# Building Blocks - Part 5

# Building Blocks - Part 5

#### Overview

This eCourse consists of two modules. Module 1 outlines the fundamentals of probability, and covers the key terminology associated with probability theory. It describes the different types of probability and their calculation, and explains how probability theory facilitates investor decisions

Module 2 is about random variables, probability distributions, the testing of hypotheses, and confidence levels. Understanding these concepts is essential in the financial world, particularly in option pricing and risk measurement. The module covers the types of random variable and the probability distributions that each follows. It also provides information about the parameters of the distributions. It introduces the concept of hypothesis testing and confidence levels, and also looks at situations where the use of one-tailed or two-tailed confidence levels must be determined.

#### Objective

On completion of this course, you will be able to:

- Define the concept of probability

- Describe and calculate different types of probability

- Assess the expected value of a random variable based on the probability of its possible outcomes, and explain how different risk preferences are combined with expected values to make investment decisions

- Recognize the effect of inflation on the present value of a future sum of money and explain how the existence of inflation can influence investment decisions

- Describe how a random variable is distributed, and compute the expected value and standard deviation/variance of a random variable

- Test hypotheses about the expected value of a variable and evaluate the likelihood of a certain event with a specified probability

#### Content

Module 1: Probability

Topic 1: Definition of Probability

Topic 2: Types of Probability

Topic 3: Inflation Considerations

Topic 4: Expected Value of a Random Variable

Module 2: Distributions & Hypothesis Testing

Topic 1: Random Variables

Topic 2: Hypothesis