Question: Prior knowledge about a stock indicates that the probability that the price will rise on any given day is either 0.35 or 0.65. Past data
Prior knowledge about a stock indicates that the probability that the price will rise on any given day is either 0.35 or 0.65. Past data from similar stocks suggest that is equally likely to be 0.35 or 0.65 (i.e., P ( = 0.35) = P ( = 0.65) = 0.5). Let A be the event that the price of the stock rises on each of 3 consecutive days. Assuming that the price changes are independent across days (so that the probability that the price rises on each of 3 consecutive days is 3 ), find the probability P ( = 0.35|A) that = 0.35 given 3 consecutive price increases.
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