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A stock portfolio contains 20 stocks. Of these stocks, 10 are considered “large-cap” stocks, 5 are “mid cap,” and 5 are “small cap.” The portfolio manager has been asked by his client to develop a report that highlights 7 randomly selected stocks. When she presents her report to the client, all 7 of the stocks are large-cap stocks. The client is very suspicious that the manager has not randomly selected the stocks. She believes that the chances of all 7 of the stocks being large cap must be very low. Compute the probability of all 7 being large cap and comment on the concerns of the client. |
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