## Related questions with answers

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.

$\begin{array}{lclc}\hline &&&\textbf{Probability of Stock}\\ &\textbf{Probability of}&\textbf{~~~~~~~Stock}&\textbf{Performance in Given}\\ \textbf{State of Economy}&\textbf{Economic State}&\textbf{Performance}&\textbf{Economic State}\\\hline \text{Good}&.3&\text{Good}&.6\\ &&\text{Neutral}&.3\\ &&\text{Poor}&.1\\\hline \text{Neutral}&.5&\text{Good}&.4\\ &&\text{Neutral}&.3\\ &&\text{Poor}&.3\\\hline \text{Poor}&.2&\text{Good}&.2\\ &&\text{Neutral}&.3\\ &&\text{Poor}&.5\\\hline \end{array}$

What is the probability that the economy will be neutral and the stock will experience poor performance?

Solution

VerifiedIn 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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