# Bayes probability Eps sum

A = Change in sequential EPS is positive next quarter 0.55

AC = 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

SC = 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 | SC) = 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|SC) = 0.40

Help :’(

I’ll draw the tree with bullets:

• Start
• S: P(S) = 0.55
• A: P(A | S) = p (the unknown)
• AC: P(AC | S) = 0.55 − p
• SC: P(SC) = 0.45
• A: P(A | SC) = 0.40
• AC: P(AC | SC) = 0.45 − 0.40 = 0.05

0.55 = P(A) = P(A | S) + P(A | SC) = P(A | S) + 0.40

P(A | S) = 0.15

Hey,

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?

I would draw it as

Start

• S: P(S) = 0.55
• X
• Y
• SC: P(SC) = 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
• So P(A|S) = 0.37/0.55 = 0.6727

@s2000magician

Volume 1 Reading 9 Example 7 Bayes bank EPS

Start

• S: P(S) = 0.55
• X
• Y
• SC: P(SC) = 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.