CFA Practice Question

There are 434 practice questions for this study session.

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
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