Independent solution

How to solve this Conditional Probability question

Setup

Setup

Let H and L denote the two fixed risk classes, and let T and N denote accidents in the current and following years. Compute the current-year accident probability by mixing over class.

Pr(T)=0.10(0.12)+0.90(0.05)=0.057\Pr(T)=0.10(0.12)+0.90(0.05)=0.057

Model

Model

The two years are independent only after conditioning on class. Therefore, square each class-specific annual probability before mixing the two-year joint event.

Pr(TN)=0.10(0.12)2+0.90(0.05)2\Pr(T\cap N)=0.10(0.12)^2+0.90(0.05)^2

Compute

Compute

Evaluate the joint numerator and normalize it by the observed current-year event.

Pr(TN)=0.00144+0.00225=0.00369\Pr(T\cap N)=0.00144+0.00225=0.00369
Pr(NT)=0.003690.057=0.0647368421\Pr(N\mid T)=\frac{0.00369}{0.057}=0.0647368421\ldots

Answer

Answer

The conditional next-year probability rounds to 0.065.

0.065(D)\boxed{0.065\quad\text{(D)}}