Correlation Coefficient, r

 Unit free
 Ranges between –1 and 1
 The closer to –1, the stronger the negative linear
relationship
 The closer to 1, the stronger the positive linear
relationship
 The closer to 0, the weaker any positive linear
relationship

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-57
 Scatter Plots of Data with Various
Correlation Coefficients
Y Y Y

X X X
r = -1 r = -.6 r=0
Y
Y Y

X X X
r = +1 r = +.3 r=0
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-58
 Interpreting the Result
Scatter Plot of Test Scores
 r = .733 100

95

There is a relatively

Test #2 Score
 90

strong positive linear

85

80

relationship between 75

test score #1 70
70 75 80 85 90 95 100

and test score #2 Test #1 Score

 Students who scored high on the first test

tended to score high on second test

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 2-59
 Example (from your book,pp.95)

 A random sample for five exam scores

produced following data values:

a) Compute the covariance.

b) Compute the correlation
coefficient.