Developing a Binomial Probability Distribution | CFA Level 1 Exam Preparation

Binomial Probability Distribution

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Question

What must you know to develop a binomial probability distribution?

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Explanations

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A. B. C. D. E.

B

Binomial distribution: n!(p^r)(q^(n-r))/r!(n-r)!. We need to know n and p. q = 1-p. r is the number of successes which we determine ourselves.

To develop a binomial probability distribution, you need to consider the following factors:

  1. Probability of success: This refers to the likelihood of a specific event or outcome being classified as a success. It is typically denoted by the letter "p." For example, if you are flipping a fair coin and define "heads" as a success, the probability of success would be 0.5.

  2. Number of trials: This refers to the total number of independent experiments or attempts conducted. It is denoted by the letter "n." Continuing with the coin flip example, if you flip the coin 10 times, the number of trials would be 10.

  3. Number of successes: This refers to the specific number of successful outcomes that you are interested in observing within the given number of trials. It is denoted by the letter "x." For instance, if you want to know the probability of getting exactly 3 heads in 10 coin flips, the number of successes would be 3.

To summarize, in order to develop a binomial probability distribution, you need to know the probability of success (option A), as it forms the basis for calculating the probabilities. Additionally, you need to know either the number of trials (option D) or the number of successes (option E) to determine the specific probability of the desired outcome. However, option B and option C are incorrect as they only partially fulfill the requirements for developing a binomial probability distribution.

Please note that the context and wording of the original question may be slightly different, but the concept and explanation provided here should help you understand the key components of a binomial probability distribution.