Question

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 22 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? (Round your answer to 6 decimal places.)

Answer 1

The required probability is 0.031918.

Explanation:

Consider the provided information.

It is given that According to an article in The Wall Street Journal, this theory held for 22 out of the last 34 years.

Therefore n=34

The probability it is either up or down is 0.5.

Thus the value of p =0.5 and q = 0.5

Now calculate the probability

Let X is the number of years that theory held.

X has a binomial distribution with n=34 and p=0.5

`P(X=22)=\binom{34}{22}(0.5)^(22)(0.5)^(12)\\P(X=22)=(34!)/(22!* 12!)(0.5)^(22)(0.5)^(12)\\P(X=22)=548354040* 5.8207660913* 10^(11)\\P(X=22)=0.0319184060208\\P(X=22)\approx0.031918`

Hence, the required probability is 0.031918.