Chapter 6: 2. IRS data show that 15% of personal tax returns reporting an adjust

Question

Chapter 6: 2. IRS data show that 15% of personal tax returns reporting an adjusted gross income (AGI) of more than $2,000,000 will be subject to a computer audit. This year a CPA completed 16 returns with an AGI of more than $2,000,000. The CPA wants to know the likelihood that the returns will be audited. a. What probability distribution applies to this situation? b. What is the probability exactly one of these returns is audited? c. What is the probability at least one of these returns is audited? Please Sh ou al Work olw

Explanation / Answer

a) Here, the distribution on binomial, with the given parameters, n = 16

p = 0.15

q = 1 - p = 0.85

b) P(exactly one of the returns is audited) = P(1) = 16C1 x 0.15 x 0.8515

= 0.2097

c) P(at least one of the returns is audited) = 1 - P(none of the returns are audited)

= 1 - 0.8516

= 0.9257

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