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Sir in this question when question says that calculate
a) Probability of negative cash balance at the end of the period 2
b) Probability of exceeding overdraft limit at the end of period 2I just want to ask that while calculating the above two things,which columns of the examiners answer we will consider , also please explain the reason of the columns considered because I am pretty confused in this
The column headed ‘period 2 closing balance’ is showing all the possible balances at the end of period 2.
The column headed join probability is showing the probability of each of those balances happening.For the probability of a negative cash balance, you add up the probabilities of those that end up with a negative balance.
For the probability of exceeding the overdraft limit, you add up the probabilities of those that are more than $2M negative.
So for these two parts we just have to see joint probability column & period 2 closing balance column?
As you said that for the probability of a negative cash balance,add up the probabilities of those that end up with a negative balance. But here we will add the probabilities of period 2 cashflow OR we will add joint probabilities?
As you said that for the probability of exceeding the overdraft limit, add up the probabilities of those that are more than $2M negative. But here we will add the probabilities of period 2 cashflow OR we will add joint probabilities?
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