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Statistics / A First Course in Probability 9 / Chapter 3 / Problem 81P

A First Course in Probability | 9th Edition | ISBN: 9780321794772 | Authors: Sheldon Ross

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Problem 81P

An investor owns shares in a stock whose present value is 25. She has decided that she must sell her stock if it goes either down to 10 or up to 40. If each change of price is either up 1 point with probability .55 or down 1 point with probability .45, and the successive changes are independent, what is the probability that the investor retires a winner?

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QUESTION:

Problem 81P

An investor owns shares in a stock whose present value is 25. She has decided that she must sell her stock if it goes either down to 10 or up to 40. If each change of price is either up 1 point with probability .55 or down 1 point with probability .45, and the successive changes are independent, what is the probability that the investor retires a winner?

ANSWER:

Solution

Step 1 of 1

We have to find the probability that the investors retiers a winner

Given that the present value of the share is 25

It can go down to 10 or it can go up to 40

Here winning means react to 40

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