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. Arsalaan A., a well-known financial analyst, selected 50 consecutive years of U.S. financial markets data...

. Arsalaan A., a well-known financial analyst, selected 50 consecutive years of U.S. financial markets data at random. For 11 of the years, the rate of return for the Dow Jones Industrial Average [DJIA] exceeded the rates of return for both the S&P 500 Index and the NASDAQ Composite Index. For 8 of the years, the rate of return for the DJIA trailed the rates of return for both the S&P 500 and the NASDAQ. For 21 of the years, the rate of return for the DJIA trailed the rate of return for the S&P 500. Over the 50 years,

a. determine the probability the rate of return for the DJIA trailed the rate of return for the NASDAQ.
b. determine the probability the rate of return for the DJIA trailed the rate of return for at least one of the other two Indexes.
c. determine the probability the rate of return for the DJIA trailed the rate of return for the S&P 500 given it trailed the rate of return for the NASDAQ.
d. determine the probability the rate of return for the DJIA exceeded the rate of return for the S&P 500 given it exceeded the rate of return for the NASDAQ.

Solutions

Expert Solution

DJIA= Dow Jones Industrial Average

Let us define the following events:

S: The rate of return for the DJIA exceeded the rate of return for the S&P 500 Index.

= complementary event of S i.e.,  the rate of return for the DJIA trailed the rate of return for the S&P 500 Index.

N= The rate of return for the DJIA exceeded the rate of return for the NASDAQ Composite Index.

= complementary event of N i.e., the rate of return for the DJIA trailed the rate of return for the NASDAQ Composite Index.

We have given :

The financial analyst selected 50 consecutive years of U.S. financial markets data at random.

out of 50 years for 11 years, the rate of return for the Dow Jones Industrial Average [DJIA] exceeded the rates of return for both the S&P 500 Index and the NASDAQ Composite Index.

out of 50 years for 8 years, the rate of return for the DJIA trailed the rates of return for both the S&P 500 and the NASDAQ.

out of 50 years, for 21 years, the rate of return for the DJIA trailed the rate of return for the S&P 500.

a)

the probability the rate of return for the DJIA trailed the rate of return for the NASDAQ=

b)

the probability the rate of return for the DJIA trailed the rate of return for at least one of the other two Indexes=

c)

the probability the rate of return for the DJIA trailed the rate of return for the S&P 500 given it trailed the rate of return for the NASDAQ=

d)

the probability the rate of return for the DJIA exceeded the rate of return for the S&P 500 given it exceeded the rate of return for the NASDAQ=

milcah answered 1 year ago
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