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.

What is the probability that during 2008 two or fewer had 80% or more of their investment in stocks?

Explanation / Answer

Solution-

Let X be the number of people who had 80% or more of their investment in stocks

Then this follows binomial distribution with parameters

n = 10 and probability of success (p) = 0.2

Required probability = P(X <3)

= P(X=0) + P(X=1) + P(X=2)

= 0.6778 [ using binomial tables ]

Answer

TY!

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

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