MODULE 4: PROBABILITY

Unit Learning Outcome

At the end of the unit, you are expected to

1. Distinguish the various basic probability concepts.

2. Employ permutation and combinations techniques in probability problems.
3. Use Excel to solve probability problems.

BIG PICTURE IN FOCUS

After several months of no grand lotto winner, the Philippine Charity Sweepstakes finally announced
that last Sunday, September 6, 2020, alone bettor from Quezon City won a P339 million jackpot prize
the Lotto 6/58 with the winning combination of 18-19-28-09-01-11. Indeed the odds of winning in a six
double-digit number combination are 1 in 13 million. In perspective, if we bet in a coin toss, the chance
of getting it right is 1 is to 2 or 50 percent probability that it is a head or a tail. In a roll of a dice, if we bet
that number 2 will come out, the chance is 1 is to 6 or 16.7 percent.

METALANGUAGE

In this section, the most important terms relevant to the study of probability and to demonstrate ULO
will be operationally defined to establish a typical frame of reference as to how the text works in your
chosen business career. As you progress in this topic, there are terms you will encounter. Please refer to
these definitions in case you face difficulty in understanding strategic compensation concepts.

More than one event is called a compound.

Data analyst deals with probabilities which are process called experiments.

Every probability process, such as throwing a coin or rolling a dice, is called a trial.

Two different results are called an elementary outcome.

A group of elementary outcomes is an event.

All possible outcomes are called sample space.

 ESSENTIAL KNOWLEDGE

Probability, experiments, trial, elementary outcome, and sample space

Data analyst deals with probabilities which are process called experiments. Every probability process,
such as throwing a coin or rolling a dice, is called a trial. However, an experiment using a consistent
approach is expected to produce the same result. However, tossing a coin, the data analyst always
expects two distinct results called an elementary outcome. A group of elementary outcomes is an event.
For instance, if we roll dice with outcomes, 1, 3, 5 composed an event. All possible outcomes in a roll of
a dice, 1, 2, 3, 4, 5, and 6 are sample space. Similarly, “heads” and “tails” are the sample space for a coin.

Thus, expressing the probability of an event if each elementary outcome in a sample space will equally
likely to happen is

Hence the probability of rolling a dice and getting an odd number is

What if the coin is “loaded,” which means that the “heads” or “tails” do not have an equal chance, then,
there is a different result on the probability of an event. First, unlike a 50-50 probability for each side,
we assign a probability to each side. The sum of the probabilities of the elementary outcome composed
the event. Each assigned probability must be between zero and 1, and the sum of all probabilities of
elementary outcomes must be equal to 1.00.

LET’S CHECK

In a deck of cards, there are four suits, spades, hearts, diamonds, and clubs. In each suite, there is a
queen, king, jack, ace, and 2 through 10. There are 13 cards in a suit, and in all, there are 52 cards in a
deck. In answering the problems, always express the formula of the probability.

Part I. There are 52 cards in a deck.

1. What is the probability of drawing a heart from the deck?

2. What is the probability of drawing a king from the deck?
3. What is the probability of drawing a queen of hearts from the deck?
Part II. A roulette wheel has numbers from 0 to 36. If we spin the roulette

1. What is the probability of getting an odd number?

2. What is the probability of getting an even number?
3. What is the probability of getting only single digits?
4. What is the probability of getting only double digits?

ESSENTIAL KNOWLEDGE

Let us say that we knew that the coin is biased toward turning up tail at 60 percent of the time. If we
roughly run a probability estimate if the coin was tossed ten times, the probability that it will turn “tail”
is six times and “head” 4 times.

For instance, a dice is biased to the probability of the numerical label of the outcome such that the 6 has
six times to come up, then 1, a 5 has a five times more chance to come up than one so on. The sum of all
numbers in the dice is 21 (1+2+3+4+5+6), the sum of the probabilities is 1. Thus the probability of each
outcomes are pr(1) =1/21; pr(2) = 2/21; pr(3) 3/21; pr(4) 4/21; pr(5) 5/21 and pr(6) 6/21.

Pr(x)
1 0.047619
2 0.095238
3 0.142857
4 0.190476
5 0.238095
6 0.285714
21 1

More than one event is called a compound. We can combine events through a union or intersection.
Certain rules help data analysts think through with compound events. On a roll of fair dice, we can bet
that the result can be 1 or 5. There is a mathematical symbol for “or” called “union” which appears like.
“⋃ . If we will express the probability of 1 or 5 is pr ( ⋃ ).

In expressing this type of probability, it is helpful to state the elementary outcomes. There are two
elementary outcomes in each event, “1 or 5.” Note that the presence of sample space of six outcomes,
the probability is 2/6 or 1/3. To calculate the probability

( ) ( )

Instead of the probability of an outcome between 1 and 5, let us say we wanted to get a number
between 3 and 5 or between 4 and 6? Merely adding the elementary outcomes is not the correct
process. There are three outcomes in the event “between 3 and 5”; similarly, three are in the event
“between 4 and 6.” Thus the probability is not 3 + 3 divided by the six outcomes since the sum is 1,00,
which leaves no more probability for pr(1) and pr(2).

The overlap between the two events is quite challenging. The elementary outcomes in “between 3 and
5” are 3, 4, and 5, and the elementary outcomes in “between 4 and 6” are 4, 5, and 6. There are two
outcome overlap: 4 and 5. To avoid double-counting, we need to subtract these two numbers from the
total. “Between 3 and 5” can be abbreviated as A and “between 4 and 6” as B. Moreover, the
mathematical symbol for overlap is “ called intersection. Thus using the symbol, we can express the
probability of “between 3 and 5” or “between 4 and 6” is

Or we can also express these as probabilities

The formula is reflected below as

Previously, we can add probabilities together since it is impossible to get 1 and 5 in the same roll of a
dice. If , A, and B are mutually exclusive.

Let us say we toss a coin and roll a dice at the same time. What is the probability of getting a three and a
tail? Since the two experiments are independent of each other, the result one does not influence the
result of the other—the intersection symbols .

There are 12 possible outcomes, but only one event outcome, “tails and 3”.

Thus
Or we can also express these as probabilities

To express that A and B are independent

LET’S ANALYZE

In answering the problems, always express the formula of the probability.

1. What is the probability that you can draw a spade or a heart or a diamond?
2. If we separate all the pictures, what is the likelihood that you can draw a card of any suit between the
king of hearts and queen of diamonds?
3. Let us say that we roll the dice and draw a card from pictures only, what is the probability of getting a
five and the jack of spade?

ESSENTIAL KNOWLEDGE

Conditional Probability

In certain situations, we can limit the sample space. For instance, I roll a dice and inform you that the
result is greater than 3. What is the probability that it is 6? Naturally, the probability of a 6 is .
However, the sample space is not 1, 2, 3, 4, 5, and 6. The sample space is limited to 4, 5, and 6, the
probability of 4 is 1/3. This is called conditional probability since a stated “condition” is a number
greater than 3. The expressed notion for this is

The vertical line after 6 is a shorthand for the word given. Therefore it read as “the probability of a six
greater than 3.”

Two events A and B, can be written as

Provided that B is not zero (0)

We do not merely multiply probabilities in the numerator on the right. Doing this would not create a
conditional probability since it expresses A and B are independent. It means that event A is not
conditional on B. There is a probability of the intersection that exists. In a dice, how many outcomes are
in the event “ ”? Only one, so is and

The sample space is very vital in understanding probability. In the previous example tossing a coin or
rolling a dice have small sample spaces. In reality, the world is not that simple. In the actual world, the
sample spaces are large, and it is cumbersome to list every elementary outcome.

For instance, rolling a dice twice, there are six possibilities for the first roll, another six in the second roll.
Thus the sample space has 6 x 6 = 36 potential elementary outcomes. With 216 outcomes, it becomes
complicated.

Let us determine the probability of rolling the dice thrice and getting the sum of 7? We need to
determine the number of ways the three rolls can sum up to 7 and determine by getting the quotient
the number of elementary outcomes in the sample space (216). We get a 7 by 1 and 6, 2 and 5, 3 and 4,
4 and 3, 5 and 2, 1, and 6. There are a total of six which did not intersect, thus

It is identifying for the sample space all the possible elementary outcome is demanding. Fortunately,
simple techniques are available called a counting rule. It assists in counting the number of items.
Previously, the two rolls of the dice have a 36 (6 x 6) possible outcome called a product rule. In the first
trial, N1 outcome is possible, and on the second trial, N2 is possible. The sum of all possible outcomes is
N1N2. If there are three trials, then N1N2N3.

LET’S CHECK

In answering the problems, always express the formula of the probability

1. Suppose that we spin the roulette and the result is greater than 28, what is the probability that it is
36?
2. Determine the probability of spinning the roulette thrice and getting the sum of 99?
 ESSENTIAL KNOWLEDGE

Permutations

Let us say we are task to arrange in all possible ways five objects to a sequence. For the first position, we
can arrange it as 1,2,3,4,5, for the second position 2,1,3,4,5, for the third position, 3,2,14,5 so on. The
possible number of ways to arrange these five numbers to a sequence is huge. However, there are 120
(1)(2)(3)(4)(5) number of ways to arrange

Basically, expressing the number (N) of a sequence is shown as N(N -1)(N-2)… (2)(1). This type of
probability computation frequently happened, and it is expressed in a nation, N!. It is read as “N
factorial.” Therefore, 0! =1 and still 1! = 1.

For instance, we were asked to order the 11 players in a football team; the number of the potential
sequence is 11! an enormous array. Suppose we will only create a seven (7) member sequence so that
no member repeats in the array. How many ways can we do this? We have 11 choices for the first
member, 10 for the second member, 9 for the third and 8 for the fourth, 7 for the fifth, 6 for the sixth,
and 5 for the seventh. Hence we have (11)(10)(9)(8)(7)(6)(5). It is expressed as

The expression above is called permutations. Basically, permutations is expressed as

Let us take another situation. Let us say that we allow repetitions in the sequence of 7. In such a
situation the number of the sequence is 11 x 11 x 11 x 11 x 11 x 11 x11or it is “11 7”, read as 11 to the
seventh power

Combinations

In the previous example, the sequence below is different from one another: so on and so forth.
Conveniently we can come up with 5080 (7!) various arrays just for the seven members 1,2,3,4,5,6,7, or
6,1,2,3,4,5,7 or 1,6,2,3,4,5,7

For instance, we were asked to add a rule that one of these arrays is no different from another and we
are concerned with arranging the last seven football members in no specific nonrepeating arrays. Each
array is called a combination. For this situation, the permutation is expressed as
Generally the notation for the arrays for N can be expressed as

LET’S ANALYZE

The scrabble has 100 tiles, the distribution is reflected in the table below

Letter f Letter f
A 9 O 8
B 2 P 2
C 2 Q 1
D 4 R 6
E 12 S 4
F 2 T 6
G 3 U 4
H 2 V 2
I 9 W 2
J 1 X 1
K 1 Y 2
L 4 Z 1
M 2 Blank 2
N 6

1. Suppose we create an eight (8) eight-letter alphabetically arranged word “Aegilops,” how many ways
can we do this?
2. Suppose we create an eight (8) letter word with no letter duplicated, “absolver,” How many ways can
we do this?

ESSENTIAL KNOWLEDGE

Fortunately, Excel has a function to calculate factorials. For instance, we wanted to determine the
factorial of eleven (11!). Proceed to formula>Math&Trig>FACT
In the function arguments, enter 11 then click OK.

In the statistical function has permutations function the PERMUT and PERMUTIONA the permut
calculate the NPr Suppose we wanted to determine the number of seven football members sequence in
an eleven person-team with no repeating member 11 P 7 , take note that 1,2,3,4,5,6,7 is considered not
the same from 5,6,7,1,2,3,4. Follow the following steps, Insert function>Statistical> PERMUT>OK

In the function, argument enter 11 in the number and 7 in Number_chosen, then click OK. The answer is
1663200.

COMBIN

Excel has another feature called COMBIN that can compute the answer for combination probability. For
instance, we wanted to find out 11 C 7 the number of ways we can arrange the members of the football
team with no repeating members from the 7-member team. In a combination 1,2,3,4,5,6,7 is considered
the same with 2,3,4,15,6,7.

By following these steps, it is easy to determine the solution, Formula>Math&Trig>COMBIN. In the

function, arguments enter 11 in number and 7 in Number_chosen. There is a 330 possible sequence of
the seven member team without repetitions.
 SELF-CHECK

Below are several articles that discusses the practical application of the concept of probability in
business and accounting

Is Probability Distribution Used in Managerial Accounting?

https://smallbusiness.chron.com/probability-distribution-used-managerial-accounting-80977.html

Practical application of Probability in Finance

https://www.edupristine.com/blog/practical-application-of-probability-in-finance

Using Different Probability Distributions for Managerial Accounting Technique: The Cost-Volume-Profit
Analysis
https://www.questia.com/library/journal/1P3-4309561811/using-different-probability-distributions-for-
managerial