Consider a sequential trade model in which a security has an uncertain value. The value V of the security can either be $150 or $250 with equal probability. The proportion of informed traders is 60%, whereas the proportion of liquidity traders is 40%. As usual, liquidity traders buy or sell with equal probability, whereas informed traders only buy when they know the security price is high, and sell when they know the security price is low. The probability that V = $250, conditional that the first trade is a buy, is: A P[V = 250 | Buy] = 0.2 B) P[V=250 | Buy] = 0.3 D) P[V = 250 | Buy] = 0.7 E P[V = 250 | Buy] = 0.5 F P[V = 250 | Buy] = 0.8 None of the above.
Consider a sequential trade model in which a security has an uncertain value. The value V of the security can either be $150 or $250 with equal probability. The proportion of informed traders is 60%, whereas the proportion of liquidity traders is 40%. As usual, liquidity traders buy or sell with equal probability, whereas informed traders only buy when they know the security price is high, and sell when they know the security price is low. The probability that V = $250, conditional that the first trade is a buy, is: A P[V = 250 | Buy] = 0.2 B) P[V=250 | Buy] = 0.3 D) P[V = 250 | Buy] = 0.7 E P[V = 250 | Buy] = 0.5 F P[V = 250 | Buy] = 0.8 None of the above.
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
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![Consider a sequential trade model in which a security has an uncertain value. The value V of the security can either be $150 or $250
with equal probability. The proportion of informed traders is 60%, whereas the proportion of liquidity traders is 40%. As usual,
liquidity traders buy or sell with equal probability, whereas informed traders only buy when they know the security price is high,
and sell when they know the security price is low.
The probability that V = $250, conditional that the first trade is a buy, is:
A
B P[V = 250 | Buy] = 0.3
C) P[V = 250 | Buy] = 0.5
D
P[V = 250 | Buy] = 0.2
E
F
P[V = 250 | Buy] = 0.7
P[V = 250 | Buy] = 0.8
None of the above.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F88195f40-96d5-41c0-91f9-ed8a58f7770d%2F93409261-b22f-487a-858c-a3f5515e71a6%2F4eradcph_processed.png&w=3840&q=75)
Transcribed Image Text:Consider a sequential trade model in which a security has an uncertain value. The value V of the security can either be $150 or $250
with equal probability. The proportion of informed traders is 60%, whereas the proportion of liquidity traders is 40%. As usual,
liquidity traders buy or sell with equal probability, whereas informed traders only buy when they know the security price is high,
and sell when they know the security price is low.
The probability that V = $250, conditional that the first trade is a buy, is:
A
B P[V = 250 | Buy] = 0.3
C) P[V = 250 | Buy] = 0.5
D
P[V = 250 | Buy] = 0.2
E
F
P[V = 250 | Buy] = 0.7
P[V = 250 | Buy] = 0.8
None of the above.
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