Question 1036953: According to the "January theory," if the stock market is up for the month of January, it will be up for the year. If it is down in January, it will be down for the year. According to an article in The Wall Street Journal, this theory held for 24 out of the last 34 years. Suppose there is no truth to this theory; that is, the probability it is either up or down is 0.5.
What is the probability this could occur by chance
Answer by jorel555(1290)   (Show Source):
You can put this solution on YOUR website! Since we are asked to assume that there is no truth in the theory, we take p = 0.5
n = 34 and x = 24
The binomial probability formula is P(x) = C(n, x) p^x (1 - p)^(n - x). So:
P(24)=c(34,24).5^24(1-.5)^(34-24)
=131128140*5.96e^-8*0.0009765625=0.0076326623, or less than 1 percent of this event happening by chance!!!!!!!!!!!!!
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