Quantitative Methods - Quantitative Methods Section 2
36. Which of the following statements about dependent and independent events is most likely true?
- A
P(A)P(B) is used to determine the joint probability of the two events, A and B, whether they are dependent or independent.
- B
P(A)P(B) is used to determine the joint probability of the two events, A and B, that are independent.
- C
The two events are independent if the occurrence of one event is related to the occurrence of the other.
- Option : B
- Explanation : The multiplication rule is applied only when the two events A and B are independent.
| Scenario | Probability of scenario | Probability of closing down |
| Decrease in customer base | 30% | 60% |
| Maintaining the customer base 30% | 50% | 30% |
| Increase in customer base | 20% | 10% |
Based on the analyst’s estimates, the probability that ShopKart will not close down in the next six months is closest to:
- Option : B
- Explanation : Using the total probability rule, the unconditional probability of closing down is given by: (0.3) (0.6) + (0.5) (0.3) + (0.2) (0.1) = 0.35 The probability that ShopKart will not close down is, 1 – 0.35 = 0.65 = 65%
- Option : A
- Explanation : The total probability rule is used to determine the unconditional probability, given conditional probabilities.
40. Conditional expectation is least likely used in investments to determine which of the following?
- Option : B
- Explanation : With Option A we are considering the expected value of EPS if interest rates increase. This requires the use of conditional probability. Option C has the term „different scenarios‟ which implies the use of conditional probabilities.
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