suppose 5 of the stock meeting your stock selection criteria

suppose 5% of the stock meeting your stock selection criteria are in telecommunications industry. also dividend paying telecom stocks are 1% of the total number of stock meeting your selection criteria. what is the probability that a randomly selected stock is dividend paying given that it is a telecom stock meeting your criteria

Solution

Conditional Probability:

P(Stock is dividend paying/Telecom stock that meets criteria)

= P(Stock is dividend paying and telecom stock that meets criteria) / P(Telecom stock meets criteria)

= 0.01/0.05 = 0.20

0.20 is the probability that a randomly selected stock is dividend paying given that it is a telecom stock meeting your criteria. This probility is knowkn as Coniditional probability.