Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
As an investment analyst, your job is to determine how many companies will announce IPOs out of 50 virtual reality startup companies operating in Palo Alto. The annual IPO rate in high-tech industries in all other states of the U.S. is 7.85%. Using a binomial model, what is the standard deviation of the number of virtual reality company IPOs in Palo Alto?
Other
Community
NNikitesh
A
3.616
B
1.902
C
1.38
D
2.125
Explanation:
Explanation
For a binomial distribution, the standard deviation is calculated as:
Standard Deviation = √[n × p × (1 - p)]
Where:
- n = number of trials = 50 companies
- p = probability of success (IPO rate) = 7.85% = 0.0785
Step 1: Calculate the variance Variance = n × p × (1 - p) = 50 × 0.0785 × (1 - 0.0785)
First calculate (1 - p) = 1 - 0.0785 = 0.9215
Then: 50 × 0.0785 = 3.925 3.925 × 0.9215 = 3.616
Step 2: Calculate the standard deviation Standard Deviation = √3.616 = 1.9018 ≈ 1.902
Why other options are incorrect:
- A (3.616): This is the variance, not the standard deviation
- C (1.38): This would be the result if using incorrect probability or calculation error
- D (2.125): This doesn't match the correct calculation
The binomial model is appropriate here because we have a fixed number of independent trials (50 companies), each with the same probability of success (IPO rate of 7.85%), and we're counting the number of successes (IPOs).
Comments
Loading comments...