ADMAS UNIVERSITY

KALITY CAMPUS

ACCOUNTING & FINANCE DEPARTMENT

INDIVIDUAL ASSIGNMENT

BASIC STATISTICS

NAME ID
1. Eyob Astatke 0479/20

SUB -TO: Mr

SUB- DATE: JAN 23

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 Chapter Four summary
Probability and Probability Distribution

Some basic Concepts of Probability

 A probability is a quantitative measure of uncertainty - a number that conveys the
strength of our belief in the occurrence of an uncertain event.
 Probability, in common parlance, refers to the chance of occurrence of an event or
happening. In order that we are able to compute it, a proper understanding of certain
basic concepts in probability theory is required. These concepts are an experiment, a
sample space, and an event

A. Experiment
An experiment is a process that leads to one of several possible outcomes. An outcome of an
experiment is some observation or measurement.

Note: Each trial of an experiment has a single observed outcome which is called a basic outcome
or an elementary event. Any particular card drawn from a deck is a basic outcome. The precise
outcome of a random experiment is unknown before a trial.
B. Sample Space
A sample space is the set of all possible outcomes that may occur as a result of a particular
experiment.

C. Event
An event, in probability theory, constitutes one or more possible outcomes of an experiment. An
event is a subset of a sample space. It is a set of basic outcomes. We say that the event occurs if
the experiment gives rise to a basic outcome belonging to the event.

Events can be:

i. Simple Event: – is a subset of sample space that has exactly one sample point. It can also be
called as element or fundamental event.

ii. Compound Event: – is a subset of sample space that has two or more sample points.

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iii. Complement Event: – the complement of event A is denoted by A’. A’ is the event that has
all the points in a sample space that are not in A.
iv. Impossible Event: – is a subset of sample space that contains none of the Points.
v. Independent Events:-Two events are said to be independent when the happening of one event
doesn’t affect the happening of the other.
E.g. rolling a die
vi. Dependent Events: - Two events are said to be dependent when the happening (or
occurrence) and non-occurrence of an event affects the happening of another event.

vii. Mutually Exclusive Event: - Events are said to be mutually exclusive if one and only of
them can take place at a time.

viii. Collectively Exhaustive Events/Lists: - When a set of events for an experiment includes
every possible outcome the set is said to be collectively exhaustive event/list.

Postulates and Basic Theorems of Probability

Postulates of Probability

The basic assumptions in probability are:

i. Given a sample space, S, of a random experiment, the probability of the entire sample space is
1. I.e. P (S) = 1

ii. The probability of an event ranges from 0 to 1. i.e. 0 P (A) 1

Where: A is any event in a random experiment and P (A) is the probability of A

iii. If two events A and B are mutually exclusive (disjoint events), then the probability of either
A or B or both is

P (A or B) = P (AUB) = P (A) + P (B) … Addition rule

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Basic Theorems of Probability

Theorem 1
If two events A and B are not mutually exclusive, then the occurrence of either event A or B is
given by the probability:
P (A or B) = P (AUB) = P (A) + P (B) – P (A n B)
Theorem 2
If A is an event from a sample space, S, and A’ is its complement then:
P (A) + P (A’) = 1

Theorem 3

If events A1, A2, ------, An, are mutually exclusive i.e. no two of the events have any sample
space outcome in common. The probability that one of them will occur equals the sum of their
individual probabilities; symbolically,
P (A1UA2U-----UAn) = P (A1) + P (A2) +-----+P (An)

Theorem 4
If an experiment can result in any one of N different equally likely outcomes, and if n of these
outcomes together constitute event A, then the probability of event A is:
P (A) = n/N
Theorem 5
P ( ) = 0 for any sample space S.
Proof: Since S and are mutually exclusive and SU = S in accordance with the definition of the
empty set ( ), it follows that;
P(S) = P(S U )
= P(S) + P ( ) (by Postulate 3)
And, hence, that P ( ) = 0
Theorem 6
If A and B are events in a sample space S and A c B, then P (A) P (B).
Proof: Since A c B, we can write B=AU (A′ ∩B)
Then, since A and A' ∩B are mutually exclusive, we get
P (B) = P (A) + P (A'∩B) (by Postulate 3)

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P (B) P (A) (by Postulate 2)

Conditional Probability (dependent events)

Definition: If A and B are any two events in a sample space S and P(A) not equal to 0, the

conditional probability of B given A is P(B\A)=

PROBABILITY DISTRIBUTION

 A probability distribution can be thought of as a theoretical distribution, which is a

probability distribution that describes how outcomes are expected to vary.

The Concept of Random Variable

Definition: A variable whose values are determined by chance with associated probabilities is
called a random variable.

Random variables are usually denoted with capital letter X, Y, Z etc, while the values taken by
them are denoted by lower case letters x, y, z etc
the random variable X takes values between x1 and x2, both inclusive. A random variable can be
discrete or continuous.

Discrete Random Variable

If the random variable X can assume only a particular finite or countably infinite set of values, it
is said to be a discrete random variable. For example, if you throw a die, the outcome X is a
random variable, which can assume only the values 1, 2, 3, 4, 5 and 6.
Continuous Random Variable
A random variable X is said to be continuous if it can take all possible values (integral as well as
fractional) between certain limits. Continuous random variables occur when we deal with
quantities that are measured on a continuous scale

Probability Distribution
A probability distribution shows the possible outcomes of an experiment and the probability of
each of these outcomes. That is, probability distribution is a complete list of all possible of
values of a random variable and their corresponding probabilities.

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Discrete probability distribution

Discrete probability distribution is a distribution whose random variable is discrete. It describes a

finite set of possible occurrences, for discrete “count data.”

Continuous probability distribution

Continuous probability distribution is a probability distribution whose random variable is
continuous. It describes an “unbroken” continuum of possible occurrences.

Expectation and Variance of Random variable

The objective of this section is to introduce you with the most common parameters of probability
distributions. There are some summary measures in terms of which we can summarize the
behavior of probability distributions. The most common of these are the average called expected
value and dispersion about the average called the variance.

Expectation

The averaging process, when applied to a random variable is called expectation. It is denoted by
E(X) or and is read as the expected value of X or the mean value of X.

Common Discrete Probability Distributions

Binomial Distribution
The origin of binomial distribution is Bernoulli's trial. Bernoulli's trial is an experiment where
there are only two possible outcomes, “success" or "failure".

Poisson distribution
Another important discrete probability distribution is the Poisson distribution. It is a discrete
probability distribution which is used in the area of rare events. The Poisson distribution counts
the number of success in a fixed interval of time or within a specified region.

Common Continuous Probability Distributions

Normal Distributions
It is the most important distribution in describing a continuous random variable and used as an
approximation of other distribution.

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Standard Normal Distribution

The symmetrical property of the normal distribution provides a means that is helpful in
calculating probabilities, which is also facilitated by transforming any normal distribution with
any mean and variance to the standard normal distribution

Basic Properties of the standard normal Curve:

1. Total area under the standard normal curve is equal to 1.
2. The standard normal curve is asymptotic to x-axis.

3. The standard normal curve is symmetric about 0.

4. Most of the area under the standard normal curve lies between z= -3 and z=3.