Terry is a typical investment advisor at BeatTheMarket.com. Each stock that Terry recommends outperforms the stock market average over the upcoming year with probability 0.5, independent of all other stocks and all other recommendations he or any other advisor makes. (a) You ask Terry to pick 100 different stocks. What’s the probability that 60 or more of the stocks he recommends will outperform the stock market average over the next year. (Use normal approximation) George is a good investment advisor at BeatTheMarket.com. Each stock that George recommends outperforms the stock market average over the upcoming year with probability 0.6, independent of all other stocks and all other recommendations he or any other advisor makes. BeatTheMarket.com gives you a list of 100 stocks that are all recommended by one of their two advisors. The company tells you that the list is equally likely to have come from Terry or from George. (b
Terry is a typical investment advisor at BeatTheMarket.com. Each stock that Terry recommends outperforms the stock market average over the upcoming year with
(a) You ask Terry to pick 100 different stocks. What’s the probability that 60 or more of the stocks he recommends will outperform the stock market average over the next year. (Use normal approximation)
George is a good investment advisor at BeatTheMarket.com. Each stock that George recommends outperforms the stock market average over the upcoming year with probability 0.6, independent of all other stocks and all other recommendations he or any other advisor makes. BeatTheMarket.com gives you a list of 100 stocks that are all recommended by one of their two advisors. The company tells you that the list is equally likely to have come from Terry or from George.
(b) Given that 60 or more of the stocks on the list outperform the market over the upcoming year, what’s the probability that the list came from George.
(Hint: use Bayes’ rule)
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