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## 07 Jan 5.62 One theory concerning the S&P 500 Index is th

5.62 One theory concerning the S&P 500 Index is that if it increases during the first five trading days of the year, it is likely to increase during the entire year. From 1950 through 2009, the S&P 500 Index had these early gains in 38 years. In 33 of these 38 years, the S&P 500 Index increased for the entire year. Assuming that this indicator is a random event with no predictive value, you would expect that the indicator would be correct 50% of the time. What is the probability of the S&P 500 Index increasing in 33 or more years if the true probability of an increase in the S&P 500 Index is a. 0.50? b. 0.70? c. 0.90? d. Based on the results of (a) through (c), what do you think is the probability that the S&P 500 Index will increase if there is an early gain in the first five trading days of the year? Explain

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