Chapter 9

The Normal Distribution: So Many Possibilities!


Bullet Understanding the differences between discrete and continuous distributions

Bullet Discovering the properties of the normal distribution

Bullet Checking out normal probabilities

This chapter introduces one of the most important probability distributions in the field of statistics: the normal distribution. The normal distribution is especially important in business applications; it can be used to describe the behavior of many financial variables, such as the rate of return to an investment, a corporation’s annual profits, consumer spending on new products, and so on. The normal distribution has one important feature that distinguishes it from discrete distributions, such as the binomial and Poisson distributions discussed in Chapter 8. It assigns probabilities to ranges of values instead of individual values.

The normal distribution is the most widely used distribution in business because you can use it to model many variables. For example, you can use the normal distribution to describe the rates of return to financial assets, the distribution of corporate profits, the prices of key commodities (such as oil), and so forth. ...

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