Query on Conditional Probability

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

Query on Conditional Probability

Postby muthuthere » Thu May 26, 2016 1:22 pm

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?

Thanks in Advance
Muthu.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Query on Conditional Probability

Postby edupristine » Wed Jun 01, 2016 8:49 am

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

Re: Query on Conditional Probability

Postby muthuthere » Thu Jun 02, 2016 12:50 pm

Thanks..


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