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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 %
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.
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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