## Query on Conditional Probability

muthuthere
Posts: 7
Joined: Tue Sep 29, 2015 8:47 am

### Query on Conditional Probability

Can you pl. solve this and explain....

You are examining a portfolio that consists of 400 investment grade obligors and 600
speculative grade (junk) obligors. Of the investment grade obligors, two (2) have defaulted; of
the junk obligors, 18 have defaulted. If you randomly select an obligor and observe that it has
defaulted, what is the probability the obligor is speculative?

Muthu.

edupristine
Finance Junkie
Posts: 964
Joined: Wed Apr 09, 2014 6:28 am

### Re: Query on Conditional Probability

Hi Muthu

In this Question you have to solve the probability of the obligor is speculative

Favourable/total

Obligor Probability= 0.4*2/400 &
speculative = 0.6*18/600
then the probability the obligor is speculative= (0.6*18/600)/(0.4*2/400)+(0.6*18/600)
= 0.9 or 90%

muthuthere
Posts: 7
Joined: Tue Sep 29, 2015 8:47 am

Thanks..

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