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Quant, probability

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  • This topic has 3 replies, 3 voices, and was last updated Jan-22 by Avatar of Zee TanZee Tan.
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      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?

       

    • Avatar of Zee TanZee Tan
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      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%

       

      jinkai voted up
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      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) * 0.8  + (0.6) * 0.7] – (0.7*0.6)   = 0.88? (Same answer but diff. logic)

      • Avatar of Zee TanZee Tan
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        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!

        jinkai voted up
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