Question

You have invested in three different stocks: Engineering Aces, Upton Clothiers, and Thompson Musical Instruments. Because you have diversified your stocks so well, the way they change is independent. The probabilities of the stocks changing in value by more than 10% in a given week are listed below.

P(E) = 19%
P(U) = 11%
P(T) = 6%
What is the probability that all three will change by more than 10% in the same week?

Answer 1

answer is 0.001254.

Explanation:

Given that you invested in 3 stocks of Engineering Aces, Upton Clothiers, and Thompson Musical Instruments.

Also given that each stock value is independent of the other.

Let E be the event changing in value by more than 10% in a given week for Engineering Aces,

U be the event changing in value by more than 10% in a given week for Upton Clothiers, and T be the event changing in value by more than 10% in a given week for Thompson Musical Instruments.

Given that P(E) = = 19%

P(U) = 11%

P(T) = 6%

probability that all three will change by more than 10% in the same week

= P(EUT)

= P(E) P(U) P(T) since three events are independent.

=0.19(0.11)0.06

= 0.001254