Download Chapter 6, Using Excel: Normal Distributions

1
Chapter 6, Using Excel:
Normal Distributions
• Finding Probabilities:
If x is a normally distributed random variable, you can find P (x < x0 ) by using the NORM.DIST function.
Usage: NORM.DIST(x0 ,Mean,Standard dev,TRUE/FALSE).
* x0 is the upper limit on x. The function returns the probability that x is less than x0 .
* Mean = The population mean.
* Standard dev = The population standard deviation.
* Use TRUE for the cumulative probability: P (x < x0 ).
* This function returns P (x < x0 ).
This allows you to avoid converting the x-score to a z-score.
If you are dealing with the standard normal distribution (z-scores) remember to let the Mean = 0, and
the Standard Deviation = 1.
• Finding x or z values:
If x is a normally distributed random variable, you use the NORMINV function to find the x-score with a
given cumulative probability.
Usage: NORM.INV(Probability, Mean, Standard dev).
* Probability = the cumulative probability (area to the left of x).
* Mean = The population mean.
* Standard dev = The population standard deviation.
* This function returns x0 , such that P (x < x0 ) = Probability.
This allows you to avoid converting the z-score to an x-score at the end.
If you are dealing with the standard normal distribution (z-scores) remember to let the Mean = 0, and
the Standard Deviation = 1.
This is extra handy when your table does not have the probability you seek. For example if you seek P75
then the area to the left is 0.75. The closest value INSIDE the z-table is 0.7486, and the corresponding
z-value is 0.67. We can do better with
NORM.INV(0.75, 0, 1) = 0.6745