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) hypergeometric distribution
C) Poisson distribution
D) none of the above

Question

Quizplus · Accepted Answer

The situation described in the problem involves sampling without replacement, as the analyst cannot choose the same stock more than once. Therefore, the appropriate probability distribution to use is the hypergeometric distribution, which describes the probability of getting a certain number of "successes" (in this case, stocks that appreciate more than 20%) in a sample without replacement from a finite population. The binomial distribution would be used if the sampling were done with replacement, and the Poisson distribution would be used to model the number of rare events that occur in a fixed interval of time.

A Stock Analyst Was Provided with a List of 25