Alison has all her money invested in two mutual funds, A and B. She knows that there is a 40% chance that fund A will rise in price, and a 60% chance that fund B will rise in price given that fund A rises in price. What is the probability that both fund A and fund B will rise in price? Multiple Choice 0.24 0.40 0.76 1.00
Question
Alison has all her money invested in two mutual funds, A and B. She knows that there is a 40% chance that fund A will rise in price, and a 60% chance that fund B will rise in price given that fund A rises in price. What is the probability that both fund A and fund B will rise in price?
Multiple Choice
0.24
0.40
0.76
1.00
Solution
The probability that both fund A and fund B will rise in price can be calculated by multiplying the probability that fund A will rise in price by the probability that fund B will rise in price given that fund A rises in price.
This is because the two events are dependent; the probability of fund B rising in price is dependent on whether fund A rises in price.
So, the calculation would be:
0.40 (probability of A rising) * 0.60 (probability of B rising given A has risen) = 0.24
Therefore, the probability that both fund A and fund B will rise in price is 0.24. So, the correct answer is 0.24.
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