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Theory of Probability
Define probability and its range.
Probability is numerical measure of chance of event occurring, ranging from 0 (impossible) to 1 (certain).
State the complementary rule of probability.
P(A) + P(A′) = 1, where A′ is the complement of event A.
What is Probability of Default (PD) in banking?
PD predicts chance borrower fails obligations within 12-month horizon; feeds into Basel-III risk-weighted assets.
Distinguish permutation from combination.
Permutation: order matters. Combination: order irrelevant. Both are arrangements of objects.
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