A = Change in sequential EPS is positive next quarter 0.55

A^{C} = Change in sequential EPS is 0 or negative next quarter 0.45

S = Change in sequential EPS is positive in the prior quarter 0.55

S^{C} = Change in sequential EPS is 0 or negative in the prior quarter 0.45

On inspecting the data, you observe some persistence in EPS changes: Increases tend to be followed by increases, and decreases by decreases. The first probability estimate you develop is P(change in sequential EPS is positive next quarter | change in sequential EPS is 0 or negative in the prior quarter) = P(A | S^{C}) = 0.40.

Find P(A|S).

Can anyone please show me how to draw the tree diagram. when i follow the traditional method, i am quite confused with the given info P(A|S^{C}) = 0.40

Help :’(

I’ll draw the tree with bullets:

- Start
- S: P(S) = 0.55
- A: P(A | S) =
*p* (the unknown)
- A
^{C}: P(A^{C} | S) = 0.55 − *p*

- S
^{C}: P(S^{C}) = 0.45
- A: P(A | S
^{C}) = 0.40
- A
^{C}: P(A^{C} | S^{C}) = 0.45 − 0.40 = 0.05

0.55 = P(A) = P(A | S) + P(A | S^{C}) = P(A | S) + 0.40

P(A | S) = **0.15**

Hey,

Firstly, Thanks for your time.

Secondly, the answer for the question is P(A|S) is 0.6727

I have done some bayes questions but this question is really confusing, i have no clue.

i forgot The most recent quarter’s EPS (2Q:2014) is announced, and the change is a positive sequential change (the event S). You are interested in forecasting EPS for 3Q:2014.

Clearly, there’s more going on here than meets the eye.

Where did you get this question?

@s2000magician

Volume 1 Reading 9 Example 7 Bayes bank EPS

@cpk123 thanks for your input

Start

- S: P(S) = 0.55
- S
^{C}: P(S^{C}) = 0.45
- 0.40 P(A|sc) => so P(A) here = 0.45 * 0.4 = 0.18
- 0.60
**Since total of P(S) = 0.55 -> you have an upper P(X) = 0.55 - 0.18 = 0/37** How is p(x) = 055-0.18

I hope i dont sound stupid, i did pretty bad in qm in college, i hope to study it at least for this exam

Good job, CPK.

I don’t know what I was thinking.

Not much, evidently.