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Scenario: Buying Shares
Geordie is considering buying shares in two companies, Apple and Microsoft. If he invests $1,000 in Apple, there is a 40% probability that his investment will be worth only $800 and a 60% probability that it will be worth $1,200 at the end of a year. If he invests $500 in Apple, there is a 40% probability that his investment will be worth $400 and a 60% probability that it will be worth $600 at the end of a year. The corresponding numbers for investment in Microsoft are identical.
-(Scenario: Buying Shares) Look at the scenario Buying Shares. The probability that Geordie will sustain a loss is _____ if he invests $1,000 in either Apple or Microsoft and is _____ if he invests $500 apiece in Apple and in Microsoft.
A) 40%; 40%
B) 40%; 16%
C) 80%; 20%
D) 40%; 80%

Question

Quizplus · Accepted Answer

If Geordie invests $1,000 in either company, there's a 40% chance of a loss. If he invests $500 in each, the probability of both investments losing is 0.4 * 0.4 = 16%.

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