Investor Glossary-law of large numbersInvestor Glossary-law of large numbersInvestor Glossary-law of large numbersInvestor Glossary-law of large numbersInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Law Of Large Numbers

The HTML to link to this page
 

The law of large numbers is a law of probability theory. The mathematical definition of the law of large numbers is that a random sample approaches the expected value of the population as the sample grows. For example, flip a coin ten times and it might come up heads every time. The law of large numbers dictates that if the coin is flipped a million times, the results should be 50/50 heads versus tails. Assuming that investors earn about 7% annually, the law of large numbers suggests that an individual investor will earn that same 7% over time. The law of large numbers can also be applied to earnings growth. It is easier for a company's sales to grow at twenty percent if sales are one million dollars. The law of large numbers states that it is harder to achieve that growth rate if sales are ten billion dollars. The law of large numbers also implies that the probability of a rare event occurring (e.g. winning the lottery) decreases as the number of participants increases.



Rate this law of large numbers definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: implied volatility, EBITDA, APR, liquidity ratio, labor relations, VIX, current ratio, 1031 exchange, balance sheet, ex-dividend, FTSE, risk management, Zero Cost Collar, retained earnings, dividends payable, stock market close, phantom income, diluted share, debt service coverage, required rate of return, 1035 exchange, command economy, inflation, 144a, real GDP, annual return, limit order, deferred tax, stock split, 401a, wholly-owned subsidiary, margin rate, class C shares, option premium, in escrow, open position, deferred revenue, Key Rate Duration, minority interest, per diem, ex-dividend date, covered put, reverse mortgage, cancelled check, average price per share, FICO score, quality assurance, LIBOR, irrevocable trust


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use