Question

Tiger Funds Ltd. operates a number of mutual funds in high technology and in financial sectors. Hussein Roberts is a fund manager who runs a major fund that includes a wide variety of technology stocks. As fund manager he decides which stocks should be purchased for the mutual fund. The compensation plan for fund managers includes a first-year bonus for each stock purchased by the manager that gains more than $10 \%$ in the first six months it is held. Of those stocks that the company holds, $40 \%$ are up in value after being held for two years. In reviewing the performance of Mr. Roberts, they found that he received a first-year bonus for $60 \%$ of the stocks that he purchased that were up after two years. He also received a first-year bonus for $40 \%$ of the stocks he purchased that were not up after two years. What is the probability that a stock will be up after two years given that $\mathrm{Mr}$. Roberts received a first-year bonus?

   Tiger Funds Ltd. operates a number of mutual funds in high technology and in financial sectors. Hussein Roberts is a fund manager who runs a major fund that includes a wide variety of technology stocks. As fund manager he decides which stocks should be purchased for the mutual fund. The compensation plan for fund managers includes a first-year bonus for each stock purchased by the manager that gains more than $10 \%$ in the first six months it is held. Of those stocks that the company holds, $40 \%$ are up in value after being held for two years. In reviewing the performance of Mr. Roberts, they found that he received a first-year bonus for $60 \%$ of the stocks that he purchased that were up after two years. He also received a first-year bonus for $40 \%$ of the stocks he purchased that were not up after two years. What is the probability that a stock will be up after two years given that $\mathrm{Mr}$. Roberts received a first-year bonus?
 
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Statistics for Business and Economics: Global Edition
Statistics for Business and Economics: Global Edition
Newbold P., Carlson… 8th Edition
Chapter 3, Problem 105 ↓

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Let $A$ be the event that a stock is up after two years. Let $B$ be the event that Mr. Roberts received a first-year bonus for a stock.  Show more…

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Tiger Funds Ltd. operates a number of mutual funds in high technology and in financial sectors. Hussein Roberts is a fund manager who runs a major fund that includes a wide variety of technology stocks. As fund manager he decides which stocks should be purchased for the mutual fund. The compensation plan for fund managers includes a first-year bonus for each stock purchased by the manager that gains more than $10 \%$ in the first six months it is held. Of those stocks that the company holds, $40 \%$ are up in value after being held for two years. In reviewing the performance of Mr. Roberts, they found that he received a first-year bonus for $60 \%$ of the stocks that he purchased that were up after two years. He also received a first-year bonus for $40 \%$ of the stocks he purchased that were not up after two years. What is the probability that a stock will be up after two years given that $\mathrm{Mr}$. Roberts received a first-year bonus?
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Key Concepts

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Conditional Probability
Conditional probability is the probability of an event occurring given that another event has occurred. This concept frames the problem by evaluating the likelihood of a stock being up after two years under the condition that a bonus was received, separating the interdependent probabilities involved.
Law of Total Probability
The Law of Total Probability breaks down complex probability scenarios into simpler, mutually exclusive cases. In the context of the problem, it is used to determine the overall probability of receiving a bonus by accounting for the probabilities of bonus occurrence both when the stock is up and when it is not.
Bayes' Theorem
Bayes' Theorem is a formula that inverts conditional probabilities to find the probability of an underlying cause given an observed outcome. Here, it is applied to compute the probability that a stock is up after two years given that the fund manager received a first-year bonus on that stock.

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Tiger Funds Ltd. operates a number of mutual funds in high technology and in financial sectors. Hussein Roberts is a fund manager who runs a major fund that includes a wide variety of technology stocks. As fund manager he decides which stocks should be purchased for the mutual fund. The compensation plan for fund managers includes a first-year bonus for each stock purchased by the manager that gains more than 10% in the first six months it is held. Of those stocks that the company holds, 40% are up in value after being held for two years. In reviewing the performance of Mr. Roberts, they found that he received a first-year bonus for 60% of the stocks that he purchased that were up after two years. He also received a first-year bonus for 40% of the stocks he purchased that were not up after two years. What is the probability that a stock will be up after two years given that Mr. Roberts received a first-year bonus?

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