Question

Alison has all her money invested in two mutual funds, A and B. She knows that there is a 40% chance that fund A will rise in price, and a 60% chance that fund B will rise in price given that fund A rises in price. What is the probability that both fund A and B will rise in price?
A. 0.24
B. 0.40
C. 0.76
D. 1.00

Answer 1

Answer:

A. 0.24

Explanation:

From the question ,  

The probability that mutual funds A will rise is 40 % , i.e. , P ( A ) = 0.40  

The second statement given is , the probability of rise in B with A , is 60% , i.e. , P ( B | A )  = 0.6

Therefore , to calculate the probability that both funds will increase is given by P( B n A ) .

Since ,  

P ( B | A ) = P (B n A) / P(A)

Now, putting the respective values -

0.6 = P(B n A) / 0.4

rearranging ,  

P (B n A) = 0.6 * 0.4

P(B n A) = 0.24

probability that both the fund A and fund B will rise in price = 0.24 .