You are still an investor in DriveMed stock. To review the givens, your prior probabilities are P(EPS
Question:
You are still an investor in DriveMed stock. To review the givens, your prior probabilities are P(EPS exceeded consensus) = 0.45, P(EPS met consensus) = 0.30, and P(EPS fell short of consensus) = 0.25. You also have the following conditional probabilities:
1. What is your estimate of the probability P(EPS exceeded consensus | DriveMed expands)?
Recall that you updated your probability that last quarter’s EPS exceeded the consensus estimate from 45 percent to 82.3 percent after DriveMed announced it would expand. Now you want to update your other priors.
Update your prior probability that DriveMed’s EPS met consensus.
2. Update your prior probability that DriveMed’s EPS fell short of consensus.
3. Show that the three updated probabilities sum to 1. (Carry each probability to four decimal places.)
4. Suppose, because of lack of prior beliefs about whether DriveMed would meet consensus, you updated on the basis of prior probabilities that all three possibilities were equally likely: P(EPS exceeded consensus) = P(EPS met consensus) = P(EPS fell short of consensus) = 1/3.
Step by Step Answer:
1 The probability is PEPS met consensus DriveMed expands The probability PDriveMed expands is found by taking each of the three conditional probabilities in the statement of the problem such as PDrive...View the full answer
