5.54 Between 1896 when the Dow Jones Index was created and 2009, the index rose in 64% of the years (data extracted from M. Hulbert, “What the Past Can’t Tell Investors,” The New York Times, January 3, 2010, p. BU2). Based on this information, and assuming a binomial distribution, what do you think is the probability that the stock market will rise a. next year? b. the year after next? c. in four of the next five years? d. in none of the next five years? e. For this situation, what assumption of the binomial distribution might not be valid?
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