A financial analyst is presented with information on the past records of 60 start-up companies and told that in fact only 3 of them have managed to become highly successful. He selected 3 companies from this group as the candidates for success. To analyze his ability to spot the companies that will eventually become highly successful, he will use what type of probability distribution?
A) Binomial distribution
B) Poisson distribution
C) Hypergeometric distribution
D) None of the above.

Question

Quizplus · Accepted Answer

The hypergeometric distribution is used when a sample is taken from a finite population without replacement, and the probability of success changes from trial to trial. In this case, the analyst is selecting a sample of 3 companies from a population of 60 start-ups, where only 3 of them have become highly successful. This matches the criteria for a hypergeometric distribution, since the analyst is taking a sample without replacement and the probability of success (i.e. becoming highly successful) changes as companies are selected. The binomial distribution assumes a fixed probability of success, which is not the case here, and the Poisson distribution is used to model the number of events occurring in a fixed interval of time or space, which is not relevant to this scenario.

A Financial Analyst Is Presented with Information on the Past