Probability Concepts (2025 CFA Level I Exam – Quantitative Methods – Module 3)

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Topic 1 – Quantitative Methods
Reading 3 – Probability Concepts
0:00 Introduction
2:21 LOS : Define a random variable, an outcome, and an event.
3:32 LOS : Identify the two defining properties of probability, including mutually exclusive and exhaustive events, and compare and contrast empirical, subjective, and a priori probabilities
8:45 LOS : Describe the probability of an event in terms of odds for and against the event
LOS : Calculate and interpret conditional probabilities
9:48 LOS : Demonstrate the application of the multiplication and addition rules for probability
15:55 LOS : Compare and contrast dependent and independent events
16:43 LOS : Calculate and interpret an unconditional probability using the total probability rule
19:16 LOS : Calculate and interpret the expected value, variance, and standard deviation of random variables
24:52 LOS : Explain the use of conditional expectation in investment applications
27:00 LOS : Interpret a probability tree and demonstrate its application to investment problems
31:16 LOS : Calculate and interpret the expected value, variance, standard deviation, covariances, and correlations of portfolio returns
41:11 LOS : Calculate and interpret the covariances of portfolio returns using the joint probability function
51:34 LOS : Calculate and interpret an updated probability using Bayes’ formula
55:41 LOS : Identify the most appropriate method to solve a particular counting problem and analyze counting problems using factorial, combination, and permutation concepts