Stock Performance — Quiz

Question 2 • Advanced Financial Algebra

Each table gives a discrete probability distribution for a stock based on the past eleven trading sessions. Which stock is most likely to not lose value in the near future?

Answer

Stock W Table with 2 columns and 4 rows.Row 1: Column 1, 'Outcome'; Column 2, 'P(Outcome)' Row 2: Column 1, 'increase'; Column 2, '0 point 6' Row 3: Column 1, 'decrease'; Column 2, '0 point 4' Row 4: Column 1, 'no change'; Column 2, '0'

Stock Y Table with 2 columns and 4 rows.Row 1: Column 1, 'Outcome'; Column 2, 'P(Outcome)' Row 2: Column 1, 'increase'; Column 2, '0 point 4' Row 3: Column 1, 'decrease'; Column 2, '0 point 3' Row 4: Column 1, 'no change'; Column 2, '0 point 3'

Stock Z Table with 2 columns and 4 rows.Row 1: Column 1, 'Outcome'; Column 2, 'P(Outcome)' Row 2: Column 1, 'increase'; Column 2, '0 point 4' Row 3: Column 1, 'decrease'; Column 2, '0 point 5' Row 4: Column 1, 'no change'; Column 2, '0 point 1'

Stock X Table with 2 columns and 4 rows.Row 1: Column 1, 'Outcome'; Column 2, 'P(Outcome)' Row 2: Column 1, 'increase'; Column 2, '0 point 5' Row 3: Column 1, 'decrease'; Column 2, '0 point 4' Row 4: Column 1, 'no change'; Column 2, '0 point 1'

Explanation

To find the chance a stock will not lose value, add the probabilities of an increase and no change. Stock Y has a probability of 0.4 + 0.3 = 0.7, which is greater than Stock W’s 0.6, Stock Z’s 0.5, and Stock X’s 0.6. Therefore, Stock Y is most likely not to lose value.

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