Problem 2E

Types of finance random variables. Security analysts are professionals who devote full-time efforts to evaluating the investment worth of a narrow list of stocks. The following variables are of interest to security analysts. Which are discrete and which are continuous random variables?

a. The closing price of a particular stock on the New York Stock Exchange

b. The number of shares of a particular stock that are traded each business day

c. The quarterly earnings of a particular firm

d. The percentage change in yearly earnings between 2011 and 2012 for a particular firm

e. The number of new products introduced per year by a firm

f. The time until a pharmaceutical company gains approval from the U.S. Food and Drug Administration to market a new drug

Problem 2E

Types of finance random variables. Security analysts are professionals who devote full-time efforts to evaluating the investment worth of a narrow list of stocks. The following variables are of interest to security analysts. Which are discrete and which are continuous random variables?

a. The closing price of a particular stock on the New York Stock Exchange

b. The number of shares of a particular stock that are traded each business day

c. The quarterly earnings of a particular firm

d. The percentage change in yearly earnings between 2011 and 2012 for a particular firm

e. The number of new products introduced per year by a firm

f. The time until a pharmaceutical company gains approval from the U.S. Food and Drug Administration to market a new drug

Step by Step Solution

Step 1 of 2

Random variables that can assume a countable number (finite or infinite) of values are called discrete. Random variables that can assume values corresponding to any of the points contained in one or more intervals (i.e., values that are infinite and uncountable) are called continuous.

(a) The closing price of a particular stock on the New York Stock Exchange is a continuous random variable because the value corresponds to any of the points in an interval.