Bunuel wrote:

CHALLENGE QUESTIONS

Bonds rated B have a 25% chance of default in five years. Bonds rated C have a 40% chance of default in 5 years. A portfolio consists of 30% B-rated bonds and 70% of C-rated bonds. If a randomly selected bond defaults in a five year period, what is the probability that it was a B-rated bond?

A. 3/40

B. 15/71

C. 1/4

D. 3/10

E. 56/71

hi..

In such Qs we have to note that the EVENT has already happenedso first find the ways in which it can happen..

let the total bonds be 100 - 30 B rated and 70 C- rated

1) B rated bonds -25 % chances and total 30 of them so \(\frac{25}{100}*30=\frac{15}{2}\)

2) C-rated bonds - 40% chances and total 70 of them so \(\frac{40}{100}*70=28\)

so total = \(\frac{15}{2}+28\)

now let's find the prob it is B-rated

= \(\frac{15}{2}/(\frac{15}{2}+28)=\frac{15}{15+56}=\frac{15}{71}\)

ans B

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2)Combination of similar and dissimilar things : http://gmatclub.com/forum/topic215915.html

3) effects of arithmetic operations : https://gmatclub.com/forum/effects-of-arithmetic-operations-on-fractions-269413.html

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