Answer the Question About the Law of Large Numbers

question 70

Multiple Choice

Answer the question about the Law of Large Numbers.
-Jim has been stopped for speeding three times in the last year, but each time was given a warning instead of a ticket.
What does it mean to say that "the law of averages will catch up with him"?
A. It means that average drivers receive tickets, not warnings, when stopped for speeding.
B. It means that Jim is "due" to receive a ticket next time he is stopped for speeding.
C. It means that, in the long run, Jim should not expect to be stopped for minor speeding violations.
D. None of the above is a correct interpretation.

• A)b
• B)a
• C)d
• D)c

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Definitions:

Futures Contract

An agreement in law to buy or sell a designated financial product or commodity at an agreed-upon price, to be fulfilled at a future time.

Arbitrage

The simultaneous purchase and sale of the same assets or commodities in different markets to take advantage of differing prices for the same asset.

Interest Rate Risk

The potential for an investment's value to change due to fluctuations in the general level of interest rates.

T-Bond Futures

Financial contracts used to speculate on or hedge against the future price movements of U.S. Treasury bonds.