A stock analyst was provided with a list of 25 stocks. He was expected to pick 3 stocks from the list whose prices are expected to rise by more than 20% after 30 days. In reality, the prices of only 5 stocks would rise by more than 20% after 30 days. If he randomly selected 3 stocks from the list, he would use what type of probability distribution to compute the probability that all of the chosen stocks would appreciate more than 20% after 30 days?
A) Binomial distribution
B) Poisson distribution
C) Hypergeometric distribution
D) None of the above.

Question

Quizplus · Accepted Answer

The situation described fits the criteria for a hypergeometric distribution, where the probability of success (i.e. choosing a stock that will appreciate by more than 20%) changes as each stock is selected without replacement. The binomial distribution is not appropriate since the probability of success remains the same with each trial, and the Poisson distribution is not appropriate since the number of successes (i.e. stocks expected to appreciate by more than 20%) is not a result of a rare event occurring at a constant rate.

A Stock Analyst Was Provided with a List of 25