Class notes
CIMA BA2 Notes Chapter 12- Risk 2 - Probability
- Course
- Institution
CIMA BA2 Notes Chapter 12- Risk 2 - Probability
[Show more]
Seller
Follow
ellewoods2
Reviews received
Content preview
BA 2 - Fundamentals of Management AccountingRisk 2 - Probability
Chapter twelve
BA 2.Risk 2 - Probability. Quantia Learning
,We learned that risk is quantifiable; that possible outcomes can be assigned probabilities but
that with uncertainty we cannot assign probabilities. Most people have an intuitive,
common-sense understanding of probabilities.
● "You are more likely to be hit by lightning, than win the
lottery."
BA 2.Risk 2 - Probability. Quantia Learning
, ● "Experience suggests we have a one in ten chance of winning a tender for a new
contract."
These statements relate to the idea of probability.
Probability
A probability expresses the likelihood of an event occurring.
Note the terminology here. The 'event' referred to is simply
what we want to calculate the probability for, such as
'winning the tender' or 'rolling a six'.
Basic ideas :
● If an event is certain to occur, then it has a probability
of one.
● If an event is impossible, then it has a probability of zero.
● For any event, the probability of it occurring must lie between zero and one. If you
calculate a probability bigger than one, then you have made a mistake.
● The higher the probability is, then the more likely it is that the event will happen.
● In any given scenario, the probabilities associated with all possible outcomes must add
up to one.
For example, if trying to win a particular tender for new work, then there are only two possible
outcomes - you either win or you don't. If the probability of winning the tender is 0.4 (40%), then
the probability of not winning must be 0.6 (60%) as the two probabilities must add up to one.
Notion
The probability of event ‘A’ occurring is written as P(A).
This allows us to write down some of the above rules more concisely, for example: P(NOT A) =
1 – P(A), where P(NOT A) means the probability of event A not occurring.
This is known as the 'complementary rule'.
Simple probabilities
In situations where it is possible to compile a complete list of all the equally likely outcomes, we
can define the probability of an event, denoted P(event):
BA 2.Risk 2 - Probability. Quantia Learning
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ellewoods2. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.30. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
79271 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now