According to the IRS, 1

question 69

Multiple Choice

According to the IRS, 1.1% of tax returns will be audited next year. A random sample of 40 tax returns was selected. Use the Poisson distribution to approximate the binomial distribution to determine the probability that none of these tax returns will be audited.

• A)0.6440
• B)0.3264
• C)0.4785
• D)0.2870

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Definitions:

Unsystematic Risk

The risk associated with a specific company or industry, which can be mitigated through diversification.

Systematic Risk

The risk inherent to the entire market or market segment, which cannot be eliminated through diversification.

Beta

Beta is a measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole, indicating its sensitivity to market movements.

Market Index

A hypothetical portfolio of investment holdings that represents a segment of the financial market, used as a benchmark to measure an investment's performance.