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Chapter 4: Q2E (page 216)

Types of finance random variables. Security analysts are professionals who devote full-time efforts to evaluating the investment worth of a narrow list of stocks. The following variables are of interest to security analysts. Which are discrete and which are continuous random variables?

a. The closing price of a particular stock on the New York Stock Exchange.

b. The number of shares of a particular stock that are traded each business day.

c. The quarterly earnings of a particular firm.

d. The percentage change in earnings between last year and this year for a particular firm.

e. The number of new products introduced per year by a firm.

f. The time until a pharmaceutical company gains approval from the U.S. Food and Drug Administration to market a new drug.

Short Answer

Expert verified
  1. Discrete
  2. Discrete
  3. Discrete
  4. Continuous
  5. Discrete
  6. Continuous

Step by step solution

01

Specifying why the closing price of a stock is a discrete random variable

a.

The closing price of a stock is always regarded as a discrete variable.It is easily countable. Whenever something is countable and does not take infinite values within a range, it becomes discrete.

02

Specifying why the number of shares of a stock is a discrete random variable

b.

The number of shares of a stock is always regarded as a discrete variable. It is directly countable. As it is countable and does not take infinite values within a range, it becomes discrete.

03

Specifying why quarterly earningsare a discrete random variable 

c.

Quarterly earnings are always regarded as a discrete variable. The quarterly earnings are countable as they are calculated after every quarter ends. As it does not take infinite values within a range, it becomes discrete.

04

Specifying why the percentage change in earnings is a continuous random variable

d.

The percentage change in earnings is always regarded as a continuous variable.It always changes every year, and as it can take infinite values, it becomes continuous.

05

Specifying why the number of new products is a discrete random variable 

e.

The number of new products is always regarded as a discrete variable.It is countable.Whenever something is countable and does not take infinite values within a range, it becomes discrete.

06

Specifying why the time of getting an approval is a continuous random variable

f. The time of getting approval is always regarded as a continuous variable.It can take any form of infinite value, and so, it becomes continuous.

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Most popular questions from this chapter

Reliability of a manufacturing network. A team of industrial management university professors investigated the reliability of a manufacturing system that involves multiple production lines (Journal of Systems Sciences & Systems Engineering, March 2013). An example of such a network is a system for producing integrated circuit (IC) cards with two production lines set up in sequence. Items (IC cards) first pass through Line 1, then are processed by Line 2. The probability distribution of the maximum capacity level (x) of each line is shown below. Assume the lines operate independently.

a. Verify that the properties of discrete probability distributions are satisfied for each line in the system.

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e. Find the mean maximum capacity for each line. Interpret the results practically.

f. Find the standard deviation of the maximum capacity for each line. Then, give an interval for each line that will contain the maximum capacity with probability of at least .75.

The random variable x has a normal distribution with 渭=1000 and 蟽=10.

a. Find the probability that x assumes a value more than 2 standard deviations from its mean. More than 3 standard deviations from .渭

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c. Find the value of x that represents the 80th percentile of this distribution. The 10th percentile.

Give the z-score for a measurement from a normal distribution for the following:

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a. Regulations require that 90% of all emergency calls be reached in 9 minutes or less. Are the regulations met at EMS Station A? Explain.

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Find each of the following probabilities for the standard normal random variable z:

a.P(-鈮�z鈮�1)b.P(-1.96鈮�z鈮�1.96)c.P(-1645鈮�z鈮�1.645)d.P(-2鈮�z鈮�2)
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