Price changes are independent across days

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Prior knowledge about a stock indicates that the probability θ that the price will rise on any given day is either 0.45 or 0.55. Past data from similar stocks suggest that θ is equally likely to be 0.45 or 0.55 (i.e., P (θ = 0.45) = P (θ = 0.55) = 0.5). Let A be the event that the price of the stock rises on each of 4 consecutive days. Assuming that the price changes are independent across days (so that the probability that the price rises on each of 4 consecutive days is θ 4 ), find the probability P (θ = 0.55|A) that θ = 0.55 given 4 consecutive price increases.

Reference no: EM132382071

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