Currently the European Union (EU) is experiencing an economic crisis. The Euro (

Question

Currently the European Union (EU) is experiencing an economic crisis. The Euro (the EU's common currency) is in danger of collapse because several EU countries have a very large amount of debt. If some of these debt-ridden countries default on their debt (ie. can't pay it back) the Euro will collapse. Assume that the following EU countries are in danger of defaulting on their large debts and their probability of default is given in parentheses: Spain (36%), Italy (24%), Greece (61%). Assume that if any TWO of these countries default on their debts the Euro will collapse. What is the MINIMUM/SMALLEST probability the Euro will collapse?

Explanation / Answer

probability that euro will collase =P(spain and Italy defaults+italy and greece defaults+Greece and spain defaults)

=0.36*0.24+0.24*0.61+0.61*0.36=0.4524

out of whcih minimum probability is when spain and greece defaulted which is =0.36*0.24=0.0864

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