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

Learn everything about Probability Concepts for the CFA Level I Exam (Quantitative Methods – Module 3).
This lecture covers all key Learning Outcome Statements (LOS) from defining random variables to calculating covariance, correlation, and portfolio variance. It’s designed to help CFA candidates understand and apply probability theory in financial decision-making.
In this video, you’ll learn:
- Random variables, outcomes, and events
- Mutually exclusive and exhaustive events
- Empirical, subjective, and a priori probabilities
- Conditional and unconditional probabilities
- Multiplication and addition rules for probability
- Expected value, variance, and standard deviation
- Covariance, correlation, and portfolio applications
- Bayes’ Theorem and probability trees
- Counting principles: factorials, combinations, and permutations
Level I CFA Program Video Lessons offered by AnalystPrep
For All of the Videos (57 Readings), plus Level I Study Notes, Practice Questions, and Mock Exams: https://analystprep.com/shop/cfa-level-1-learn-practice-package/
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
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