Consider two stocks. Stock 1 always sells for $10 or $20. If stock 1 is selling for $10 today, there is a 0.8 chance that it will sell for $10 tomorrow. If it is selling for $20 today, there is a 0.9 chance that it will sell for $20 tomorrow. Stock 2 always sells for $10 or $25. If stock 2 sells today for $10, there is a 0.9 chance that it will sell tomorrow for $10. If it sells today for $25, there is a 0.85 chance chat it will sell tomorrow for $25. On the average, which stock will sell for a higher price?

A First Course in Probability (10th Edition)
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ISBN:9780134753119
Author:Sheldon Ross
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Chapter1: Combinatorial Analysis
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Consider two stocks. Stock 1 always sells for $10 or $20. If stock 1 is selling for
$10 today, there is a 0.8 chance that it will sell for $10 tomorrow. If it is selling for $20 today, there is a
0.9 chance that it will sell for $20 tomorrow. Stock 2 always sells for $10 or $25. If stock 2 sells today for
$10, there is a 0.9 chance that it will sell tomorrow for $10. If it sells today for $25, there is a 0.85 chance
that it will sell tomorrow for $25. On the average, which stock will sell for a higher price?
Transcribed Image Text:Consider two stocks. Stock 1 always sells for $10 or $20. If stock 1 is selling for $10 today, there is a 0.8 chance that it will sell for $10 tomorrow. If it is selling for $20 today, there is a 0.9 chance that it will sell for $20 tomorrow. Stock 2 always sells for $10 or $25. If stock 2 sells today for $10, there is a 0.9 chance that it will sell tomorrow for $10. If it sells today for $25, there is a 0.85 chance that it will sell tomorrow for $25. On the average, which stock will sell for a higher price?
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