An investor holds two stocks each of which can rise R remain

An investor holds two stocks, each of which can rise (R), remain unchanged (U), or decline (D) on any particular day. Find the probability that both stocks rise; that both stocks decline; that exactly one stock declines by assuming that for each stock P(R) = 0.6, P(U) = 0.1, and P(D) = 0.3, and assuming that the two stocks move independently.

Solution

P( R) = 0.6 * 0.6 = 0.36

P(D) = 0.3 * 0.3 = 0.09

P( one decilenes) = 0.3