Business Math Definitions

Probability
Probability is the measure of how likely an event is.
Probability Of An Event
P(A) = /
The Number Of Ways Event A Can Occur
The total number Of Possible Outcomes

Number of Favorable Outcomes/Total Number of Possible Outcomes
Experiment
An experiment is a situation involving chance or probability that leads to results called outcomes.
Sample Space
A sample space is the set of all possible outcomes. However, some sample spaces are better than
others.
Event
An event is one or more outcomes of an experiment.
Mutually Vs. Non-Mutually Exclusive Events
When calculating probability, sometimes we have events that can occur at the same times, others can
never occur at the same time. Events can either be mutually exclusive or not mutually exclusive.
What are these two types of events and how are the probabilities of these events calculated?

Suppose you roll a 6 sided die. Let A be the event that the number is odd and B be the event that the
number is even.Since the die is only rolled once, it is impossible for the number that lands face up is
both odd and even. The events A and B are said to be mutually exclusive events. If two events cannot
happen at the same time, they are said to be mutually exclusive.

For mutually exclusive events, P(A B) = 0 ( denotes the intersection of events, this is read as
"Probability of A intersect B" or "Probability of A and B"). If A and B are mutually exclusive, then P(A
U B) = P(A) + P(B) (U denotes the union of events, this is read as "Probability of A union B", also
read as "Probability of A or B").

If two events are not mutually exclusive (they can occur at the same time), then P(A U B) = P(A) +
P(B) - P(A B). From this formula we can determine that P(A B) = P(A) + P(B) - P(A U B).
Example: A single card is randomly selected from a standard 52 card deck. What is the probability
that the card is the jack of clubs or a diamond?

P(jack of clubs) = 1/52, P(card is a heart) = 13/52 = 1 /4 Therefore,
P(jack of clubs U card is a heart) = 1/52 + 1 /4
= 1/52 + 13/52
= 14/52
= 7/26.
Dependent Vs. Independent Events
Independent Events
When two events are said to be independent of each other, what this means is that the probability that one event
occurs in no way affects the probability of the other event occurring. An example of two independent events is as
follows; say you rolled a die and flipped a coin. The probability of getting any number face on the die in no way
influences the probability of getting a head or a tail on the coin.
Dependent Events
When two events are said to be dependent, the probability of one event occurring influences the likelihood of the
other event.
For example, if you were to draw a two cards from a deck of 52 cards. If on your first draw you had an ace and you
put that aside, the probability of drawing an ace on the second draw is greatly changed because you drew an ace the
first time. Let's calculate these different probabilities to see what's going on.
There are 4 Aces in a deck of 52 cards

On your first draw, the probability of getting an ace is given by:

If we don't return this card into the deck, the probability of drawing an ace on the second pick is given by



As you can clearly see, the above two probabilities are different, so we say that the two events are dependent. The
likelihood of the second event depends on what happens in the first event.

Binomial Probability

Binomial Probability Formula

A probability formula for Bernoulli trials. The probability of achieving exactly k successes in n trials is
shown below.

Formula:


n = number of trials
k = number of successes
n k = number of failures
p = probability of success in one trial
q = 1 p = probability of failure in one trial

Example:
You are taking a 10 question multiple choice test. If each question has four choices and you guess on
each question, what is the probability of getting exactly 7 questions correct?

n = 10
k = 7
n k = 3
p = 0.25 = probability of guessing the correct answer on a question
q = 0.75 = probability of guessing the wrong answer on a question