A financial analyst has determined that there is a 23 % probability that a mutual fund will outperform the market over a 1 - year period, provided that it outperforms the market the previous year. If only 12 % of mutual funds outperform the market during any year, what is the probability that a mutual fund will outperform the market 2 years in a row?

Question

Dominique Richard

Mathematics

29 September, 05:59

A financial analyst has determined that there is a 23 % probability that a mutual fund will outperform the market over a 1 - year period, provided that it outperforms the market the previous year. If only 12 % of mutual funds outperform the market during any year, what is the probability that a mutual fund will outperform the market 2 years in a row?

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Vega · Answer 1

23%

Step-by-step explanation:

If in any year there is a 12% chance that a mutual fund will outperform the market, that is in a mutually exclusive situation where the previous years performance is not considered. In this situation where trying to calculate the probability of a mutual fund outperforming the market 2 years in a row, the answer will be 23% as according to the calculations done by the financial analyst where the probability is calculated in a situation dependent on the previous years performance.