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Up0
A portfolio manager has a tight tracking error
of 50 basis points. The manager expects to be within this tracking error for a
given quarter 85% of the time. If that expectation is correct and each quarter
is independent, the probability that the manager is within the tracking error
for at least 7 of the next 8 quarters is closest to:- 35%
- 65%
- 75%
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Up2
We will use a binomial distribution with p = 0.85 and n = 10. We want to calculate:
Pr(X >= 7)
= Pr(X = 7) + Pr(X = 8)Pr(X = 7) = (8
choose 7) * (0.85)^7 * (1 – 0.85)^(8 – 7) = 0.3847Pr(X = 8) = (8
choose 8) * (0.85)^8 * (1 – 0.85)^(8 – 8) = 0.2725Pr(X >= 7)
= 0.3847 + 0.2725 = 0.6572 -
Up2
> @AdaptPrep said:
> We will use a binomial distribution with p = 0.85 and n = 10. We want to calculate:You said you set n = 10, did you not mean n = 8?
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Up2
Yes, we meant n = 8, not 10. Good catch!
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