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# CFA: Probability

Question | Answer |
---|---|

Addition rule for prob of A or B occurring | P(A or B) = P(A) + P(B) – P(AB) |

Use multiplication rule for joint probability | Prob(AB) = Prob(A|B) × Prob(B) |

Multiplication rule for independent probabilities | Prob(AB) = Prob (A) × Prob(B) |

Probability That at Least One of Two Events Will Occur | P(A or B) = P(A) + P(B) – P(AB) |

Corr(Ri,Rj) | Cov(Ri,Rj) / std(Ri) * std(Rj) |

Expected Value | E(X) = SUM[P(xi)xi] |

Variance | SUM[P(xi)[xi – E(X)]^2] |

Standard deviation | Square root of variance |

Portfolio Variance Var(Rp) | std^2.a * w^2.a + std^2.b * w^2.b + 2w.a * w.b * Cov.ab --> where Cov.ab = rho.ab * std.a * std.b |

Joint Probability Function | find out more... |

Bayes’ Formula | find out more... |

Choosing r Objects from n Objects (when order doesn't matter and only 2 possible labels) | nCr = n! / [ (n-r)! r!] |

Choosing r Objects From n Objects (when order does matter) | nPr = n! / (n-r)! |

Binomial Random Variable | p(x) = [ n!/ (n-x)! x! ] p^x (1-p)^ n-x |

probability function | p(x) = x / 15 for X = {1,2,3,4,5} p(3) = 20% |

Created by:
thongkk