In the current tax year, suppose that 3% of the millions ofindividual tax returns have errors or are fraudulent. Althoughthese errors are often well concealed, let’s suppose that a throughIRS audit (done by you of course) will uncover them. If a random100 tax returns are audited what is the probability that the IRSwill uncover at most 4 fraudulent returns? Create an Excelspreadsheet that may give you an idea about this probability. Hint:Use the RAND() function for every tax return. The RAND() functiongenerates a random number between 0 and 1. If the RAND() functiongives you a number that is less than or equal to 0.03 then you canassume that the return contains error. Otherwise you can assumethat the return does not contain any error. You can press F9 onyour keyboard to regenerate a new instance. You may have to createenough instances to come up with a good approximation of theprobability value. You can also find the exact probability usingBinomial Distribution. What does it mean if an IRS auditor uncoversno more than 3 fraudulent/erroneous returns for every 100 taxreturns?
Please in Excel.
