Theory of Probability
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 79 rapid-fire Q&A cards.
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.
Define sample space and sample point.
Sample space S = set of all possible outcomes; each element is a sample point; n(S) = count.
What defines mutually exclusive events?
Two events A and B are mutually exclusive if A ∩ B = ∅ (cannot occur together).
State the addition theorem for two mutually exclusive events.
P(A ∪ B) = P(A) + P(B) when A and B are mutually exclusive.
Define conditional probability P(A|B).
P(A|B) = P(A ∩ B) / P(B); probability of A given B has occurred.
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