Hi In question 10 of CT4 part 4 ,I made the transition matrix by first adding the rows for company A and D and then the columns. So my ans is different than the one given as in the solution first the columns are added for A and D and then the rows. Please confirm if my method is correct or not.
Hello You need to add the columns rather than the rows. It is perhaps easier to consider first companies B and C. The new probabilities we need are: B -> A or D C -> A or D These probabilities are the sums of the respective columns for A and D. Ie: P(B -> A or D) = 0.2 + 0.1 = 0.3 P(C -> A or D) = 0.3 + 0.1 = 0.4 Similarly, think about companies A and D: P(A -> A or D) = 0.5 + 0.1 = 0.6 P(D -> A or D) = 0 + 0.6 = 0.6 Combining the columns gives: Addda B C A 0.6 0.2 0.2 B 0.3 0.6 0.1 C 0.4 0.2 0.4 D 0.6 0.2 0.2 We now need to combine the first and last row to give a single entry for Addda. The rows for A and D are the same so we simply have: Addda B C Addda 0.6 0.2 0.2 B 0.3 0.6 0.1 C 0.4 0.2 0.4 If the rows were different then we need more information to calculate blended transition probabilities out of the new combined state. Hope this helps Andy
