Module 6

Question 1

Who is the the Bernoulli distribution named after

Answer 1

Jacob Bernoulli

Question 1

Bernoulli random variable is equal to either

Answer 1

zero or one

Question 2

A binomial distribution can be thought of as a collection of

Answer 2

Bernoulli random variables

Question 3

When a normal distribution has a mean of zero and a standard deviation of one, it is referred to as a

Answer 3

standard normal distribution/PDF

Question 4

Standard normal distributions are the building blocks of many financial models because

Answer 4

a linear combination of independent normal distributions is also normal in finance

Question 5

If a variable has a lognormal distribution then the log of that variable has

Answer 5

a normal distribution

Question 6

normal distribution, ranges from

Answer 6

negative infinity to positive infinity

Question 7

lognormal distribution ranges from and is

Answer 7

undefined, or zero for negative values

Question 8

Given an asset with a standard return, R, if we model (1 + R) using the lognormal distribution, then R

Answer 8

will have a minimum value of −100%

Question 9

Using the lognormal distribution provides an easy way to ensure that we avoid

Answer 9

returns less than -100%

Question 10

Is the lognormal distribution asymmetrical or symmetrical?

Answer 10

asymmetrical and peaks at exp(μ − σ ^2)