Answer-first summary for fast verification
Answer: Binomial
## Explanation This scenario describes a **binomial distribution** because: - **Fixed number of trials (n)**: The number of bonds in the portfolio - **Two possible outcomes**: Default or no default for each bond - **Constant probability of success (p)**: Same annualized probability of default for all bonds - **Independent trials**: Defaults are independent across bonds **Why not the other options:** - **Bernoulli**: Describes a single trial with two outcomes, not multiple trials - **Normal**: Continuous distribution, not appropriate for counting discrete defaults - **Exponential**: Models time between events, not the count of events The binomial distribution is the correct choice for modeling the number of defaults (successes) in a fixed number of independent trials with constant probability.
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A fixed income portfolio manager currently holds a portfolio of bonds of various companies. Assuming all these bonds have the same annualized probability of default and that the defaults are independent, the number of defaults in this portfolio over the next year follows which type of distribution?
A
Bernoulli
B
Normal
C
Binomial
D
Exponential
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