Page 80 - FINAL CFA SLIDES DECEMBER 2018 DAY 3
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Session Unit 3:
                                                                   10. Common Probability Distributions



 LOS 10.k: Determine the p that a normally distributed random variable lies inside a given interval, p.225


                                                   A confidence interval is a range of values around the expected
                                                   outcome within which we expect the actual outcome to be some

                                                   specified % of the time (e.g. -10% <mean/mode> +10)


                                                   For a normal distribution, the CI is based on the EV (point estimate) of

                                                   the RV and on its variability (SD).



                                                   A 95% CI is a range that we expect the RV (E(x) to be in 95% of the time



                                                  In practice, we will not know the actual values for the mean

                                                  and SD, but will have estimated them as X and s.


                                                  The 3CIs of most interest being:

                                                  •    The 90% confidence interval for X is X – 1.65s to X + 1.65s.

                                                  •   The 95% confidence interval for X is X – 1.96s to X + 1.96s.

                                                  •   The 99% confidence interval for X is X – 2.58s to X + 2.58s.
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