This problem requires calculating a conditional probability involving events $A$ and $B$, their complements, unions, and intersections. We are given $P(A)$, $P(B)$, and $P(A \cap \bar{B})$.
The probability of event $A$ can be split into two disjoint parts: $A \cap B$ and $A \cap \bar{B}$. Thus, $P(A) = P(A \cap B) + P(A \cap \bar{B})$.
Substituting the given values:
$0.7 = P(A \cap B) + 0.5$
Solving for $P(A \cap B)$:
$P(A \cap B) = 0.7 - 0.5 = 0.2$
First, we find the probability of the complement of $B$: $P(\bar{B}) = 1 - P(B)$.
$P(\bar{B}) = 1 - 0.4 = 0.6$
Next, we use the formula for the probability of the union of two events: $P(X \cup Y) = P(X) + P(Y) - P(X \cap Y)$.
$P(A \cup \bar{B}) = P(A) + P(\bar{B}) - P(A \cap \bar{B})$
Substitute the known probabilities:
$P(A \cup \bar{B}) = 0.7 + 0.6 - 0.5 = 0.8$
We need to find the probability of the intersection of event $B$ with the event $(A \cup \bar{B})$.
Using the distributive property of intersection over union: $B \cap (A \cup \bar{B}) = (B \cap A) \cup (B \cap \bar{B})$.
Since $B$ and $\bar{B}$ are complements, their intersection is the empty set: $B \cap \bar{B} = \emptyset$. Therefore, $P(B \cap \bar{B}) = 0$.
The expression simplifies to: $B \cap (A \cup \bar{B}) = B \cap A$.
Thus, $P(B \cap (A \cup \bar{B})) = P(A \cap B)$.
From Step 1, we know $P(A \cap B) = 0.2$. So, $P(B \cap (A \cup \bar{B})) = 0.2$.
The definition of conditional probability is $P(X|Y) = \frac{P(X \cap Y)}{P(Y)}$.
Applying this formula with $X = B$ and $Y = A \cup \bar{B}$:
$P(B | (A \cup \bar{B})) = \frac{P(B \cap (A \cup \bar{B}))}{P(A \cup \bar{B})}$
Substitute the values found in Step 3 and Step 2:
$P(B | (A \cup \bar{B})) = \frac{0.2}{0.8}$
$P(B | (A \cup \bar{B})) = \frac{2}{8} = \frac{1}{4}$
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