- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 8. Probability Concepts
- Subject 2. Unconditional, Conditional, and Joint Probabilities

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**CFA Practice Question**

If an analyst is trying to estimate the value of a stock, using the formula E(Y | E) = [y_1 * P(y_1 |E) + y_2 * P(y_2|E) + ... y_n * P(y_n|E), the analyst is making use of ______.

A. subjective probability

B. the multiplication rule for independent events

C. conditional expectation

**Explanation:**Since the stock value is conditioned on an uncertain event and the likelihood of certain stock price outcomes given the occurrence of that uncertain event, the analyst is using conditional expectation. The expected value is conditioned upon the occurrence of the event.

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