Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

statistics probability question An investor is considering how to invest his money. He has two options either a domestic mutual fund that only invests in

statistics probability question

image text in transcribedimage text in transcribed
An investor is considering how to invest his money. He has two options either a domestic mutual fund that only invests in the Pharmaceuticals, Biotechnology & Life Sciences sector or an international aggressive mutual fund that invests in promising startups in the Commercial & Professional Services sector. The payoff (profit) after one year for these investments depends on the state of economy. The investor thinks that there is 0.3 probability that the economy will improve and 0.7 probability that economy will decline. The estimated payoffs are shown in the table below. State of the Economy Economy Improves Economy Declines (0.30) (0.70) 4.000 Suppose that the investor has decided to hire a professional economic analyst who will provide additional information about the global and domestic economic outlook. Based on the analyst's past record, the investor has estimated 0.72 probability that the analyst would present a favourable report given the economy actually improves, and 0.91 probability that the analyst would present an unfavourable report given the economy actually declines. Round all probability values to 4 decimals places. (a) Use this information to fill in the following revised probability table for a favourable report. Probability Revisions given a Favourable Report State of Prior Conditional Probability Joint Posterior Probability Nature Probability P(Fav. /State of Nature) Probability|P(State of Nature/Fav.) Economy Declines Economy Improves P(Favourable) = 1.0000 P(Economic Improvement | Favourable report) = (b) Use this information to fill in the following revised probability table for an unfavourable report. Probability Revisions given an Unfavourable Report State of Prior Conditional Probability Joint Posterior Probability Nature Probability P(Unfav./State of Nature) Probability P(State of Nature/Unfav.) Economy Declines Economy Improves P(Unfavourable) = 1.0000 P(Economic Improvement | Unfavourable report) =

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Probability, Random Variables, And Random Processes

Authors: Hwei P Hsu

3rd Edition

0071824774, 9780071824774

More Books

Students also viewed these Mathematics questions

Question

ssment Task 3 ssment Task 3

Answered: 1 week ago

Question

Technology

Answered: 1 week ago

Question

Population

Answered: 1 week ago

Question

The feeling of boredom.

Answered: 1 week ago