Henry Chow is a stockbroker working for Merrill Lynch. He knows from past experi

Question

Henry Chow is a stockbroker working for Merrill Lynch. He knows from past experience that there is a 40% chance that his new client will want to include U.S. equity in her portfolio and a 20% chance that she will want to include foreign equity. There is also a 10% chance that she will want to include both U.S. equity and foreign equity in her portfolio.

a.

What is the probability that the client will want to include U.S. equity if she already has foreign equity in her portfolio? (Round your answer to 2 decimal places.)

  Probability

b.

What is the probability that the client decides to include neither U.S. equity nor foreign equity in her portfolio? (Round your answer to 2 decimal places.)

  Probability

Henry Chow is a stockbroker working for Merrill Lynch. He knows from past experience that there is a 40% chance that his new client will want to include U.S. equity in her portfolio and a 20% chance that she will want to include foreign equity. There is also a 10% chance that she will want to include both U.S. equity and foreign equity in her portfolio.

Explanation / Answer

P (include U.S. equity) = 0.40

P (include foreign equity) =0.20

P (include US equity and foreign equity) = 0.10

Question a)

P (include U.S. equity| include foreign equity) = 0.10/0.20

= 0.5

Answer: 0.5

Question b)

Here we need to find

P ( neither include U.S. equity nor include foreign equity ) = 1 – P (neither include U.S. equity or include foreign equity)

= 1 – [ 0.40 +0.20 -0.10]

= 0.5

Answer: 0.5

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