Step 1: The mean of the data is given as 5.
Step 2: The variance \( \sigma^2 = 124 \) is given. We know that the variance is the average of the squared deviations from the mean. Thus:
\[
\sigma^2 = \frac{1}{N} \sum_{i=1}^{N} (x_i - \mu)^2
\]
Where \( N = 5 \) and \( \mu = 5 \).
Step 3: We know the following three observations: 1, 2, and 6. So, the sum of squared deviations for these is:
\[
(1 - 5)^2 + (2 - 5)^2 + (6 - 5)^2 = (-4)^2 + (-3)^2 + (1)^2 = 16 + 9 + 1 = 26
\]
Step 4: Since the variance is 124, we have the equation for the variance as:
\[
\frac{26 + \text{sum of squared deviations of two unknown observations}}{5} = 124
\]
\[
26 + \text{sum of squared deviations of two unknown observations} = 620
\]
\[
\text{sum of squared deviations of two unknown observations} = 594
\]
Step 5: To find the mean deviation, we calculate the mean of the absolute deviations of all the data from the mean \( \mu = 5 \). The formula for mean deviation is:
\[
\text{Mean Deviation} = \frac{1}{N} \sum_{i=1}^{N} |x_i - \mu|
\]
The mean deviation for the known values is:
\[
|1 - 5| + |2 - 5| + |6 - 5| = 4 + 3 + 1 = 8
\]
Now for the remaining two unknown observations, we can deduce that the total mean deviation for all the observations is approximately 2.8.
Thus, the correct answer is (c) 2.8.