Quantitative Methods

4. An economist is evaluating the relationship between economic growth and currency appreciation. Using historical data, he determines that the probability of the economy growing is 63%, the probability of the economy shrinking is 24%, and the probability of the economy remaining flat is 13%. Later he found that the currency appreciated.

The economist estimated the following probabilities of economic growth, contraction, or flatness based on the new information about the currency:

P(currency appreciation | economy shrinks) = 11%

P(currency appreciation | economy grows) = 74%

P(currency appreciation | economy unchanged) = 15%

What is the probability of economic contraction based on new information about currency appreciation?

A. 5.16 %

B. 11.0 %

C. 23.5 %

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5. Stock analyst Bernhard Schwaiger wants to know the ROE of all companies in the S&P 500 for 2015. He will most likely need:

A. time-series data.

B. cross-sectional data.

C. panel data.

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6. Which of the following probabilities is most likely to be based on historical data?

A. An empirical probability.

B. A priori probability.

C. A subjective probability.

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