- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 9. Common Probability Distributions
- Subject 5. The Binomial Distribution
CFA Practice Question
For random variable X from a binomial random variable with parameters N and p, we can approximate a probability such as P(X < 2) with a normal distribution provided ______.
A. N > 30
B. Np < 5
C. Np > 5 and N(1 - p) > 5
Explanation: To approximate a binomial probability such as P(X < 2) with a normal distribution we must have Np > 5 and N(1 - p) > 5. Also, we can improve the approximation by making an adjustment for continuity. For P(X > 2) where x is binomial we would find P(X > 2.5) where x is normal.
User Contributed Comments 6
| User | Comment |
|---|---|
| DAS11 | Can someone clarify this question? |
| tabulator | These are the required conditions for approximating a binomial probability. Have to be memorized. |
| homersimpson | don't have a clue on this at ALL! |
| mrpman | why is 5 the magic number in this case? |
| asalonga7 | i cant seem to find that condition in the LoS |
| Sheeb | p(x)=n!/(n-x)!x!*p^x*(1-p)^n-x |