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(52812)   (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.
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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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