Question 23 The likelihood of Company As stock price rising

Question 23.
The likelihood of Company A\'s stock price rising is 20 percent, and the likelihood of Company B\'s stock price rising is 30 percent. Assume that the returns of Company A and Company B stock are independent of each other. The probability that the stock price of at least one of the companies will rise is ________.

Solution

The likelihood of Company A’s stock price rising is 20% = 20/100 = 0.2

The probability of nor rising A’s stock price = 1 – 0.2 = 0.8

The likelihood of Company B’s stock price rising is 30% = 30/100 = 0.3

The probability of nor rising B’s stock price = 1 – 0.3 = 0.7

Though Company A and Company B stock are independent of each other,

The probability of not rising both Company A’s and Company B’s stock = 0.8 x 0.7 = 0.56

The probability that the stock price of at least one of the companies will rise is = 1 – 0.56 = 0.44