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Question
Probabilities for three states of the economy and probabilities for the returns on a particular stock in each state are shown in the table below.
What is the probability that the economy will be neutral and the stock will experience poor performance?
Solution
VerifiedStep 1
1 of 2In order to determine the probability of both of these things happening at the same time we need to multiply the probability of a neutral economy (.5) by the probability of a poor stock performance in a neutral economy (.3).
.3 X .5 = .15 or 15%
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