An Investment Advisor Recommends the Purchase of Shares in Probaballisitics,Inc

question 11

Essay

An investment advisor recommends the purchase of shares in Probaballisitics,Inc.He has made the following predictions:
P(Stock goes up 20% | Rise in GDP)= .6
P(Stock goes up 20% | Level GDP)= .5
P(Stock goes up 20% | Fall in GDP)= .4
An economist has predicted that the probability of a rise in the GDP is 30%,whereas the probability of a fall in the GDP is 40%.
a.What is the probability that the stock will go up 20%?
b.We have been informed that the stock has gone up 20%.What is the probability of a rise or fall in the GDP?

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Definitions:

Investing Activity

Operations concerning the buying and selling of long-term assets and other financial investments that do not qualify as cash equivalents.

Suppliers

Entities or individuals that provide goods or services to another entity or individual, usually in a business-to-business context.

Time Period Assumption

An accounting principle that the life of a business can be divided into discrete time periods, such as months and years, for reporting purposes.

Operating Cycle

The duration of time it takes for a company to purchase inventory, sell the goods, and collect cash from the sale.