Page 63 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
P. 63
Concept Checkers, p203
Session Unit 2:
9. Probability Concepts (B/A/A/C)
B. Go to the poor economic state and read off the probability of good performance [i.e.,
P(good performance | poor economy) = 0.10].
A. P(good economy and neutral performance) = P(good economy)P(neutral performance | good economy)
= (0.3)(0.3) = 0.09.
A. (0.3)(0.6) + (0.5)(0.3) + (0.2)(0.1) = 0.35. This is the sum of all the joint probabilities for good
performance over all states [i.e., ∑P(economic statei) P(good performance | economic statei)].
C. This is an application of Bayes’ formula. P(good economy | good performance) = P(good stock performance | good
economy) × P(good economy) / P(good stock performance).
