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Stock probability

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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 35%, 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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Solution Summary

Stock probability in this case is determined.

$2.19
See Also This Related BrainMass Solution

Probabilities: Answer the following questions and show all your calculations.

Over the 48 years from 1950 through 1997, the stock market has gone up in the month of January for 31 times; it has gone up for the whole year for 36 times, and it has gone up both for the year and in January for 29 times.

1) Based on historical data, what is the probability the stock market will go up in January?

2) Based on historical data, what is the probability the stock market will go up for the whole year?

3) What is the conditional probability that the stock market wil go up for the year given the stock market has already gone up in the month of January?

4) Are the stock market's January performance and its annual performance independent events? What is the meaning of this conclusion to a financial analyst? Please use statistical analysis (not simple verbal narration!) to justify your answer.

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