Your investment advisor has a portfolio of 100 stocks: 60 high-growth stocks and
ID: 3355852 • Letter: Y
Question
Your investment advisor has a portfolio of 100 stocks: 60 high-growth stocks and 40 high-dividend stocks. Of the 40 high-growth stocks, 30 have increased in value over the last year, whereas 10 of the high-dividend stocks have increased in value. (a) If a stock is selected at random, what is the probability that the stock will be a high-dividend stock that has increased in value? (b) What is the probability of selecting a stock that has not increased in value? (c) If the stock selected has increased in value, what is the probability that it is a high-growth stock?
Explanation / Answer
a) The probability that the stock will be a high-dividend stock that has increased in value is 10/100 = 0.10
b) The probability of selecting a stock that has not increased in value 40/100 = 0.40
c) P(high growth stock / increase in value) = P(high growth stock and increase in value) / P(increase in value
= (30/100) / (40/100) = 30/40 = 0.75
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