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Homework answers / question archive / A fund manager is considering investing in stock of a health provider
A fund manager is considering investing in stock of a health provider. The manager's assessment of probabilities for rates of return of this stock over the next year is summarized in the accompanying table. Let A be the event "Rate of return will be more than 10%" and B the event "Rate of return will be negative".
| Rate of Return | Probability |
|---|---|
| -10% or less | 0.04 |
| More than -10% to 0.0% | 0.28 |
| More than 0% to 10% | 0.33 |
| More than 10% to 20% | 0.14 |
| More than 20% | 0.21 |
Are A and B mutually exclusive? Why?
Answer: Yes
A and B are mutually exclusive as indicated by the probability of their intersection which is 0. This is because event A describes a rate of return which is more then 10% and event B describes a rate of return which is negative. Thus, the can't both occur. The rate of return simply can't be greater than 0% and be negative at the same time.
