bmaggie

 

A firm holds two $50 million bonds with call dates this week.

• The probability that Bond A will be called is 0.80.
• The probability that Bond B will be called is 0.30.

The probability that at least one of the bonds will be called is closest to:

A) 0.86.

B) 0.24.

C) 0.50.

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We calculate the probability that at least one of the bonds will be called using the addition rule for probabilities:

P(A or B) = P(A) + P(B) – P(A and B), where P(A and B) = P(A) × P(B)

P(A or B) = 0.80 + 0.30 – (0.8 × 0.3) = 0.86