Investment advisors agree that near-retirees, defined as people aged 55 to 65, s

Question

Investment advisors agree that near-retirees, defined as people aged 55 to 65, should have balanced portfolios. Most advisors suggest that the near-retirees have no more than 50% of their investments in stocks. However, during the huge decline in the stock market in 2008, 20% of near-retirees had 80% or more of their investments in stocks. Suppose you have a random sample of 10 people who would have been labeled as near-retirees in 2008. a. What is the probability that during 2008 none had 80% or more of their investment in stocks? .1074

What is the probability that during 2008 exactly one had 80% or more of his or her investment in stocks?

Explanation / Answer

P(retirees had 80% or more of their investments in stocks)=20%=0.2

random sample=n=10

now we use here binomial distribution with parameter n=10 and p=0.2 and for

Binomial distribution ,P(X=r)=nCrpr(1-p)n-r  

(a)P(X=0)=10C0(0.2)0(1-0.2)10-0=(0.8)10=0.1074 ( alternativley we use ms-excel =BINOMDIST(0,10,0.2,0))

(b)P(X=1)=10C1(0.2)1(1-0.2)10-1=10*0.2*(0.8)9=10*0.2*0.1342=0.2684

( alternativley we use ms-excel =BINOMDIST(1,10,0.2,0))

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.