Q13An analyst has recently determined that only 60 percent of all U.S. pension funds have holdings in hedge funds. In evaluating this probability, a random sample of 50 U.S. pension funds is taken. The number of U.S. pension funds in the sample of 50 that have hedge funds in their portfolio would most accurately be described as:
Q13.A07 Modular Level I, Vol. 1, pp.372-375Study Sessions 3-9-d
This is a Bernoulli trial because a U.S. pension fund either has investments in hedge funds or it does not; i.e., the experiment must have one of two outcomes. A binomial random variable is defined as the number of successes in Bernoulli trials.