- CFA Exams
- 2022 Level I
- Study Session 1. Quantitative Methods (1)
- Reading 3. Probability Concepts
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Learning Outcome Statements PDF Download
1. Introduction a. define a random variable, an outcome, and an event; b. identify the two defining properties of probability, including mutually exclusive and exhaustive events, and compare and contrast empirical, subjective, and priori probabilities; c. state the probability of an event in terms of odds for and against the event; | |
2. Unconditional, Conditional, and Joint Probabilities d. calculate and interpret conditional probabilities; | |
3. Addition Rule for Probabilities: the Probability that at Least One of Two Events Will Occur e. demonstrate the application of the multiplication and addition rules for probability; | |
4. Multiplication Rule for Independent Events f. compare and contrast dependent and independent events; | |
5. The Total Probability Rule g. calculate and interpret an unconditional probability using the total probability rule; | |
6. Expected Value (Mean), Variance, and Conditional Measures of Expected Value and Variance h. calculate and interpret the expected value, variance, and standard deviation of random variables; i. explain the use of conditional expectation in investment applications; j. interpret a probability tree and demonstrate its application to investment problems; | |
7. Expected Value, Variance, Standard Deviation, Covariances, and Correlations of Portfolio Returns k. calculate and interpret the expected value, variance, standard deviation, covariances, and correlations of portfolio returns; | |
8. Covariance Given a Joint Probability Function l. calculate and interpret covariance given a joint probability function; | |
9. Bayes' Formula m. calculate and interpret an updated probability using Bayes' formula; | |
10. Principles of Counting n. identify the most appropriate method to solve a particular counting problem and analyze counting problems using factorial, combination, and permutation concepts. |

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