An Analyst Expects That 10 Percent of All Publicly Traded

question 62

Multiple Choice

An analyst expects that 10 percent of all publicly traded companies will experience a decline in earnings next year.The analyst has developed a ratio to help forecast this decline.If the company is headed for a decline,there is a 70% chance that this ratio will be negative.If the company is not headed for a decline,there is only a 20% chance that the ratio will be negative.The analyst randomly selects a company and its ratio is negative.Based on Bayes' theorem,the posterior probability that the company will experience a decline is ____.

• A)3%
• B)7%
• C)18%
• D)28%