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Use the following information to answer Questions 26 through 28 Suppose a manager for a fund of funds uses historical data to categorize managers as
Use the following information to answer Questions 26 through 28 Suppose a manager for a fund of funds uses historical data to categorize managers as excellent or average. Based on historical performance, the probabilities of excellent and average managers outperforming the market are 80% and 50%, respectively. Assume that the probabilities for managers outperforming the market is independent of their performance in prior years. In addition, the fund of funds manager believes that only 15% of total fund managers are excellent managers. Assume that a new manager started three years ago and beat the market in each of the past three years. 26. Using the Bayesian approach, what is the approximate probability that the new manager is an excellent manager today? A. 18.3% B. 27.5%. C. 32.1%. D. 42.0%. 27. What is the approximate probability that the new manager will outperform the market next year using the Bayesian approach? A. 31.9%. B. 51.2%. C. 62.6% D. 80.0%. 28. What is the probability that the new manager will outperform the market next year using the frequentist approach? A. 41.9% B. 51.2%. C. 80.0% D. 100.0%
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