CFA Practice Question
You believe your broker makes profitable trades at a 50% rate (that is half the trades profitable, half unprofitable). In the last month your broker makes just 1 profitable trade out of a total of 3 trades. What is the probability that a broker with a probability 50% of making a profitable trade, would make 1 or less profitable trades out of a total of 3 trades?
A. 0.3333
B. 0.5000
C. 0.2500
Explanation: The probability of making 0 profitable trades is 1/8, the probability of making 1 profitable trade is 3 * 1/8. So the result is 1/8 + 3/8. Intuitively, the probability of one success should be the same as the probability of 1 failures, and the probability of 2 successes should be the same as the probability of 2 failures.
User Contributed Comments 5
| User | Comment |
|---|---|
| polanki | where this 1/8 has come from |
| bd1984 | Polanki: P(0)+p(1) p(1)=3!/2!*(.5)^1*(.5)^2=.375 p(9)=3!/3!*(.5)^0*(.5)^3=.125 |
| scottm8571 | essentially it is zero tails on three coin flips, .5^3 or .125 1/8 |
| Mikehuynh | Good job bd1984 |
| Scc0813 | It can be done with the binomial probability formula. |