Hi
@vaisman (cc
@Nicole Seaman ) Apologies, but the upper matrix on page 101 is a mistake and should not be there (you are correct, it's a mistaken copy from the previous sample problem). For sample problem #2, we should be showing only the following matrix (notice that I have colored in YELLOW the three assumptions given: these are all we need to populate the entire matrix!):
And then I notice a second problem, I don't know how this happened but the problem statement omits the following emphasized sentence: "Stars are rare. Of a given pool of managers, only 16% turn out to be stars.
A new manager was added to your portfolio three years ago. Since then, the new manager has beaten the market every year." Hence the cubed probability: the probability that a star manager beats the market on any given year is 75%, such that the probability she/he will do that for three consecutive years is 75%^3. In this way, the Bayes theorem applied is P(S | 3B) = P(3B | S)*P(S) / P(3B). Sorry for the confusions, thanks!
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