CFA CFA Level 1 CFA Level 1 Question of the Week – Quantitative Methods

CFA Level 1 Question of the Week – Quantitative Methods

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    • Avatar of Lilynguyen_2195Lilynguyen_2195
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        • CFA Level 1
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        Who can explain this? Plz tell me

      • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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          The correct answer is C.

          Since it’s a binomial distribution, we will solve the question with the help of the Bernoulli trial method. 

          The probability of having exactly 2 underpriced stocks in 5 trials (5 days), given that the probability of selecting an underpriced stock at any time is 52%, can be expressed as:

          (n!/x!*(n-x)!) * p^x * (1 – p)^(n-x)
          = 5!/(2!*3!) * 0.52^2 * (1 – 0.52)^3 
          = (120/12) * 0.2704 * (0.110592)
          = 0.2990

          where
          n is the number of trials;
          x is the number of days having purchased an underpriced stock; and
          p is the probability of selecting an underpriced stock.

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