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Math Help - Business application Z-scores

  1. #1
    Senior Member sfspitfire23's Avatar
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    Business application Z-scores

    Fellas,

    I have monthly cash flows from a business (values are positive and negative, with positive values indicating that the business gained money and vice versa) with a mean of -233698 and a SD of 3026624. I want to calculate the probability of cash flows in any given month being greater than +2000000 and less than -2000000. I'm assuming normality.

    So, heres what I'm doing:

    For the less than -2000000:
    P(X<-2000000)=P(X<(-2000000+233698)/3026624)=-.2531.

    Integrating against a standard normal variable with bounds (-infinity to -.2531) I get a probability of .4001.

    So, there is a 40% chance in any given month that cash flows will be less than -2000000.

    Is this mathematically correct?

    (pickslides thank you for helping out before)
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  2. #2
    Master Of Puppets
    pickslides's Avatar
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    Re: Business application Z-scores

    Quote Originally Posted by sfspitfire23 View Post
    Fe

    For the less than -2000000:
    P(X<-2000000)=P(X<(-2000000+233698)/3026624)=-.2531.
    You should say
    \displaystyle P(X<-2000000)= P\left(Z< \frac{-2000000-(-233698)}{3026624}\right) = P(Z<-0.58)  = 0.28
    Last edited by mr fantastic; July 14th 2011 at 10:16 PM.
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