 Financial Terms Continuous random variable

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# Definition of Continuous random variable ## Continuous random variable

A random value that can take any fractional value within specified ranges, as
contrasted with a discrete variable.

# Related Terms:

## Normal probability distribution

A probability distribution for a continuous random variable that is forms a
symmetrical bell-shaped curve around the mean.

## Probability density function

The probability function for a continuous random variable.

## continuous budgeting

a process in which there is a rolling
twelve-month budget; a new budget month (twelve months
into the future) is added as each current month expires

## Continuous compounding

The process of accumulating the time value of money forward in time on a
continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that
accrues immediately begins earning interest on itself.

## Continuous Compounding

The process of continuously adding interest to a principal plus
interest amount and calculating the resulting compound amount

## Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time

## continuous improvement

an ongoing process of enhancing employee task performance, level of product quality, and level of company service through eliminating nonvalue-added activities to reduce lead time, making products
(performing services) with zero defects, reducing
product costs on an ongoing basis, and simplifying products
and processes ## continuous loss

any reduction in units that occurs uniformly
throughout a production process

## decision variable

an unknown item for which a linear programming
problem is being solved

## dependent variable

an unknown variable that is to be predicted
using one or more independent variables

## Discrete random variable

A random variable that can take only a certain specified set of discrete possible
values - for example, the positive integers 1, 2, 3, . . .

## Endogenous variable

A value determined within the context of a model.

## Exogenous variable

A variable whose value is determined outside the model in which it is used. Also called
a parameter.

## independent variable

a variable that, when changed, will
cause consistent, observable changes in another variable;
a variable used as the basis of predicting the value of a
dependent variable

## key variable

a critical factor that management believes will
be a direct cause of the achievement or nonachievement
of the organizational goals and objectives

## Normal random variable

A random variable that has a normal probability distribution. ## Random-location storage

The technique of storing incoming inventory in any
available location, which is then tracked in a locator file.

## Random variable

A function that assigns a real number to each and every possible outcome of a random experiment.

## Random walk

Theory that stock price changes from day to day are at random; the changes are independent
of each other and have the same probability distribution. Many believers of the random walk theory believe
that it is impossible to outperform the market consistently without taking additional risk.

## random walk theory

Security prices change randomly, with no predictable trends or patterns.

## Randomized strategy

A strategy of introducing into the decision-making process a random element that is
designed to reduce the information content of the decision-maker's observed choices.

## Semi-variable costs

Costs that have both fixed and variable components.

## slack variable

a variable used in a linear programming problem
that represents the unused amount of a resource at
any level of operation; it is associated with less-than-orequal-
to constraints

## surplus variable

a variable used in a linear programming problem that represents overachievement of a minimum requirement; it is associated with greater-than-or-equal-to constraints

## Variable

A value determined within the context of a model. Also called endogenous variable.

## Variable annuities

Annuity contracts in which the issuer pays a periodic amount linked to the investment
performance of an underlying portfolio.

## Variable Annuity

A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account. ## Variable cost

A cost that is directly proportional to the volume of output produced. When production is zero,
the variable cost is equal to zero.

## Variable cost

A cost that increases or decreases in proportion with increases or decreases in the volume of production of goods or services.

## variable cost

a cost that varies in total in direct proportion
to changes in activity; it is constant on a per unit basis

## Variable cost

A cost that changes in amount in relation to changes in a related activity.
Variance
The difference between an actual measured result and a basis, such as a budgeted amount.

## variable cost ratio

the proportion of each revenue dollar
represented by variable costs; computed as variable costs
divided by sales or as (1 - contribution margin ratio)

## Variable costing

A method of costing in which only variable production costs are treated as product costs and in which all fixed (production and non-production) costs are treated as period costs.

## variable costing

a cost accumulation and reporting method
that includes only variable production costs (direct material,
direct labor, and variable overhead) as inventoriable
or product costs; it treats fixed overhead as a period cost;
is not acceptable for external reporting and tax returns

## variable costs

Costs that change as the level of output changes.

## VARIABLE EXPENSES

Those that vary with the amount of goods you produce or sell. These may include utility bills, labor, etc.

## variable expenses

Expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
expenses.

## Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.

## variable overhead efficiency variance

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production

## variable overhead spending variance

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity

## Variable price security

A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.

## Variable rate CDs

Short-term certificate of deposits that pay interest periodically on roll dates. On each roll
date, the coupon on the CD is adjusted to reflect current market rates.

## Variable rate loan

Loan made at an interest rate that fluctuates based on a base interest rate such as the
Prime Rate or LIBOR.

## Variable rated demand bond (VRDB)

Floating rate bond that can be sold back periodically to the issuer.

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