A portfolio manager estimates the probabilities of the following events for a mutual fund:
·Event A: the fund will earn a return of 5%.
·Event B: the fund will earn a return below 5%
The least appropriate description of the events is that they are:
Events are exhaustive when they cover all possible outcomes. Mutually exclusive means that only one event can occur at a time. Two events are dependent if the occurrence of one event does affect the probability of occurrence of the other event. In this situation, Event A and B are both mutually exclusive (because they cannot occur at the same time) and dependent (because if one event occurs, the probability of the other becomes zero). However, the two events are not exhaustive because they do not cover the event that the fund will eam a retum above 5%.