SOLUTION: A financial analyst estimates that the probability that the economy will experience a recession in the next 12 months is 25%. She also believes that if the economy encounters a re

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Question 1184916: A financial analyst estimates that the probability that the economy will experience a recession in the next 12
months is 25%. She also believes that if the economy encounters a recession, the probability that her mutual
fund will increase in value is 20%. If there is no recession, the probability that the mutual fund will increase in
value is 75%. Find the probability that the mutual fund’s value will increase.
Answer by ikleyn(52830)   (Show Source): You can put this solution on YOUR website!
.
A financial analyst estimates that the probability that the economy will experience a recession in the next 12
months is 25%. She also believes that if the economy encounters a recession, the probability that her mutual
fund will increase in value is 20%. If there is no recession, the probability that the mutual fund will increase in
value is 75%. Find the probability that the mutual fund’s value will increase.
~~~~~~~~~~~~~~~~~~ 


    the probability that the mutual fund’s value will increase is  P = 0.25*0.20 + (1-0.25)*0.75 = 0.6125 = 61.25%.    ANSWER

Solved.

The formula is self-explanatory.



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