A simplified model for the movement of the prize of a stock supposes that on each day the stock’s price either moves up 1 unit with probability p or it moves down 1 unit with probability 1-p. The changes on different days are assumed independent. Suppose we observe what happens to the price in three days. 1. What is the probability that after 3 days the stock’s price will have increased by 1 unit? 2. Given that after 3 days the stock’s price has increased by 1 unit, what is the probability that it went up on the first day?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
A simplified model for the movement of the prize of a stock supposes that on each day the stock’s price either moves up 1 unit with probability p or it moves down 1 unit with probability 1-p. The changes on different days are assumed independent. Suppose we observe what happens to the price in three days.
1. What is the probability that after 3 days the stock’s price will have increased by 1 unit?
2. Given that after 3 days the stock’s price has increased by 1 unit, what is the probability that it went up on the first day?
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