SOLUTION: A stock's price is expected to vary between $10 and $20 over the next 6 months. It currently costs $12. If each possible value for the stock is equally likely to occur, then what i

Question 1114814: A stock's price is expected to vary between $10 and $20 over the next 6 months. It currently costs $12. If each possible value for the stock is equally likely to occur, then what is the theoretical probability that I will make money purchasing this stock?
Pretend that stock prices can only be whole-dollar amounts.
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
the stock price can vary between 10 and 20.
that's 11 possibilities.

the probability of any one of those events occurring is 1/11.
the probability of any one of those events not occurring is 10/11.

the probability that it could be 10 is therefore 1/11.
the probability that it could be 11 is therefore 1/11.
the probability that it could be 12 is therefore 1/11.

the probability that it could be 10 or 11 or 12 is therefore 3/11.

the probability that it could be 13 through 20 is therefore 8/11.

since 13 through 20 is greater than 12, then the theoretical probability of making money on the stock in 6 months is 8/11.

that's what i think.

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