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# Every trading day, the price of CF Corp stock either goes up

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Manager
Joined: 11 Feb 2008
Posts: 70
Every trading day, the price of CF Corp stock either goes up  [#permalink]

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Updated on: 02 Feb 2015, 04:43
2
24
00:00

Difficulty:

35% (medium)

Question Stats:

74% (01:51) correct 26% (02:04) wrong based on 226 sessions

(A) 1/16
(B) 1/8
(C) 5/32
(D) 9/32
(E) 3/8

(A) 1/16
(B) 1/8
(C) 5/32
(D) 9/32
(E) 3/8

In order to have a net change of +$3, we must have 4 “up” days and 1 “down” day. Thus one of the sequences of 4 ups and 1 down is: up - up - up - up - down or UUUUD Let’s determine the probability of this sequence: P(UUUUD) = (1/2)^5 = 1/32 However, since a sequence of the 4 ups and 1 down (UUUUD) can be arranged in 5C4 = 5!/4! = 5 ways, the overall probability is 5 x 1/32 = 5/32. Answer: C _________________ # Scott Woodbury-Stewart Founder and CEO Scott@TargetTestPrep.com 181 Reviews 5-star rated online GMAT quant self study course See why Target Test Prep is the top rated GMAT quant course on GMAT Club. Read Our Reviews If you find one of my posts helpful, please take a moment to click on the "Kudos" button. EMPOWERgmat Instructor Status: GMAT Assassin/Co-Founder Affiliations: EMPOWERgmat Joined: 19 Dec 2014 Posts: 15975 Location: United States (CA) GMAT 1: 800 Q51 V49 GRE 1: Q170 V170 Every trading day, the price of CF Corp stock either goes up [#permalink] ### Show Tags Updated on: 19 Feb 2016, 13:25 2 Hi pacifist85, The specific details in this question factor in a great deal in how you must go about solving it. We're told that the price of the stock either increases by$1 OR decreases by $1 each day for 5 days. So EVERY DAY the price WILL change. To have a net increase of$3, 3 days of increases will NOT be enough. Here's why:

5 days total
3 days of increases = +$3 BUT the remaining 2 days will then be decreases... 2 days of decreases = -$2

Net effect: +$3 -$2 = +$1 This is NOT what we're looking for, so 3 days of increases would NOT be enough. With 4 days of increases though... 4 days of increase = +$4
1 day of decrease = -$1 Net effect: +$4 - $1 = +$3

And then there 5 days of increases, which = +$5 So, to get a net increase of$3, we need 4 days of increases (out of the 5 total days).

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Originally posted by EMPOWERgmatRichC on 02 Feb 2015, 13:22.
Last edited by EMPOWERgmatRichC on 19 Feb 2016, 13:25, edited 1 time in total.
EMPOWERgmat Instructor
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Re: Every trading day, the price of CF Corp stock either goes up  [#permalink]

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19 Feb 2016, 13:25
2
HI Nez,

Since each day involves either an increase or a decrease, there are 2^5 = 32 possible arrangements. Brute-forcing EVERY one of those 32 options isn't really practical though. If you do a bit of work first to figure out what it would take for a 3 dollar increase to occur (4 increases and 1 decrease), THEN you can brute force the possible options from there.

GMAT assassins aren't born, they're made,
Rich
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Senior Manager
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GMAT Date: 02-11-2015
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Re: Every trading day, the price of CF Corp stock either goes up  [#permalink]

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02 Feb 2015, 04:16
Hmmm, I have a very basic problem with this question...

Why is it that if we want the stock to go up exactly 3 points we need it to go up for 4 out of 5 days and not 3?
Does it start by zero, so first day is zero, second 1, third 2 and fourth day is 3?

Would it be possible to also solve it using probability?

Thank you.
Math Expert
Joined: 02 Sep 2009
Posts: 60647
Re: Every trading day, the price of CF Corp stock either goes up  [#permalink]

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02 Feb 2015, 04:48
pacifist85 wrote:
Hmmm, I have a very basic problem with this question...

Why is it that if we want the stock to go up exactly 3 points we need it to go up for 4 out of 5 days and not 3?
Does it start by zero, so first day is zero, second 1, third 2 and fourth day is 3?

Would it be possible to also solve it using probability?

Thank you.

It does not matter what is the initial price. We know that every trading day, the price, whatever it is, either goes up by $1 or goes down by$1 and the question asks about the probability that the price is up by exactly $3 from its initial price at the end of 5 trading days. _________________ Senior Manager Joined: 15 Oct 2015 Posts: 297 Concentration: Finance, Strategy GPA: 3.93 WE: Account Management (Education) Re: Every trading day, the price of CF Corp stock either goes up [#permalink] ### Show Tags 19 Feb 2016, 10:45 anaik100 wrote: Every trading day, the price of CF Corp stock either goes up by$1 or goes down by $1 with equal likelihood. At the end of 5 trading days, what is the probability that the price of CF Corp stock is up by exactly$3 from its initial price?

(A) 1/16
(B) 1/8
(C) 5/32
(D) 9/32
(E) 3/8

any brute force method here plzzzzzz?
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Re: Every trading day, the price of CF Corp stock either goes up  [#permalink]

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14 Apr 2019, 23:17
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Re: Every trading day, the price of CF Corp stock either goes up   [#permalink] 14 Apr 2019, 23:17
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