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Question Set - Bayes Theorem: August 4, 2014

This document contains 5 practice problems related to Bayes' Theorem. Problem 1 asks the probability that a competitor did not bid on a job if the problem solver's company gets the job. Problem 2 asks how to update probabilities of outcomes for a proposed book based on a favorable review. Problem 3 asks the probability that a municipal bond issued by a city will receive an A rating. Problem 4 asks the probability that a new policyholder will have an accident within a year and the probability the policyholder is accident-prone if an accident occurs. Problem 5 asks the probability an individual is a college graduate given they smoke. The document encourages working through additional textbook and question bank problems for more practice with Bayes' Theorem.

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62 views2 pages

Question Set - Bayes Theorem: August 4, 2014

This document contains 5 practice problems related to Bayes' Theorem. Problem 1 asks the probability that a competitor did not bid on a job if the problem solver's company gets the job. Problem 2 asks how to update probabilities of outcomes for a proposed book based on a favorable review. Problem 3 asks the probability that a municipal bond issued by a city will receive an A rating. Problem 4 asks the probability that a new policyholder will have an accident within a year and the probability the policyholder is accident-prone if an accident occurs. Problem 5 asks the probability an individual is a college graduate given they smoke. The document encourages working through additional textbook and question bank problems for more practice with Bayes' Theorem.

Uploaded by

Vinay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Question set - Bayes Theorem

August 4, 2014

Problem 1. Olive Construction Company is determining whether it should


submit a bid for a new shopping centre. In the past, Olive’s main com-
petitor, Base Construction Company, has submitted bids 70% of the time.
If Base Construction Company does not bid on a job, the probability that
Olive Construction Company will get the job is 0.50. If Base Construction
Company bids on a job, the probability that Olive Construction Company
will get the job is 0.25. If Olive Construction Company gets the job, what is
the probability that Base Construction Company did not bid?

Problem 2. The editor of a publishing house if trying decide whether to


publish a proposed business statistics book. Information on previously pub-
lished books indicates that 10% are huge successes, 20% are moderate suc-
cesses, 40% are break even, and 30% are losers. Before a publishing decision
is made, the book will be reviewed. In the past, 99% of the huge successes re-
ceived favourable reviews, 70% of the moderate successes received favourable
reviews, 40% of the break evens received favourable reviews, and 20% of the
losers received favourable reviews. If the proposed book receives a favourable
review, how should the editor revise his probabilities for various outcomes to
take this information into account?

Problem 3. A municipal bond service has three rating categories: A, B and


C. Suppose that in the past year, of the municipal bonds issued throughout
the US, 70% were rated A, 20% were rated B, and 10% were rated C. Of
the municipal bonds rated A, 50% were issued by the cities, 40% by suburbs,
and 10% by rural areas. Of the municipal bonds rated B, 60% were issued
by cities, 20% by suburbs, and 20% by rural areas. Of the municipal bonds
rated C, 90% were issued by cities, 5% by suburbs and 5% by rural areas. If

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a new municipal bond is to be issued by a city, what is the probability that
it will receive an A rating?

Problem 4. An insurance company believes that people can be divided


into two categories: those who are accident-prone, and those who are not.
Their statistics show that an accident-prone person will have an accident at
some time within a fixed 1-year period with probability 0.4, whereas this
probability decreases to 0.2 for a non-accident prone person. If we assume
that 30% of the population is accident-prone, what is the probability that a
new policyholder will have an accident within a year of purchasing a policy?
Suppose that a new policyholder has an accident within a year of purchasing
a policy. What is the probability that he or she is accident-prone?

Problem 5. Research is being carried out by the Centre for Disease Control
and Prevention, and their data show that, 40% of the adults who did not
finish high school, 34% of high school graduates, 24% of adults who completed
some college, and 14 % of college graduates smoke. Suppose one individual
is selected at random, and it is discovered that the individual smokes. What
is the probability that the individual is a college graduate?

In addition, you could try your textbook problems on Bayes’ Theorem, and
of course, the problems in the Question Bank you have been already given,
if you want some more practice. You are welcome to discuss these problems
with me, after you try them out yourselves!

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