pacmandefense

orang3eph wrote:
Assume:
event A = pass Level I of CFA
event B = pass Part I of FRM
P(A) = 0.38
P(B) = 0.47
P(A | B) = 0.57
Now say you wanna find the probability of passing the part I FRM given that you’ve already passed the first level of the CFA (instead of the other way around). That is P(B | A), and Bayes’ is one way to find it. This is called updating the prior (unconditional) probability of event B in light of the information you have (ie. given that you passed L.I of CFA).
P(B | A) = P(A|B) * P(B) / P(A) = 0.705
So, the likelihood of passing the FRM Part I given that you’ve passed the CFA Level I is 0.71. This is higher than the probability of passing the CFA Level I given that you’ve passed the FRM Part 1, which was assumed to be 0.57.
Thanks @Orang3eph the example was quite intuitive.