Question

An investment group at a Wall Street firm has been working diligently on creating a new portfolio for one of its major clients. The client is interested in retail and consumer products companies. The investment group feels that Walmart (WMT), being the #1 retailer in the world, carries significant weight in the overall direction that the New York Stock Exchange (NYSE) moves. Based on much analysis, if the Walmart (WMT) stock increases, the probability that the NYSE also increases is 65%. The investment group believes that there is a 70% probability that the Walmart (WMT) stock will go up.

1. What is the probability that the NYSE will also increase?

2. What is the probability that the Walmart (WMT) stock goes down?

13. What is the probability that the Walmart (WMT) stock goes up and the NYSE decreases?

Answer 1

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Answer:

a)

The probability that the NYSE also increases is given by  multiplying the prb of NYSE increase and walmart increase

=> 0.70*0.65=0.455 = 45.5%

b)

probability that the Walmart (WMT) stock goes down is the negation of Walmart stock hoing up

= 1-0.70=0.30 = 30%

c)

probability that the Walmart (WMT) stock goes up and the NYSE decreases is prob of walmart increase * Nyse going down

=0.7*(1-0.65)=0.245 = 24.5%