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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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