Question

Following unwelcome publicity, the offer price of shares in Coronet Casino is now 12.3 monetary units. An analyst has been asked to predict the change in price in one year’s time. The analyst defines three events: loss (L) if the bid price in one year’s time is below today’s offer price; modest gain (M) if the bid price in one year’s time is between 1.0 and 1.05 of today’s offer price; and profit (P) if the bid price in one year’s time exceeds 1.05 of today’s offer price. One of L, M, or P must occur. The analyst imagines drawing a ball at random from a bag containing red, yellow, and green balls. The red, yellow and green balls represent L, M, and P respectively and the number of each colour determines the analyst’s assessment of the probability of each event. The numbers of red, yellow, and green balls are 55, 15, and 30 respectively.

(a) What is the probability that L or M occurs?

(b) What is the probability that L does not occur?

Answer 1