A stock analyst was provided with a list of 25 stocks.He was expected to pick three stocks from the list whose prices are expected to rise by more than 20% after 30 days.In reality,the prices of only five stocks would rise by more than 20% after 30 days.If he randomly selected three 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 hypergeometric distribution is the best choice in this scenario. This is because the analyst is selecting a fixed number of stocks (three) out of a finite population (25), without replacement. The probability of success (selecting a stock whose price will rise by more than 20%) changes with each trial, as the number of successes and the size of the population change. The hypergeometric distribution models this situation, and can be used to calculate the probability of selecting all three stocks whose prices will appreciate by more than 20%. The binomial distribution would be appropriate if the analyst were selecting stocks with replacement, or if the population were much larger than the number of trials. The Poisson distribution is used to model the probability of a rare event occurring in a fixed time interval, and is not appropriate in this scenario.

A Stock Analyst Was Provided with a List of 25