Investment advisors agree that the near-retirees, defined as people aged 55 to 6

Question

Investment advisors agree that the 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, 24% 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 none had 80% or more in their investment stocks?

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

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

Explanation / Answer

Probability of a person not having 80% or more in stocks is 1 - .24 = .76

Probability of 10 of 10 people not having 80% or more in stocks is .76^10 = .0643 (answer)

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