What is the probability of a favorable market in this scenario?

Prepare for the PHFO Quantitative Analysis For Business Exam. Study with flashcards, multiple choice questions, hints, and explanations to ensure confidence and success in your exam!

Multiple Choice

What is the probability of a favorable market in this scenario?

Explanation:
Probability is about how often a favorable market occurs out of all possible market states. If there are five equally likely market states and two of them are favorable, the chance is 2 divided by 5, which equals 0.40. So the probability of a favorable market is 0.40 (40%). The other numbers correspond to different counts of favorable states: one of five would be 0.20, three of five would be 0.60, and four of five would be 0.80. If the states weren’t equally likely, you’d weight them, but with equal likelihoods the simple count-based ratio gives the answer.

Probability is about how often a favorable market occurs out of all possible market states. If there are five equally likely market states and two of them are favorable, the chance is 2 divided by 5, which equals 0.40. So the probability of a favorable market is 0.40 (40%). The other numbers correspond to different counts of favorable states: one of five would be 0.20, three of five would be 0.60, and four of five would be 0.80. If the states weren’t equally likely, you’d weight them, but with equal likelihoods the simple count-based ratio gives the answer.

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