Page 43 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
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Session Unit 2:
9. Probability Concepts
LOS 9.i: Explain the use of conditional expectation in investment applications, p.181
Evs/Returns can be calculated using conditional probabilities. An analyst would use a
conditional expected value to revise his expectations when new information arrives.
Consider the effect of a tariff on steel imports on the returns of a domestic steel stock.
The stock’s expected return, given that the government imposes the tariff, will be
higher than the expected return if the tariff is not imposed.
