Financial Risk Manager Part 1
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Calculate the probability that a stock return is either below -5% or above 5%, given:
P(R < -5%) = 16% P(R > +5%) = 18%
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NNikitesh
A
0.02
B
0.32
C
0.34
D
0.16
Explanation:
Since the two events are mutually exclusive (a stock return cannot be both below -5% and above +5% at the same time), the probability of either event occurring is simply the sum of their individual probabilities:
P(R < -5% or R > +5%) = P(R < -5%) + P(R > +5%) = 16% + 18% = 34% = 0.34
This follows the basic probability rule for mutually exclusive events: P(A ∪ B) = P(A) + P(B) when A and B are mutually exclusive.
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