An Analyst Expects That 10% of All Publicly Traded Companies

question 73

Multiple Choice

An analyst expects that 10% 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's theorem,the posterior probability that the company will experience a decline is ____.

• A) 3%.
• B) 7%.
• C) 18%.
• D) 28%.