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Chapter 4:
Probability Definitions
o Probability
o Event
o Simple
o Event
o Sample space
Types of Probability
o A priori classical probability
An example
o Empirical classical probability
An example
o Subjective probability
An example
o The differences between the three above. Their calculation methods.
Simple vs. Joint Probability
o Definitions
o Differences
Mutually Exclusive Events
o Definition
o Example
o Counter-example
Collectively Exhaustive Events
o Definition
o Example
o Counter Example
Constructing Contingency Tables
Computing Joint and Marginal Probabilities
o Formulae
o Calculating from a given contingency table
Probability Summary
o Certainty
o Uncertainty
o Impossibility
General Addition and Multiplication Rules
o Solve examples
Computing Conditional Probability
o Solve examples w’th cont’ngency tables and decision trees
Statistical Independence
o Definition
o Give an example
Bayes’ Theorem
o Definition
o Formula
o Example
Chapter 5:
Definitions
o Random Variable
Discrete RV
Continuous RV
o Probability Distribution
Condition of being Mutually Exclusive and Collectively Exhaustive
Representing the discrete probability distribution with a
Simple chart
Bar chart
Expected Value
o Example
Dispersion with RVs
o Example
Covariance
o Definition
o What happens if
Positive
Negative
Zero
o Example
The Sum of Two Random Variables
o Expected value
o Variance
o Standard Deviation
Portfolio Expected Returns and Expected Risk
o What represents expected returns?
o What represents expected risk?
o Example
Important Probability Distributions
o What are the three important discrete probability distributions?
o What are the three important continuous probability distributions?
Binomial Distribution
o When to apply?
o What are its properties?
o What is its formula?
What are the three values you need to calculate a binomial probability?
Example
o What are its characteristics?
Mean
Variance
Standard Deviation
o How does its shape look as n increases and p approaches to 0.5?
Poisson Distribution
o Area of opportunity
o When to apply?
o What is its formula?
What are the two values you need to calculate a Poisson probability?
Example
o How does its shape look for different lambda values?
o What are its characteristics?
Mean
Variance
Standard Deviation
What is the relationship between its mean and variance?
Hypergeometric Distribution
o What difference is there, between the Binomial and Hypergeometric Distribution?
o What are the four values needed in calculating a Hypergeometric probability?
o What is its formula?
Example
o What are its characteristics?
Mean
Variance
Standard Deviation
o Example