Julian picks winning and losing stocks by tossing a coin (heads means winner, tails means loser).To test his 'system', his friend gives him a list of 20 stocks, half of which doubled in value over the past 3 years (winners) and half of which lost half their value over the past 3 years (losers).How likely is it that Julian properly classifies at least 80% of the stocks on the list?
A).0201
B).0059
C).1201
D).0952
E).1028

Question

Quizplus · Accepted Answer

To properly classify at least 80% of the stocks, Julian needs to correctly identify at least 16 out of 20 stocks. The probability of correctly classifying a stock by tossing a coin is 0.5 (since there's a 50% chance of picking heads for a winner or tails for a loser). The probability of getting at least 16 correct out of 20 can be calculated using the binomial probability formula, but it's a very small chance given the random nature of his method. The correct choice (B) reflects a very low probability, consistent with the difficulty of achieving at least an 80% success rate by random chance.

Julian Picks Winning and Losing Stocks by Tossing a Coin