text: ### GIGAMIND
  
  Folder:
  115 CFA
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  115.020.40.05 Reading 9 - 5. The Binomial Distribution
  
  # 5. The Binomial Distribution
  
  ## i. define the continuous uniform distribution and calculate and interpret probabilities, given a continuous uniform distribution;
  
  What is a Bernoulli trial?
  - A Bernoulli trial is an experiment with two outcomes, which can represent success or failure, up move or down move, or another binary outcome.
  - As one of these two outcomes must definitely occur, that is, they are exhaustive, and also mutually exclusive, it follows immediately that the sum of the probabilities of a "success" and a "failure" is 1.
  
  What is the mathematical formula for the binomial probability of obtaining r successes in n trials?
  $$p(r) = _n C_r p^r(1 - p)^{n - r} = \frac{n!}{(n - r)! r!} p^r(1-p)^{n-r}$$
  - p(r) = probability of exactly r successes
  - n = number of events
  - p = probability of success on any one trial
  
  What are the four rules for events in the binomial probability formula?
  1. Dichotomous - they can only fall into two categories
  2. Mutually exclusive
  3. Independent
  4. Randomly selected
  
  What is a tracking error?
  Tracking error is a measure of how closely a portfolio follows the index to which it is benchmarked: total return on the portfolio - total return on the benchmark index.
  
  • CFA
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