Financial Terms Normal probability distribution

# Definition of Normal probability distribution

## Normal probability distribution

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

# Related Terms:

## Normal random variable

A random variable that has a normal probability distribution.

## CARs (cumulative abnormal returns)

a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firmâ€™s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an â€˜â€˜abnormal return.â€™â€™ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.

## Abnormal returns

Part of the return that is not due to systematic influences (market wide influences). In
other words, abnormal returns are above those predicted by the market movement alone. Related: excess
returns.

## Base probability of loss

The probability of not achieving a portfolio expected return.

## Cumulative abnormal return (CAR)

Sum of the differences between the expected return on a stock and the
actual return that comes from the release of news to the market.

## Cumulative probability distribution

A function that shows the probability that the random variable will
attain a value less than or equal to each value that the random variable can take on.

## Distributions

Payments from fund or corporate cash flow. May include dividends from earnings, capital
gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by
investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least
once per year. Some Corporations offer Dividend Reinvestment Plans (DRP).

## Frequency distribution

The organization of data to show how often certain values or ranges of values occur.

## Lognormal distribution

A distribution where the logarithm of the variable follows a normal distribution.
Lognormal distributions are used to describe returns calculated over periods of a year or more.

## Normal annuity form

The manner in which retirement benefits are paid out.

## Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.

## Normal deviate

Related: standardized value

## Normal portfolio

A customized benchmark that includes all the securities from which a manager normally
chooses, weighted as the manager would weight them in a portfolio.

## Normalizing method

The practice of making a charge in the income account equivalent to the tax savings
realized through the use of different depreciation methods for shareholder and income tax purposes, thus
washing out the benefits of the tax savings reported as final net income to shareholders.

## Probability

The relative likelihood of a particular outcome among all possible outcomes.

## Probability density function

The probability function for a continuous random variable.

## Probability distribution

Also called a probability function, a function that describes all the values that the random variable can
take and the probability associated with each.

## Probability function

A function that assigns a probability to each and every possible outcome.

## Skewed distribution

probability distribution in which an unequal number of observations lie below and
above the mean.

## Standardized normal distribution

A normal distribution with a mean of 0 and a standard deviation of 1.

## Probability Distribution

A list of all possible outcomes and the chance of each outcome
occurring

## distribution cost

a cost incurred to warehouse, transport, or deliver a product or service

## net cost of normal spoilage

the cost of spoiled work less the estimated disposal value of that work

## normal capacity

the long-run (5â€“10 years) average production
or service volume of a firm; it takes into consideration
cyclical and seasonal fluctuations

## normal cost system

a valuation method that uses actual
costs of direct material and direct labor in conjunction with
a predetermined overhead rate or rates in determining the
cost of Work in Process Inventory

## normal loss

an expected decline in units during the production process

## normal spoilage

spoilage that has been planned or foreseen; is a product cost

## probability distribution

a range of possible values for which each value has an assigned likelihood of occurrence

## Normal (bell-shaped) distribution

In statistics, a theoretical frequency
distribution for a set of variable data, usually represented by a bell-shaped

## Spoilage, abnormal

Spoilage arising from the production process that exceeds the normal
or expected rate of spoilage. Since it is not a recurring or expected cost of ongoing
production, it is expensed to the current period.

## Spoilage, normal

The amount of spoilage that naturally arises as part of a production
process, no matter how efficient that process may be.

## Distribution center

A branch warehouse containing finished goods and service
items intended for distribution directly to customers.

## Distribution inventory

Inventory intended for shipment to customers, usually
comprised of finished goods and service items.