Problem 521 The increase or decrease in the price of a stock

Problem 5.21

The increase or decrease in the price of a stock between the beginning and the end of a trading day is assumed to be an equally likely random event. What is the probability that a stock will show an increase in its closing price on five consecutive days? Show work.

Solution

P(increase) = P(decrease) = 0.5

P(increase for 5 times) = 0.5*0.5*0.5*0.5*0.5 = 0.5^5 = 0.03125