A stock had returns of 8%, 14%, and 2% for the past three years. Based on these returns, what is the probability that this stock will earn more than 20% in any one given year?
To calculate the probability that the stock will earn more than 20% in any given year, we need to determine the historical frequency with which the stock has earned more than 20%.
To do this, we can count the number of instances where the stock had returns greater than 20% and divide it by the total number of years.
In this case, we are given that the stock had returns of 8%, 14%, and 2% for the past three years. None of these returns exceed 20%. Therefore, the stock has not earned more than 20% in any of the previous three years.
Since there are no instances of the stock earning more than 20% in the past three years, the probability of it earning more than 20% in any given year is 0%.