In a 1984 study involving a sample of 200 American .rms listed on the New York S

ID: 3303826 • Letter: I

Question

In a 1984 study involving a sample of 200 American .rms listed on the New York Stock

Exchange, 37% of the .rms were found to be incorporated in the state of Delaware.

In the sample, 24% of the .rms provided for change in control bene.ts (.golden para-

chute.) whereby the top executives of the .rm would be provided with generous pay-

ment packages if their positions were terminated as a result of merger or takeover.

The percentage of the sample that did not provide a .golden parachute.and were not

incorporated in the state of Delaware was found to be 55%.

(a) Complete the following table:

provide .golden parachute.

incorporated in Delaware

(b) Calculate the conditional probability of a .rm that provides a .golden parachute.

being incorporated in the state of Delaware.

provide .golden parachute.

incorporated in Delaware

Ans:

P(delaware)=0.37

P(golden parachute)=0.24

P(not golden parachute and not delaware)=0.55

b)P(delaware/golden parachute)=P(delaware and golden parachute)/P(golden parachute)

=0.16/0.24

=0.67

Golden parachute not golden parachute marginal Delaware 0.16 0.21 0.37 not delaware 0.08 0.55 0.63 marginal 0.24 0.76 1

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