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A market Analysis system is developed to decide when to buy securities. The analyst gathered the following information when validating the system. Assume there are
A market Analysis system is developed to decide when to buy securities. The analyst gathered the following information when validating the system. Assume there are two types of investments, good vs poor. 10% of investments are poor investment: P(poor investment)=0.10. 75% of investments pass the test of the system, i.e. scoring good: P(pass test) = 0.75. The system correctly identifies 80% of poor investments given a poor investment, i.e. P(not pass test poor investment)=0.80. Question (A): What is the probability of good investment? Question (B): Using Bayes's formula, calculate the probability that an investment is a poor investment given that it passes the test, i.e. P(poor investment | pass test)
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