Question

Question 14 0.75 points Save Answer Exhibit 15-2. You would like to invest in one of the three available investment plans: money market, bonds, or stocks. The payoffs (profits) of each plan under two possible future economic conditions, PE (poor economy) and GE (good economy) are shown below. The probability of the occurrence of PE is 0.4. PE GE Money Market 3000 3400 Bonds 2800 3500 Stocks 1500 3800 Suppose that before making the investment decision, you consider hiring an economist who can provide either U=“unfavorable” or F = “favorable” report concerning the future economic conditions. Assume that the following probability information is also available: P(U|PE) = 0.7, P(F|PE) = 0.3 P(U|GE) = 0.1, P(F|GE) = 0.9. Refer to Exhibit 15-2. What is the posterior probability P(PEF)? Ο o 0.042 O b. 0.182 Oc. 0.228 O d. 0.087