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Probability of losing a certain amount of money to an investment?

  1. Jun 1, 2010 #1
    So, let's say that I plan to buy a stock for $100,000. The record minimum value of the stock is $50,000. The record maximum value is $120,000. The probability of losing money is 85%. My goal with the stock is to raise $5,000, no more no less. Not taking into account how frequently stocks from the same company are sold for that price, what is the probability of meeting this goal?
     
  2. jcsd
  3. Jun 2, 2010 #2

    EnumaElish

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    Assuming a continuous distribution, the probability of raising any exact amount is zero.
     
  4. Jun 3, 2010 #3
    Why would any rational investor worry that the stock price closed higher, especially since this stock is so risky?

    Maybe you meant $5,000 or more no less. This would also satisfy the requirement that you don't specify an exact price which makes the probability zero. Use a range of prices and the problem will make more sense.

    Another thing...stock prices are usually quoted in price per share. I doubt you meant that a share is worth $100,000. Maybe you should state that you plan to buy 10,000 shares at a price of $10 per share.
     
  5. Jun 3, 2010 #4
    Not really enough info to go off
     
  6. Jun 5, 2010 #5
    Oh, I get it. You've given your broker instructions to sell as soon as the stock's value increases to a value that nets you 5,000 profit. This would be a time series where the stock price moves with each tic of the clock. Right??? There should be a greater than zero probability that the stock reaches this price in time. Not sure how to calulate this probability. And why are the max / min values relavent? Does an 85% chance the stock will lose money mean that each tic of the clock there is a 0.85 probability the price will decrease and a 0.15 probability that it will increase? If so then by how much (1% maybe)? I guess if the price reaches zero then the game is over.
     
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