Explanation:
Given that the economy is good, the probability of a poor economy and a bull market is zero. The other statements are true. The P(normal market) = (0.60 × 0.30) + (0.40 × 0.30) = 0.30. P(good economy and bear market) = 0.60 × 0.20 = 0.12. Given that the economy is poor, the probability of a normal or bull market = 0.30 + 0.20 = 0.50.
(Book 2, Module 12.2, LO 12.e)
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Question 31
An analyst develops the following probability distribution about the state of the economy and the market.
| Initial Probability P(A) | Conditional Probability P(B | A) | |--------------------------|----------------------------------| | Good economy 60% | Bull market 50% | | | Normal market 30% | | | Bear market 20% | | Poor economy 40% | Bull market 20% | | | Normal market 30% | | | Bear market 50% |
Which of the following statements about this probability distribution is least likely accurate?
A
The probability of a normal market is 0.30.
B
The probability of having a good economy and a bear market is 0.12.
C
Given that the economy is good, the chance of a poor economy and a bull market is 0.15.
D
Given that the economy is poor, the combined probability of a normal or a bull market is 0.50.
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