Hey guys,

There’s the concept of Joint Probability which confuses me in separate context, allow me to explain:

- Joint Probability and Multiplication Rule

- Probability that both A and B will occur is their joint probability: P(AB)
- P(AB) = P(A|B) x P(B)

- Addition Rule for Probabilities

- The probability that A or B occurs, or both occurs, is equal to:
- P(A or B) = P(A) + P(B) -
**P(AB)** - In an example in the curriculum, there was the following question: Firm X has issued two callable bonds with a maturity of 2 and 5 years respectively. Probability that Bond A will be called is 0.6 and probability that Bond B will be called is 0.5. The probability that at least one of the bonds will be called is closest to?
- P(A or B) = P(A) + P(B) - P(A and B)
- P(A or B) = 0.6 + 0.5 -
**(0.6 x 0.5)**

**Realize how we just did 0.6 x 0.5 to fulfill P(AB) but the prior formula says that P(AB) = P(A|B) x P(B), but in the example they just assumed P(AB) = P(A) x P(B).**

What is going on?