Question

An investor holds two stocks, each of which can rise (R), remain unchanged (U), or decline (D) on any particular day.

Assume that for the first stock (on a particular day)

P(R) = 0.4 , P(U) = 0.5 , P(D ) = 0.1

and that for the second stock (on a particular day)

P(R) = 0.3 , P(U) = 0.4 , P(D ) = 0.3

Assuming that these stocks move independently, find the probability that both stocks decline; the probability that exactly one stock rises; the probability that exactly one stock is unchanged; the probability that both stocks rise. (Round your answers to 2 decimal places.)

Answer 1

ANSWER:

1)

Both decline = P1(D) * P2(D)

= 0.1 * 0.3

= 0.03
(stock 1 declines AND stock 2 declines)

2)

Exactly one rises = P1(R) * [P2(U) + P2(D)] + P2(R) *[P1(U) + P1(D)]

= 0.4*[0.4+ 0.3] + 0.3*[0.5 + 0.1]

= 0.28 + 0.18

= 0.46
(stock 1 rises AND {stock 2 declines or remains unchanged}) OR (stock 2 rises AND {stock 1 declines or remains unchanged})

3)

Exactly one unchanged = P1(U) * [P2(R) + P2(D)] + P2(U) *[P1(R) + P1(D)]

= 0.5*[0.3 + 0.3] + 0.4*[0.4 + 0.1]

= 0.3 + 0.2

= 0.5

4)

Both rise = P1(R)*P2(R)

= 0.4 * 0.3

= 0.12

NOTE:: I HOPE YOUR HAPPY WITH MY ANSWER....***PLEASE SUPPORT ME WITH YOUR RATING...

***PLEASE GIVE ME "LIKE"...ITS VERY IMPORTANT FOR ME NOW....PLEASE SUPPORT ME ....THANK YOU