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Up8
Alex is examining a portfolio that contains 100 stocks that are either value or Growth. Out of these 100 stocks 40% are value stock. The previous portfolio manager had selected 70% of the value stocks and 80% of the growth stocks. What is the probability of selecting a stock at random that is either a value stock or was selected by previous portfolio manager?
A) 28%
B) 76%
C) 88%can anyone help me to understand this?
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Up2
Probability of selecting a stock at random that is either a value stock or was selected by previous portfolio manager
= Pvalue + Pgrowth by previous PM
= 0.4 + (1-0.4) * (0.8)
= 0.4 + 0.48
= 88%
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Up0
Hi Zee,
Why is it assumed that the stock selected by the previous portfolio manager must be a growth stock?
Shouldn’t it be a combination of Pgrowth by previous PM + Pvalue by previous PM?
So would be Pvalue + (Pgrowth by previous PM + Pvalue by previous PM) – Intersection of the two (being value stock?)
0.4 + [(1-0.4) * 0.8Â + (0.6) * 0.7] – (0.7*0.6)Â Â = 0.88? (Same answer but diff. logic)
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Up1
Because if the selected stock was a value stock, that scenario is already covered by my first parameter (Pvalue). If I included it again I would be double counting. Hope that helps!
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