Probability Question

ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

Re: Probability Question

Postby ankuragrawal.nit » Mon Jan 09, 2012 3:07 pm

I do not understand why we have to take the probability of transferring from HNI to LNI
It is clearly mentioned in the question
• One instrument from HNI is transferred to LNI portfolio.
• ''Now'' Jensen selects an instrument from LNI

So we need to calculate the probability after the instrument is transferred

This case is similar to
Bag 1 containing 5 red and 7 blue balls and bag 2 containing 6R and 11 B balls

Bag 2 depends on bag 1 in that the quantity being transferred and bag 1 is independent of bag 2 for the question asked.
I believe the answer shd be 6/18 + 7/18
=13/18

Am I missing something here? o.O

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ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

Re: Probability Question

Postby ankuragrawal.nit » Tue Jan 10, 2012 4:44 pm

Thanks for the prompt reply.
Yes I do see that I have missed out on the weights.

However I havnt "doubled" the probability in that case it would be simply (13/18)/2.

Also I am unable to understand intuitively why is this "taking cases and solving approach" failing over here.
Is this approach not valid for mutually exhaustive events?
like either case 1 will happen i.e. red ball is transferred or case 2 i.e. blue ball is transferred and these are transferred with a sure probability of "1" in each of the two cases individually.
So their weights should be "1"

I know its a silly question to ask but I am unable to get thru this one clearly.

Kindly help.




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