# on 09-Dec-2018 (Sun)

#### Flashcard 1429240941836

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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
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Goods with negative income elasticity are called [...]

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le experience a rise in income, they buy absolutely less of some goods, and they buy more when their income falls. Hence, income elasticity of demand for those goods is negative. By definition, goods with negative income elasticity are called <span>inferior goods .<span><body><html>

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4.3. Income Elasticity of Demand: Normal and Inferior Goods
that the demand for that particular good rises when income increases and falls when income decreases. Hence, if we find that when income rises, people buy more meals at restaurants, then dining out is defined to be a normal good. <span>For some goods, there is an inverse relationship between quantity demanded and consumer income. That is, when people experience a rise in income, they buy absolutely less of some goods, and they buy more when their income falls. Hence, income elasticity of demand for those goods is negative. By definition, goods with negative income elasticity are called inferior goods . Again, the word inferior means nothing other than that the income elasticity of demand for that good is observed to be negative. It does not necessarily indicate anything at all about t

#### Flashcard 1431576120588

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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Question
[...] rankings are weaker measures than [...] rankings
Ordinal

cardinal

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e same ranking, then the new set of numbers would be just as useful a utility function as the first in describing our consumer’s preferences. This characteristic of utility functions is called an ordinal, as contrasted to a cardinal, ranking. <span>Ordinal rankings are weaker measures than cardinal rankings because they do not allow the calculation and ranking of the differences between bundles.<span><body><html>

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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
ead. The utility of a bundle containing 4 ounces of wine along with 2 slices of bread would equal 8 utils, and it would rank lower than a bundle containing 3 ounces of wine along with 3 slices of bread, which would yield 9 utils. <span>The important point to note is that the utility function is just a ranking of bundles of goods. If someone were to replace all those pieces of paper with new numbers that maintained the same ranking, then the new set of numbers would be just as useful a utility function as the first in describing our consumer’s preferences. This characteristic of utility functions is called an ordinal, as contrasted to a cardinal, ranking. Ordinal rankings are weaker measures than cardinal rankings because they do not allow the calculation and ranking of the differences between bundles. 3.3. Indifference Curves: The Graphical Portrayal of the Utility Function It will be convenient for us to represent our consumer’s preferences gr

#### Flashcard 1431643229452

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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Question
Willingness to give up one good to obtain a little more of the other is expressed as [...]
marginal rate of substitution

MRSBW

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We capture this willingness to give up one good to obtain a little more of the other in the phrase marginal rate of substitution of bread for wine, MRS BW . The MRS BW is the rate at which the consumer is willing to give up wine to obtain a small increment of bread, holding utility constant (i.e., movement along

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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
in Exhibit 2 is characteristically drawn to be convex when viewed from the origin. This indicates that the willingness to give up wine to obtain a little more bread diminishes the more bread and the less wine the bundle contains. <span>We capture this willingness to give up one good to obtain a little more of the other in the phrase marginal rate of substitution of bread for wine, MRS BW . The MRS BW is the rate at which the consumer is willing to give up wine to obtain a small increment of bread, holding utility constant (i.e., movement along an indifference curve). Notice that the convexity implies that at a bundle like a′′, which contains rather a lot of wine and not much bread, the consumer would be willing to give up a considerable amount of wi

#### Flashcard 1438972513548

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Question
[...] measures the dollar benefit of the project to shareholders.
NPV

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NPV measures the dollar benefit of the project to shareholders. However, it does not measure the rate of return of the project, and thus cannot provide "safety margin" information. Safety margin refers to ho

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Subject 3. Investment Decision Criteria
on that capital. If a firm takes on a project with a positive NPV, the position of the stockholders is improved. Decision rules: The higher the NPV, the better. Reject if NPV is less than or equal to 0. <span>NPV measures the dollar benefit of the project to shareholders. However, it does not measure the rate of return of the project, and thus cannot provide "safety margin" information. Safety margin refers to how much the project return could fall in percentage terms before the invested capital is at risk. Assuming the cost of capital for the firm is 10%, calculate each cash flow by dividing the cash flow by (1 + k) t where k is the cost of capital and t is the year number.

#### Flashcard 1442165951756

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Question
The payback provides an indication of a project's [...] and [...]
risk ( it shows how long the invested capital will be "at risk.")

liquidity

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The payback provides an indication of a project's risk and liquidity because it shows how long the invested capital will be tied up in a project and "at risk."

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Subject 3. Investment Decision Criteria
y to recover the initial investment, not how much money you can make during the life of the project. It does not consider the time value of money. Therefore, the cost of capital is not reflected in the cash flows or calculations. <span>Discounted Payback Period This is similar to the regular payback method except that it discounts cash flows at the project's cost of capital. It considers the time value of money, but it ignores cash flows beyond the payback period. Again, assume the cost of capital for the firm is 10%: Discounted PaybackA = 2 + (1000 - 682 - 289)/113 = 2.26 years Discounted PaybackB = 3 + (1000 - 91 - 207 - 338)/512 = 3.71 years The payback provides an indication of a project's risk and liquidity because it shows how long the invested capital will be tied up in a project and "at risk." The shorter the payback period, the greater the project's liquidity, the lower the risk, and the better the project. The payback is often used as one indicator of a project's risk. Average Accounting Rate of Return (not required) This is a very simple rate of return: Its only advantage is that

#### Flashcard 1450276687116

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Question
[...] cannot be cut down when production declines.
Fixed cost

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osts evolve primarily from investments in such fixed assets as real estate, production facilities, and equipment. As a firm grows in size, fixed asset expansion occurs along with a related increase in fixed cost. However, fixed cost cannot be <span>arbitrarily cut when production declines. Regardless of the volume of output, an investment in a given level of fixed assets locks the firm into a certain amount of fixed cost that is used to finance t

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Costs
rate of change in total variable cost. In Exhibit 13, TC at 5 units is 400—of which 300 is variable cost and 100 is fixed cost. At 10 units, total costs are 1,650, which is the sum of 1,550 in variable cost and 100 in fixed cost. <span>Total fixed cost (TFC) is the summation of all expenses that do not change when production varies. It can be a sunk or unavoidable cost that a firm has to cover whether it produces anything or not, or it can be a cost that stays the same over a range of production but can change to another constant level when production moves outside of that range. The latter is referred to as a quasi-fixed cost , although it remains categorized as part of TFC. Examples of fixed costs are debt service, real estate lease agreements, and rental contracts. Quasi-fixed cost examples would be certain utilities and administrative salaries that could be avoided or be lower when output is zero but would assume higher constant values over different production ranges. Normal profit is considered to be a fixed cost because it is a return required by investors on their equity capital regardless of output level. At zero output, total costs are always equal to the amount of total fixed cost that is incurred at this production point. In Exhibit 13, total fixed cost remains at 100 throughout the entire production range. Other fixed costs evolve primarily from investments in such fixed assets as real estate, production facilities, and equipment. As a firm grows in size, fixed asset expansion occurs along with a related increase in fixed cost. However, fixed cost cannot be arbitrarily cut when production declines. Regardless of the volume of output, an investment in a given level of fixed assets locks the firm into a certain amount of fixed cost that is used to finance the physical capital base, technology, and other capital assets. When a firm downsizes, the last expense to be cut is usually fixed cost. Total variable cost (TVC), which is the summation of all variable expenses, has a direct relationship with quantity. When quantity increases, total variable cost increases

#### Flashcard 1453626101004

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#conversation-tactics
Question
Why is jumping right after someone said something important negative?

The other person who just stopped speaking will likely come to the conclusion that [...].
you did not really listen to him or her

You appeared to be so eager to talk that you give that other speaker the impression that whatever they said wasn't that important to you.

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Why is jumping right after someone said something important negative? The other person who just stopped speaking will likely come to the conclusion that you did not really listen to him or her. You appeared to be so eager to talk that you give that other speaker the impression that whatever they said wasn't that important to you

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#### Flashcard 1464693558540

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#6-principles #69-ways-to-influence #reciprocation
Question
The initial thing could be a gift, and this gift can be in the form of a [.3.].

The gifts or advice need not be too expensive and can be economical and yet, useful to the end user.

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The initial thing could be a gift, and this gift can be in the form of a physical gift, a favor or a piece of advice. Perhaps some free information as marketers often use. The gifts or advice need not be too expensive and can be economical and yet, useful to the end user.

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#### Flashcard 1464708762892

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#69-ways-to-influence
Question
The 6 factors underling all of our decisions are:

[...] , [...], [...] , authority, scarcity and liking
reciprocation, social proof, commitment and consistency

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The 6 factors underling all of our decisions are: reciprocation, social proof, commitment and consistency, authority, scarcity and liking

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#### Flashcard 1478189255948

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Question

The statement of retained earnings is a component of the [...] .

statement of owners’ equity

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the basic and expanded accounting equations. The accounting system tracks and summarizes data used to create financial statements: the balance sheet, income statement, statement of cash flows, and statement of owners’ equity. The <span>statement of retained earnings is a component of the statement of owners’ equity. Accruals are a necessary part of the accounting process and are designed to allocate activity to the proper period for fi

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Summary
e basic accounting equation: Assets = Liabilities + Owners’ equity. The expanded accounting equation is Assets = Liabilities + Contributed capital + Beginning retained earnings + Revenue – Expenses – Dividends. <span>Business transactions are recorded in an accounting system that is based on the basic and expanded accounting equations. The accounting system tracks and summarizes data used to create financial statements: the balance sheet, income statement, statement of cash flows, and statement of owners’ equity. The statement of retained earnings is a component of the statement of owners’ equity. Accruals are a necessary part of the accounting process and are designed to allocate activity to the proper period for financial reporting purposes. The results of the accounting process are financial reports that are used by managers, investors, creditors, analysts, and others in making business decisions. An analyst uses the financial statements to make judgments on the financial health of a company. Company management can manipulate financial statements, and a perceptive analyst can use his or her understanding of financial statements to detect misrepresentations. <span><body><html>

#### Flashcard 1611310959884

Question
Cash Ratio is determined by eliminating [...] from the quick ratio.
receivables

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Subject 5. Uses and Analysis of the Balance Sheet
ory and pre-paid expenses, from the current ratio. If inventory is not moving, the quick ratio is a better indicator of cash and near-cash items that will be available to meet current obligations. <span>Cash Ratio is the most conservative liquidity ratio, determined by eliminating receivables from the quick ratio. As with the elimination of inventory in the quick ratio, there is no guarantee that the receivables will be collected. Solvenc

#### Annotation 3624398359820

 Suchmodelsare probabilitydistributions, which are just functionsdescribinghow the probabilityofeachoutcome depends on the valueofthatoutcome.

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#### Annotation 3624402029836

 n particular, we introduceﬁve speciﬁc probabilitymodelsfor discrete data. Threeofthese relatedirectly to Bernoulli trials,which are experimentsresultinginabinary outcome. Thesethree distributionsare theBernoulli distribution, the binomial distributionand the geometric distribution.Wealsointroducean importantprobabilitymodel fordatainthe form of counts, calledthe Poissondistribution.(It hasaless direct connection to Bernoullitrials.) Theﬁnaldiscretedistribution thatisintroduced is onefor situationswhere no valueinthe range of possiblevalues is morelikelythanany othervalue to occur; this is thediscreteuniform distribution

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#### Annotation 3624403602700

 Theterm Bernoulli trial is use dtodescribeasingle statistical exp eriment forwhich thereare twopossibleoutcomes. So takinganitem from the productionlinetodeterminewhetherornot it is defective is a Bernoulli trial; and each shotbyanarcheratatargetisaBernoullitrial – thearrow either hits or missesthe centreofthe target; andeachtennis match mayberegarded as aBernoulli trial in whichthe tennisplayer either wins or loses;and so on

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#### Annotation 3624405175564

 Asingle Bernoulli trialissosimple asituation that thereisonlyone possibleset of probability distributionsthatcan describe it.Thisiscalled the Bernoulli probabilitydistribution

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#### Annotation 3624406748428

 Whereanexperiment involves aBernoulli trial, it is usualtomatch the number 1toone outcomeand the number 0tothe othe r; then the outcome of aBernoulli trialisarandomvariable with range {0, 1}.

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#### Annotation 3624408321292

 Randomvariables that cantakeonlytwo possiblevaluesare called Bernoulli randomvariables.

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#### Annotation 3624409894156

 Supposethat X is theoutcome of asingle Bernoullitrial, taking the value0or 1. Then X hasaBernoulliprobabilitydistribution, or Bernoulli distribution forshort.Ifwelet p denotethe probabilitythat X takesthe value1,then X is said to have aBernoulli distribution with parameter p.Since P (X =1)+P(X =0)=1, the probabilitymassfunction of X is P (X =1)=p(1)=p and P (X =0)=p(0)=1−p. Here, as usual, p() denotesthe p.m.f., butthe letter p is also used conventionally for the Bernoulli parameter. That is, p(x)= ) 1−px=0 px=1.

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#### Annotation 3624411467020

 llBernoulli distributionshavethisform so there is a family of Bernoulli distributions–the valueofpdeterminesaparticular member of the family. Theparameter p is therebysaidtoindex thefamilyofBernoulli distributions. Statisticians are notespeciallyconsistent in their terminologyhere: either an individualmemberofthe Bernoullifamily of distributions(with aparticular valuechosenfor p)orthe whole familyof Bernoulli distributionscan be referredtoas‘the Bernoulli distribution’

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#### Annotation 3624413039884

 Thep.m.f. of aBernoulli distributionmay alsobewritten in multiplicative form as p(x)=p x (1 − p) 1−x ,x=0,1. As willbecome apparent in Subsection 2.1,thisgives p(0)and p(1)ina single expression

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#### Annotation 3624414612748

 TheBernoulli probability model Adiscrete randomvariable X with range {0, 1} is said to have a Bernoulli distributionwithparameter p,where 0 <1, if it hasprobabilitymassfunction p(x)= ) 1−px=0 px=1 or equivalently p(x)=p x (1 − p) 1−x ,x=0,1. (1) This is written X ∼ Bernoulli(p).Thesymbol‘∼’isread‘is distributed as’orsimply ‘is’. Themodel maybeappliedtothe outcome ofaBernoullitrial where the probabilityofobtainingthe outcome 1isequal to p.

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#### Annotation 3624416185612

 Thebinomial distribution If theprobability of successineachofasetofnindependent Bernoulli trialshas thesame value p,the nthe randomvariable X, whichrepresentsthe totalnumberofsuccessesinthe n trials,issaid to haveabinomialdistribution with parameters n and p.This is written X ∼ B(n, p)

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#### Annotation 3624417758476

 Sothese t hree trials satisfythe conditionsfor the totalnumberof headsinthe three tosses to haveabinomialdistribution with parameters n =3and p =1/2. That is,the probability distribution forthe total number of headsisbinomial, B(3, 1/2)

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#### Annotation 3624419331340

 adults withinahousehold arelikelytoinﬂuenceeachother in the waytheyvote, so the X scoreswould notbeindependent thusthe random variable Y would not have abinomial distribution

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#### Annotation 3624420904204

 Bythe way, ‘successes’ and‘failures’ are the standard ways of referringto the 1s and0sthatare theoutcomesofacollection of Bernoullitrials.This is so whet he rornot asuccessisreally asuccess! Forinstance, in several examplesinUnit2,weconsideredaBernoulli trialinwhich ‘1’ correspondedtoapersonwho wasnot curedbyamedical treatment, ‘0’ to someonewho wascured;inActivity 3(b), a‘success’ wouldbe‘being obese’. Thesuccess/failure terminologyisjust astandard convenience, ‘success’ beinganame forthe fo cusofwhatisbeing studied;you should alwaysreport outcomesand interpretresultsinlanguage that is meaningful in the context at hand

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#### Annotation 3624430603532

 Numberofcombinationsof objectsoftwo types Thenumberofdiﬀerentwaysofordering x objects of onetypeand n − x objects of asecond type in asequence of n objects is given by ! n x - = n! x!(n−x)! . (2) This formulaholdsfor anyinteger valueofxfrom 0ton.The number ' n x , is read ‘n choose x’.Alternative notation for ' n x , is n C x ,sometimes read as ‘n c x’ The number x!isread‘xfactorial’. Forany positiveinteger x,the notation x!isshorthand forthe number 1 × 2 × 3 ×···×x.The number 0! is deﬁnedtobe1

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#### Annotation 3624432176396

 Thequantities ' n x , are often called binomialcoeﬃcients.

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#### Annotation 3624433749260

 Thebinomial probability model If arandomvariable X hasabinomialdistribution with parameters n and p,where 0 <1, then it hasprobabilitymassfunction p(x)= ! n x - p x (1 − p) n−x ,x=0,1,2,...,n. (3) This is written X ∼ B(n, p). Thebinomial distribution provides aprobabilitymodel forthe total number of successe sinasequence of n independent Bernoullitrials, in whichthe probabilityofsuccessinasingle trial is p.

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#### Annotation 3624436108556

 An assumption of thebinomialmodel is that of independencefrom trial to trial

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#### Annotation 3624437681420

 Screencast 3.1The shapes of binomial distributions

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#### Annotation 3624458390796

 The range ofAlso, individualbinomial probabilitiesare non-negative. the binomial distribution is {0, 1, 2,...,n} so the summation in question is $n x=0 p(x). Thekey to showingthat$ n x=0 p(x)=1, as youwill seeinthe next activity,isthe binomial theorem of mathematics, which canbewritten (a + b) n = n 1 x=0 ! n x - a x b n−x .

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#### Annotation 3624459963660

 In Section 1, aBernoulli trialwas deﬁnedtobeastatisticalexperiment in whichexactlyone of twopossibleoutcomesoccurs.The outcomesmay be, forinstance, Success–Failure,Yes–No, On–Oﬀ or Male–Female. It is usual toidentifyoneofthe outcomes(success) with the number 1and the other (failure) with the number 0. If p is the probabilitythatasingle trial results in asuccess, thenthe outcome of asingle trial is arandomvariable whichhas aBernoulli distribution with parameter p (0 <1).Also, the totalnumberofsuccessesinasequence of n independent trials,eachwith the same probability of success p,isarandomvariable thathas abinomial distribution with parameters n and p,where n is the totalnumberoftrials.

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#### Annotation 3624461536524

 In this section anotherprobabilitymodel associated with asequence of independent Bern oullitrials is introduced;thisisamode lfor arandom variablewhich represents the number of trials up toand including the ﬁrst success. Thismodel –the geometricdistribution

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#### Annotation 3624463109388

 Thegeometricdistribution Supposethatinasequence of inde pendent Bernoullitrials, the probabilityofsuccessisconst antfromtrial to trialand equal to p, where0<1. Then thenumberoftrialsuptoand including the ﬁrst successisarandomvariable X with probability massfunction given by p(x)=P(X=x)=(1 − p) x−1 p,x=1,2,3,.... (4) Therandomvariable X is said to haveageometricdistribution with parameter p.This is written X ∼ G(p).

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#### Annotation 3624464682252

 Mathematically,the probabilities P (X =1), P (X =2), P (X =3), ... form ageometric progression:eachprobabilityinthe sequence is a constant multiple (inthiscase1−p)ofthe precedingone.Thisisthe reason forthe name ‘geometric’. TheAncient Greek mathematicianEuclid knew about geometric progressions Moreover, since0<1, it follows that 0 < 1 − p<1also, so each consecutive probabilityissmallerthanthe precedingone.Inother words, the geometric p.m.f.isalwaysadecreasing function of x

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#### Annotation 3624469662988

 #has-images In Figure 2(a),the parameter p is equal to 0.8–thatisquite high:you wouldbeunlikelytohavetowait longfor theﬁrstsuccessful trial. In Figure 2(b),the valueofthe parameter p is much lower–the probabilityofsuccessisonly0.3. In thiscase, you mighthavetowaitquite alongtime forthe ﬁrst successtooccur. Whatever thevalue of p,however,the decreasing natureofthe p.m.f. meansthatthe most likelyvalueofXis 1.

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#### Annotation 3624472284428

 there isnoconvenientformulafor the c.d.f.ofabinomialrandomvariable.However,itispossibletoﬁnd a simple formulafor the c.d.f.ofageometric randomvariable X.Moreover, the methodfor ﬁnding thissimple formulaissimple tooifweuse alittle trick: ﬁrst ﬁnd an expression forthe probability P (X>x)and thenobtain an expression forthe c.d.f. F (x)=P(X≤x)=1−P(X>x). Now, P (X>x)isthe probabilitythatmore than x trials areneeded to obtain asuccess, or equivalently,thatall theﬁrst x trials resultinfailure. This probabilityisequal to (1 − p) x .Itfollowsthat F (x)=1−P(X>x)=1−(1 − p) x . This is the formulaweare seeking forthe c.d.f. of ageometric distribution, stated in thebox below. Thec.d.f.ofageometric distribution If therandomvariable X hasageometric distribution with parameter p,thenthe c.d.f. of X is given by F (x)=P(X≤x)=1−(1 − p) x , (5) for x =1,2,3,....