A stock had returns of 8%, 39%, 11%, and -24% for the past four years. Which one of the following best describes the probability that this stock will not lose more than 43% in any one giver year?
Solution
Since the stock gain every year, but in last year it  has decreased by large. It has 2 probabilities as under :-
1) If the decease in return is due to abnormal factors like strike, fire, sudden fall in economy etc. then the probability of decrease in return is zero, as the return is increasing every year.
2) If pattern of return is normal and on going then probability of loosing return by more than 43% is higher and 99.5% probability is there that stock will loose.
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A stock had returns of 8-- 39-- 11-- and -24- for the past four years- (1).docx
1. A stock had returns of 8%, 39%, 11%, and -24% for the past four years. Which one of the
following best describes the probability that this stock will not lose more than 43% in any one
giver year?
Solution
Since the stock gain every year, but in last year it  has decreased by large. It has 2
probabilities as under :-
1) If the decease in return is due to abnormal factors like strike, fire, sudden fall in economy etc.
then the probability of decrease in return is zero, as the return is increasing every year.
2) If pattern of return is normal and on going then probability of loosing return by more than
43% is higher and 99.5% probability is there that stock will loose.
Year Return Change %age change
1 8 -31 -79%
2 39 28 255%
3 11 35 146%
4 -24
