A financial analyst has just received information that could affect the price of
ID: 3324464 • Letter: A
Question
A financial analyst has just received information that could affect the price of a particular stock in the next few days. She is 80% certain that the information is correct. If the information is correct, she believes the stock price will soon fall wi th a probability of 0.75. If the information is incorrect, she believes the stock price will soon fall with probability 0.50. If the stock price soon falls, what is the probability that the information was correct?
a. 0.86
b. 0.50
c. 0.75
d. 0.83
e. 0.92
A financial analyst has just received information that could affect the price of a particular stock in the next few days. She is 80% certain that the information is correct. If the information is correct, she believes the stock price will soon fall wi th a probability of 0.80. If the information is incorrect, she believes the stock price will soon fall with pro bability 0.40. If the stock price soon falls, what is the probability that the information was correct?
a. 0.68
b. 0.32
c. 0.80
d. 0.86
e. none of these choices are correct
f. 0.64
g. 0.36
h. 0.89
Explanation / Answer
probability that stock price falls =P(information is correct and stock falls+information is not correct and stock falls)
=0.8*0.75+0.2*0.5=0.7
hence probability of information was correct given stock price falls =0.8*0.75/0.7=0.86
option a
e)
probability that stock price falls =P(information is correct and stock falls+information is not correct and stock falls)
=0.8*0.8+0.2*0.4=0.72
hence probability of information was correct given stock price falls =0.8*0.8/0.72=0.89
option h
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