Question: someone explain this + total probability like im five please. also how do you know when to use total probability? An analyst estimates that a
An analyst estimates that a share price has an 80% probability of increasing if economic growth exceeds 3%, a 40% probability of increasing if economic growth is positive but less than 3%, and a 10% probability of increasing if economic growth is negative. If economic growth has a 25% probability of exceeding 3% and a 25% probability of being negative, what is the probability that the share price increases? A) 22.5%. x B) 42.5%. C) 62.5% x Explanation The three outcomes given for economic growth are mutually exclusive and exhaustive. The probability that economic growth is positive but less than 3% is 100% - 25% - 25% = 50%. Using the total probability rule, the probability that the share price increases is (80%)(25%) + (40%)(50%) + (10%)(25%) = 42.5%. (LOS 8., 8.1)
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