SOLUTION: A financial analyst estimates that the probability that the economy will experience a recession is 30%. She also believes that if there is a recession the probability that her mutu

Click here to see ALL problems on Probability-and-statistics

Question 261168: A financial analyst estimates that the probability that the economy will experience a recession is 30%. She also believes that if there is a recession the probability that her mutual fund will increase in value is 20%. If no recession, the probability that the fund will increase is 75%. Find the probability that the mutual fund will increase in value.
I think that the solution is the union of two complementary/mutually exclusive events: increase if there is crisis + increase if there is no crisis. 0.3*0.2+0.7*0.75 but according to the book the probability is a bit higher than what I've received by this
Answer by stanbon(75887) (Show Source):
You can put this solution on YOUR website!
A financial analyst estimates that the probability that the economy will experience a recession is 30%.
She also believes that if there is a recession the probability that her mutual fund will increase in value is 20%.
If no recession, the probability that the fund will increase is 75%.
----------------------------------------------------------------------
Find the probability that the mutual fund will increase in value.
======================================================================
I think that the solution is the union of two complementary/mutually exclusive events: increase if there is crisis + increase if there is no crisis. 0.3*0.2+0.7*0.75 but according to the book the probability is a bit higher than what I've received by this
----
Ans: According to Bayes yours is the correct answer.
The book and/or the answer book is not always correct.
=====================================================
Cheers,
Stan H.