CFA Practice Question

There are 434 practice questions for this study session.

CFA Practice Question

An insurance agent has appointments with 4 prospective clients tomorrow. From past experience, the agent knows that the probability of making a sale on any appointment is 1 out of 5. Using the rules of probability, what is the likelihood that the agent will sell a policy to 3 of the 4 prospective clients?
A. 0.410
B. 0.250
C. 0.026
Explanation: This is a binomial probability. The probability of getting r successes out of n trials, where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p), is given by: n!(pr)[q(n-r)]/r!(n-r)!. Here, n = 4, r = 3,p = 0.20 and q = 0.80. Therefore, we have 4!(0.23)(0.81)/3!1! = 0.026.

User Contributed Comments 3

User Comment
Xocrevilo Given that the salesmen has a 20% (1 in 5) chance of success of any one sale, then the chance of making more than one sale must be less than 20%. Therefore, answers A & B both look too high.
Kuki good observation by Xocrevilo which could save valuable time!
8thlegend Can someone show me how to solve this algebrically(?) ?
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