CFA Practice Question

There are 434 practice questions for this study session.

CFA Practice Question

Which of the following statements is incorrect?

A. The interest rate is a continuous variable.
B. Probability density function always refers to a continuous random variable.
C. The quoted stock price on the New York Stock Exchange is always a continuous random variable.
Correct Answer: C

This statement is incorrect because stock price is a discrete variable.

User Contributed Comments 16

User Comment
danlan Why is the price discrete?
JP09 Stock prices have a finite number of possible values i.e. whole pennies. Stock prices cannot be $34.4567321586
surob I think the question is tricky. Be careful.
steved333 Yes, tricky, but even if price is in denominations as low as 32nds, that's still as precise as it's going to get...
MattNYC Stock market RETURNS are continuous random variables, but prices are discrete. Cannot go any lower than 0 so prices cannot be infinite.
aakash1108 good point MattNYC
ilgibe Stock Prices CAN be infinite on the upward side. But are discrete because their smallest change is their specified tick.
i.e. A share can be worth $20,90 or $20,91 but not $20,915 untill it is allowed by the stock exchange.
alallstar why is B true?
cleopatraliao Good point ilgibe. What MattNYC says it's kinda misleading;P
ThomasDess Firstly I thought Interest Rate is a continuous! But after reading the above points I guess the same reasoning could be applied about IR; given that the IR are commonly quoted/rounded to 2 or 4 decimal places.. By the way, is the IR are really rounded to some decimal? So could we really talk about some "smallest specified" or commonly used change when modiffing IR?
student111 So Interest rates are also discrete?
Kaloyan To student111: Interest rate is a continuous random variable.
johntan1979 Being quoted or rounded doesn't make it a discrete variable. It is rounded for easier communication purposes but when used for calculations, the "unrounded" rate is used.
allodrfc Return has a minimum of -100% which would make it not continuous?
marianne19 zu c
price are finite not under zero.
xp_acctant Is 'always' key to the answer here?
You need to log in first to add your comment.