Page 55 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
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LOS 9.n: Calculate and interpret an Session Unit 2:
updated probability using Bayes’ 9. Probability Concepts
formula, p.191
But P(O) = P(O | I) × P(I) + P(O | IC) × P(IC)
P(O) = (0.6 × 0.3) + (0.4 × 0.7)
P(O) = 0.46
Now the updated probability of the increase in prices, given that
Electcomp expands overseas, can be computed:
Meaning?
If the new information of “expand overseas” is announced, the prior
probability estimate of P(I) = 0.30 must be increased to 0.3913.