Page 8 - FINAL CFA I SLIDES JUNE 2019 DAY 3

Session Unit 2:

9. Probability Concepts
LOS 9.f: Calculate and interpret 1) the JP of two events,

2) the p that at least one of two events will occur, given the p of each and the JP of the two events, and 3) a JP of
any number of independent events.

2. Calculating the Probability That At Least One of Two Events Will Occur, p.174

We said, we use the Additive Rule for this: P(A or B) = P(A) + P(B) – P(AB)

For mutually exclusive events, where the JP, P(AB) = 0, P(A or B) = P(A) + P(B).

Example: Addition rule of probability: Using the information in our previous
interest rate and recession example and the fact that the unconditional probability of
a recession, P(R), is 34%, determine the probability that either interest rates will
increase or a recession will occur.