Quantitative Methods - 3.2 - Conditional Expectations and Expected Value

Question 1

what are independent events?

Answer 1

events for which the occurrence of one has no influence on the occurrence of the others

Question 2

what is the total probability rule used to determine?

Answer 2

the unconditional probability of an event, given conditional probabilities (scenarios must be mutually exclusive and exhaustive)

Question 3

what is the expected value of a random variable?

Answer 3

weighted average of the possible outcomes for the variable

Question 4

what is the volatility of a random variable? how it is measured?

Answer 4

dispersion of a random variable around its expected value. measured via variance and standard deviation

Question 5

what is the variance defined as?

Answer 5

the probability-weighted sum of the squared deviations from the mean

Question 6

Expected values or expected returns can be calculated using what?

Answer 6

conditional probabilities

Question 7

what are contingent on the outcome of some other event?

Answer 7

conditional expected values

Question 8

what framework is used to calculate expected values

Answer 8

probability tree

Question 9

what is unconditional probability? (aka marginal probability)

Answer 9

the probability an event occurs without taking into account any other preceding events. i.e. stand-alone events