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2 cards from this section. Quick, good the night before a test.
What is the empirical rule?
Think about how data values spread around the mean.
Give an example of how normal distribution is applied in finance.
Consider how investors evaluate market performance.
What percentage of data lies within two standard deviations from the mean according to the empirical rule?
Recall the three key percentages defined by the empirical rule.
True or False: The normal distribution is used in quality control to determine acceptable product specifications.
Think about how companies maintain quality standards.
A manufacturing company produces bolts with a mean diameter of 10mm and a standard deviation of 0.2mm. If the production output is normally distributed, what percentage of bolts will be within the range of 9.6mm to 10.4mm?
Remember to convert the measurements to Z using the mean and standard deviation.
Discuss the limitations of assuming that stock returns follow a normal distribution in finance.
Consider real market behaviors and their characteristics.
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