UNIT 10 HANDLING DATA 7 421

HANDLING DATA 7
‘Actuaries’ are professionals who use
probability theory to measure how
likely it is that life events such as
motor vehicle crashes, house fires,
losing your computer at school and
numerous others will occur.
These figures are used by insurance
companies to decide how much to
charge their customers for insurance
cover.
Edmund Halley constructed his own
life table in 1693 showing how it
could be used to calculate how much someone of a particular age should pay to
buy a pension (monetary income) after they stop working.
Edmund Halley 1656–1742 ▲

LEARNING OBJECTIVE
◼ Draw and use more complex tree diagrams

BASIC PRINCIPLES
◼ P(E) means the probability of event E occurring.

◼ P(Eʹ ) means the probability of event E not occurring.

◼ All probabilities have values between 0 and 1 inclusive, therefore 0 ≤ P(E ) ≤ 1

◼ P(E) + P(Eʹ ) = 1, so P(Eʹ ) = 1 − P(E)

◼ Multiplication ‘and’ rule:

◼ A
 ddition ‘or’ rule:
◼ If two events A and B cannot occur at the same time (for example, a card drawn from a pack cannot be an Ace and
a Queen) they are called mutually exclusive.
◼ For mutually exclusive events A and B, P(A or B) = P(A) + P(B)

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