probability question L1

[mohitester]

A financial analyst estimates that the probability that
the economy will experience a recession in the next
12 months is 25%. She also believes that if the economy
encounters a recession, the probability that her
mutual fund will increase in value is 20%. If there is
no recession, the probability that the mutual fund
will increase in value is 75%. Find the probability
that the mutual fund’s value will increase.

 

[stons]

P(mutual fund value increases) = P(mutual fund increases | recession) + P(mutual fund increases | no recession)
So the answer is 0.2*0.25+0.75*0.75 = 0.05+0.5625= 61.25%
Try drawing the probability tree diagram to make it clear.

 

[mohitester]

thankss