An investor buys 100 shares of AT&T stock and records its...

An investor buys 100 shares of AT\&T stock and records its price change daily.
a. List several possible events for this experiment.
b. Estimate the probability for each event you described in a.
c. Which concept of probability did you use in b?

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Key Concepts

Random Experiment

A random experiment refers to any process or activity that leads to one outcome from a set of possible outcomes, where the result is uncertain. In the context of recording daily stock price changes, each day’s change is considered an outcome of a repeated process that exhibits variability due to market factors.

Event

An event is a set of outcomes (from the sample space) that share a common attribute. In this case, possible events could include the stock price increasing, decreasing, remaining unchanged, or meeting specific criteria (like exceeding a certain percentage change), thereby grouping one or more outcomes together.

Sample Space

The sample space is the complete set of all conceivable outcomes for a random experiment. For daily stock price changes, the sample space encompasses every possible price movement, including any incremental increase, decrease, or no change at all.

Frequentist (Empirical) Probability

Frequentist probability defines the likelihood of an event based on the long-run relative frequency of occurrence. When estimating probabilities for various stock price events, this approach involves using historical data or repeated observations to predict how often an event, such as a price rise or fall, might occur in the future.

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