a. If the real interest rate is expected to rise on the next business day, what is the probability that the stock price index will also rise that day? Please show your work. [2 points]
b. If the real interest rate is expected to rise the next business day, what is the probability that the stock price index will fall that day? Please show your work. [2 points]
c. What is the probability that both the real interest rate and the stock price index will fall the next business day? Please show your work. [1 point]
d. What is the probability that the real interest rate or the stock price index will rise on the next business day? Please show your work. [1 point]
Answer:
given that
A financial analyst is trying to use changes in real interest rate to predict changes in a stock price index.
consider the events
A: stock price index increase
B: real interest rate increase
P(A) = 440/1000 = 0.44
P(B) = 490/ 1000=0.49
=stock price and real interest both are increase
= stock price increase and real interest rate decrease
real rate increase and stock price decrease =
a) required probability =
by definition of conditional probability
b) required probability =
c) required probability
d) required probability
A financial analyst is trying to use changes in real interest rate to predict changes in...
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