Out of a population of 7.6 thousand mutual funds, how many would you expect would beat their benchmarks just by random chance all but one time out of 7 years? Assume probability of beating benchmark is 1/2.
There are total 7600 mutual funds thus it either beat the market or not and probability is 1/2.
Thus the correct answer can be find as below:
7C6 * (1/2)^7 * 7600 mutual funds
= 7 * .0078125 * 7600
= 416 mutual funds
Thus approx 416 mutual funds would beat their benchmarks just by random chance all but one time out of 7 years
Out of a population of 7.6 thousand mutual funds, how many would you expect would beat...
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