Page 15 - FINAL CFA I SLIDES JUNE 2019 DAY 3
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Session Unit 2:
9. Probability Concepts
LOS 9.h: Calculate and interpret an unconditional probability using the total probability rule.
Expected Value (EV), p. 178/179
Probability-weighted average of the possible outcomes of a random variable, X:
E(X) = ΣP(xi)xi = P(x1)x1 + P(x2)x2+ … + P(xn)xn
The EV of the roll of a fair die, where X = no. that faces up on the die, is:
We can never roll a 3.5 on a die, but over the long term, 3.5 should be the average value of all outcomes.
