A stock portfolio contains 20 stocks. Of these stocks, 10 are considered "large-cap" stocks, 5 are "mid- cap," and 5 are "small cap." The portfolio manager has been asked by his client to develop a report that highlights 7 randomly selected stocks. When she presents her report to the client, all 7 of the stocks are large-cap stocks. The client is very suspicious that the manager has not randomly selected the stocks. She believes that the chances of all 7 of the stocks being large cap must be very low. Compute the probability of all 7 being large cap.
A) 0.0015
B) 0.0008
C) 0.0121
D) 0.0309

Question

Quizplus · Accepted Answer

The probability of selecting 7 large-cap stocks from a portfolio of 20 stocks, where 10 are large-cap stocks, is (10/20) * (9/19) * (8/18) * (7/17) * (6/16) * (5/15) * (4/14) = 0.0015.

A Stock Portfolio Contains 20 Stocks