Binomial Distribution

AAA

DEFINITION of 'Binomial Distribution'

A probability distribution that summarizes the likelihood that a value will take one of two independent values under a given set of parameters or assumptions. The underlying assumptions of the binomial distribution are that there is only one outcome for each trial, that each trial has the same probability of success and that each trial is mutually exclusive.

INVESTOPEDIA EXPLAINS 'Binomial Distribution'

A binomial distribution summarizes the number of trials, or observations, when each trial has the same probability of attaining one particular value.

For example, flipping a coin would create a binomial distribution. This is because each trial can only take one of two values (heads or tails), each success has the same probability (i.e. the probability of flipping a head is 0.50) and the results of one trial will not influence the results of another.

RELATED TERMS
  1. Uniform Distribution

    In statistics, a type of probability distribution in which all ...
  2. Sampling Distribution

    A probability distribution of a statistic obtained through a ...
  3. Analyst

    A financial professional who has expertise in evaluating investments ...
  4. Probability Distribution

    A statistical function that describes all the possible values ...
  5. Non-Sampling Error

    A statistical error caused by human error to which a specific ...
  6. Sampling Error

    A statistical error to which an analyst exposes a model simply ...
Related Articles
  1. Find The Right Fit With Probability ...
    Fundamental Analysis

    Find The Right Fit With Probability ...

  2. Bet Smarter With The Monte Carlo Simulation
    Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

  3. An Introduction To Value at Risk (VAR)
    Options & Futures

    An Introduction To Value at Risk (VAR)

  4. Can Investors Trust Official Statistics?
    Economics

    Can Investors Trust Official Statistics?

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center