- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 8. Probability Concepts
- Subject 4. Multiplication Rule for Independent Events

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**CFA Practice Question**

A fundamental analyst studying 100 potential companies for inclusion in her stock portfolio uses the following three screening criteria:

Market-to-Book Ratio > 4 | 20

Current Ratio >2 | 40

Return on Equity >10% | 25

Screening Criterion | Number of Companies meeting the screen

Market-to-Book Ratio > 4 | 20

Current Ratio >2 | 40

Return on Equity >10% | 25

Assuming that the screening criteria are independent, the probability (in %) that a given company will meet all three screening criteria is closest to ______.

A. 2.0

B. 6.5

C. 8.5

**Explanation:**The joint probability of the three independent criteria is calculated as: 0.2 x 0.4 x 0.25 = 0.02 or 2% of the 100 companies.

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