The Rule of five:
The normal with means np and npq can be used to approximate the binomial distribution with parameters n and pif
Normal approximation cannot be used for the binomial distribution with
The direct approximation of the binomial by Poisson says that the binomial distribution with parameters n and p has the same distribution as the Poisson with the parameter np when npis large.
The value of np is obtained as shown below:
Since the value of n is large and pis small and the value of np is small, the binomial distribution can be approximated to Poisson.
That is, the binomial distribution with
Maurice and Lester are twins who have just graduated from college. They have both been offered jobs where their take-home pay would be $2500 per month. Their parents have given Maurice and Lester two options for a graduation gift. Option 1: If they choose to pursue a graduate degree, their parents will give each of them a gift of $35,000. However, they must pay for their tuition and living expenses out of the gift. Option 2: If they choose to go directly into the workforce, their parents will give each of them a gift of $5000. Maurice decides to go to graduate school for 2 years. He locks in a tuition rate by paying $11,500 for the 2 years in advance, and he figures that his monthly expenses will be $1000. Lester decides to go straight into the workforce. Lester finds that after paying his rent, utilities, and other living expenses, he will be able to save $200 per month. Their parents deposit the appropriate amount of money in a money market account for each twin. The money market accounts are currently paying a nominal interest rate of 3 percent, compounded monthly. At the end of 2 years, Lester receives a raise and decides to save $250 each month. Maurice receives a $5000 graduation gift from his parents and deposits this amount into his money market account. Maurice goes to work and saves $500 each month. Complete the equations below for the money market account balance for each twin. Let the initial balance u0 be the account balance at the end of 2 years. Write an expression for this month's account balance un in terms of un−1. Recall that the interest rate for the account is 3 percent, compounded monthly. Maurice: