- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 9. Common Probability Distributions
- Subject 5. The Binomial Distribution

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**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.

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**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 |