CFA Practice Question

There are 434 practice questions for this study session.

CFA Practice Question

The probability that the price of a stock increases is 0.30. The price of the stock will either increase or decrease each day independently of what happened on the previous day. An experiment consists of observing the price of this stock during a 30-day period. What are the expected value and the variance of the number of days that the stock price increases?
A. 6.3; 9
B. 9; 6.3
C. 9; 15
Explanation: Assume X denotes the random variable for the number of days that the stock price increases. X ~ Bin(30, 0.3) therefore, E(X) = 30 x 0.3 = 9 and V(X) = 30 x 0.3 x (1 - 0.3) = 6.3.

User Contributed Comments 4

User Comment
tanyak Why is variance calculated this way?
labsbamb When u have a binomial function F(x)
E(x)= X*P
V(x)=X*P*(1-P)
Mariecfa Binomial Mean or Expected Value = n*p
n=30, p=0.30, E(X)= 30*.30=9
Binomial Variance = n*p*(1-p)
Variance=30*.30*.70=6.3

Binomial Standard Deviation = Square root of [n*P*(1-p)]
dream007 30 days? thought we only trade 5 days a week!
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