Probability Trees and Conditional Expectations (2025 CFA® Level I Exam – QM – Module 4)

Ace CFA® Level I Quantitative Methods with a clear walkthrough of probability trees and conditional expectations. Jim covers expected value, variance, standard deviation, decision trees, and Bayes’ theorem with practical examples (sales forecasting, bond recovery, coin toss trees) and exam tips.

What you’ll learn

Probability weighted EV, variance and σ

Building and reading probability and decision trees

Conditional and unconditional expectations

Updating beliefs with Bayes’ rule

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Topic 1 – Quantitative Methods
Learning Module 4 – Probability Trees and Conditional Expectations
LOS : Calculate expected values, variances, and standard deviations and demonstrate their application to investment problems.
LOS : Formulate an investment problem as a probability tree and explain the use of conditional expectations in investment application.
LOS : Calculate and interpret an updated probability using Bayes’ formula.

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