What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Quantitative Methods
Probability Trees and Conditional Expectations practice questions
Probability Trees and Conditional Expectations is part of CFA Level I Quantitative Methods. Quantitative Methods questions emphasize time value of money, probability, sampling, hypothesis testing, regression, and return statistics. Use this page to review the controlling ideas, then work through 1 question with answer explanations and common traps.
Review the worked explanations before moving into adaptive practice. The app version can mix this topic with due reviews and weak related concepts.
Practice this topicHow to practice
Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.
Review signal
Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.
Quantitative Methods
Probability Trees and Conditional Expectations
A risk report gives P(Default \| Downgrade) = 18% and P(Downgrade \| Default) = 60%. The analyst uses 60% as the probability of default after a downgrade. The analyst most likely confused:
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