Stock Performance — Quiz

Question 8 • Advanced Financial Algebra

Each table gives a discrete probability distribution for a stock based on recent trading sessions. Which stock's price is most likely to decrease in the near future?

Answer

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 5' Row 3: Column 1, 'decrease'; Column 2, '0 point 3' Row 4: Column 1, 'no change'; Column 2, '0 point 2'

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 4' Row 3: Column 1, 'decrease'; Column 2, '0 point 4' Row 4: Column 1, 'no change'; Column 2, '0 point 2'

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 6' Row 3: Column 1, 'decrease'; Column 2, '0 point 3' Row 4: Column 1, 'no change'; Column 2, '0 point 1'

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 7' Row 3: Column 1, 'decrease'; Column 2, '0 point 2' Row 4: Column 1, 'no change'; Column 2, '0 point 1'

Explanation

Compare the probability of a decrease for each stock: Stock Y is 0.3, Stock W is 0.4, Stock X is 0.3, and Stock Z is 0.2. The largest probability is 0.4, so Stock W is most likely to decrease in the near future.

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