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# SOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY

EXAM P PROBABILITY

P SAMPLE EXAM SOLUTIONS

Copyright 2009 by the Society of Actuaries and the Casualty Actuarial Society

Some of the questions in this study note are taken from past SOA/CAS examinations.

PRINTED IN U.S.A.

Page 1 of 61

1. Solution: D

Let

G = event that a viewer watched gymnastics

**B = event that a viewer watched baseball
**

S = event that a viewer watched soccer

Then we want to find

c

Pr ⎡( G ∪ B ∪ S ) ⎤ = 1 − Pr ( G ∪ B ∪ S )

⎣

⎦

= 1 − ⎡⎣ Pr ( G ) + Pr ( B ) + Pr ( S ) − Pr ( G ∩ B ) − Pr ( G ∩ S ) − Pr ( B ∩ S ) + Pr ( G ∩ B ∩ S ) ⎤⎦

= 1 − ( 0.28 + 0.29 + 0.19 − 0.14 − 0.10 − 0.12 + 0.08 ) = 1 − 0.48 = 0.52

-------------------------------------------------------------------------------------------------------2.

Solution: A

Let R = event of referral to a specialist

L = event of lab work

We want to find

P[R∩L] = P[R] + P[L] – P[R∪L] = P[R] + P[L] – 1 + P[~(R∪L)]

= P[R] + P[L] – 1 + P[~R∩~L] = 0.30 + 0.40 – 1 + 0.35 = 0.05 .

-------------------------------------------------------------------------------------------------------3.

Solution: D

First note

P [ A ∪ B ] = P [ A] + P [ B ] − P [ A ∩ B ]

P [ A ∪ B '] = P [ A] + P [ B '] − P [ A ∩ B ']

Then add these two equations to get

P [ A ∪ B ] + P [ A ∪ B '] = 2 P [ A] + ( P [ B ] + P [ B '] ) − ( P [ A ∩ B ] + P [ A ∩ B '] )

0.7 + 0.9 = 2 P [ A] + 1 − P ⎡⎣( A ∩ B ) ∪ ( A ∩ B ') ⎤⎦

1.6 = 2 P [ A] + 1 − P [ A]

P [ A] = 0.6

Page 2 of 61

4.

Solution: A

For i = 1, 2, let

Ri = event that a red ball is drawn form urn i

Bi = event that a blue ball is drawn from urn i .

Then if x is the number of blue balls in urn 2,

0.44 = Pr[( R1 ∩ R2 ) ∪ ( B1 ∩ B2 )] = Pr[ R1 ∩ R2 ] + Pr [ B1 ∩ B2 ]

= Pr [ R1 ] Pr [ R2 ] + Pr [ B1 ] Pr [ B2 ]

=

4 ⎛ 16 ⎞ 6 ⎛ x ⎞

⎜

⎟+ ⎜

⎟

10 ⎝ x + 16 ⎠ 10 ⎝ x + 16 ⎠

Therefore,

32

3x

3x + 32

+

=

x + 16 x + 16 x + 16

2.2 x + 35.2 = 3 x + 32

0.8 x = 3.2

x=4

2.2 =

-------------------------------------------------------------------------------------------------------5.

Solution: D

Let N(C) denote the number of policyholders in classification C . Then

N(Young ∩ Female ∩ Single) = N(Young ∩ Female) – N(Young ∩ Female ∩ Married)

= N(Young) – N(Young ∩ Male) – [N(Young ∩ Married) – N(Young ∩ Married ∩

Male)] = 3000 – 1320 – (1400 – 600) = 880 .

-------------------------------------------------------------------------------------------------------6.

Solution: B

Let

H = event that a death is due to heart disease

F = event that at least one parent suffered from heart disease

Then based on the medical records,

210 − 102 108

P ⎣⎡ H ∩ F c ⎦⎤ =

=

937

937

937 − 312 625

P ⎡⎣ F c ⎤⎦ =

=

937

937

c

P ⎡ H ∩ F ⎤⎦ 108 625 108

=

=

= 0.173

and P ⎡⎣ H | F c ⎤⎦ = ⎣

937 937 625

P ⎡⎣ F c ⎤⎦

Page 3 of 61

08 ) 2 = 0.15 Pr ( A ∩ H c ) = Pr ( A ) − Pr ( A ∩ H ) = 0.88 + 0.14 + Pr [T ] − 0.65 − 0.14 Pr ( C ∩ T ) = 0.35 ) + ( 0.8 Pr ( A ∩ H ) = ( 0.4 )( 0.35 and the portion of policyholders that will renew at least one policy is given by 0. 0.6 Pr ( Ac ∩ H ) + 0.4 Pr ( A ∩ H c ) + 0.12 Therefore.88 = 1 − Pr ⎡⎣C c ∩ T c ⎤⎦ = Pr [C ∪ T ] = Pr [C ] + Pr [T ] − Pr [C ∩ T ] = Pr [T ] + 0.8 )( 0.5 ) + ( 0.08 or Pr [T ] = ( 0. Solution: D Let C = event that patient visits a chiropractor T = event that patient visits a physical therapist We are given that Pr [C ] = Pr [T ] + 0.7.22 = 2 Pr [T ] − 0.15 ) = 0.50 − 0.48 Page 4 of 61 . Solution: D Let A = event that a policyholder has an auto policy H = event that a policyholder has a homeowners policy Then based on the information given.15 = 0.50 Pr ( Ac ∩ H ) = Pr ( H ) − Pr ( A ∩ H ) = 0.15 = 0.6 )( 0. Pr ( A ∩ H ) = 0.22 Pr ( C c ∩ T c ) = 0.53 ( = 53% ) -------------------------------------------------------------------------------------------------------100292 01B-9 8.

096 It follows that P ( A ∪ B ) = 0.64 = 0.33 . Solution: B Let C = Event that a policyholder buys collision coverage D = Event that a policyholder buys disability coverage Then we are given that P[C] = 2P[D] and P[C ∩ D] = 0.15 * 0. by the Additive Law. But P ( Ac ∩ Bc) = 1 – P (A ∪ B) And.205 -------------------------------------------------------------------------------------------------------10.70 − 0. we may compute the desired probability as follows: c Pr ( M c ∩ S c ) = Pr ⎡( M ∪ S ) ⎤ = 1 − Pr ( M ∪ S ) = 1 − ⎡⎣ Pr ( M ) + Pr ( S ) − Pr ( M ∩ S ) ⎤⎦ ⎣ ⎦ = 1 − Pr ( M ) − Pr ( S ) + Pr ( S M ) Pr ( M ) = 1 − 0. Solution: B Let M = event that customer insures more than one car S = event that customer insures a sports car Then applying DeMorgan’s Law.744 = 0. Solution: C Consider the following events about a randomly selected auto insurance customer: A = customer insures more than one car B = customer insures a sports car We want to find the probability of the complement of A intersecting the complement of B (exactly one car.075 ) (1 – 0.20 + ( 0. As a result.70 ) = 0.15 .075 Now the independence of C and D also implies the independence of CC and DC .9. P ( A ∩ B ) = P ( B | A ) P (A) = 0.15/2 = 0. it therefore follows that 0. P ( A ∪ B ) = P ( A) + P ( B ) – P ( A ∩ B ).256 -------------------------------------------------------------------------------------------------------11.64 + 0.096 = 0.744 and P (Ac ∩ Bc ) = 0. we see that P[CC ∩ DC] = P[CC] P[DC] = (1 – P[C]) (1 – P[D]) = (1 – 2 0. non-sports).075 and P[C] = 2P[D] = 2 0.15 )( 0. Page 5 of 61 .075 P[D] = 0.075 ) = 0.20 – 0.15 = P[C ∩ D] = P[C] P[D] = 2P[D] P[D] = 2(P[D])2 (P[D])2 = 0. By the independence of C and D. By the Multiplicative Law.

-------------------------------------------------------------------------------------------------------13.12 ) − 0.10 − 2 ( 0.05 0. Solution: C The Venn diagram below summarizes the unconditional probabilities described in the problem.20 0. Solution: E “Boxed” numbers in the table below were computed.12 ) − 0.22 0.56 0.14 0. In addition.12 ) = x + 0.04 3 3 2 x = 0.06 = 0. High BP Low BP Norm BP Total Regular heartbeat 0.00 From the table. we can see that 20% of patients have a regular heartbeat and low blood pressure.12.08 0.60 Page 6 of 61 .15 Total 0. we are told that P[ A ∩ B ∩ C] 1 x = P [ A ∩ B ∩ C | A ∩ B] = = P [ A ∩ B] x + 0.12 3 It follows that 1 1 x = ( x + 0.10 ) − 3 ( 0.04 3 x = 0.28 = 0.06 Now we want to find c P ⎡( A ∪ B ∪ C ) ⎤ c ⎦ P ⎡( A ∪ B ∪ C ) | Ac ⎤ = ⎣ c ⎣ ⎦ P ⎡⎣ A ⎤⎦ 1− P[ A ∪ B ∪ C] = 1 − P [ A] = 1 − 3 ( 0.06 1 − 0.09 0.467 0.85 Irregular heartbeat 0.64 1.02 0.

. 1= ∞ k -------------------------------------------------------------------------------------------------------15. y = 1/6. Therefore.04 .. x + z = . = ⎜ ⎟ p0 pk = pk −1 = 5 55 5 5 5 ⎝5⎠ k k≥0 ∞ p0 5 ⎛1⎞ = = p0 p ∑ ∑ k ⎜ ⎟ p0 = 1 4 k =0 k =0 ⎝ 5 ⎠ 1− 5 p0 = 4/5 . Solution: A 1 11 1 1 1 ⎛1⎞ pk − 2 = ⋅ ⋅ pk −3 = . P[N > 1] = 1 – P[N ≤1] = 1 – (4/5 + 4/5 ⋅ 1/5) = 1 – 24/25 = 1/25 = 0. y + z = 4 3 12 Adding these three equations gives 1 1 5 ( x + y) + ( x + z) + ( y + z) = + + 4 3 12 2( x + y + z) = 1 x+ y+ z = 1 2 1 1 = 2 2 Alternatively the three equations can be solved to give x = 1/12.14. z =1/4 ⎛ 1 1 1⎞ 1 again leading to w = 1 − ⎜ + + ⎟ = ⎝ 12 6 4 ⎠ 2 w = 1− ( x + y + z ) = 1− Page 7 of 61 . Solution: C A Venn diagram for this situation looks like: We want to find w = 1 − ( x + y + z ) 1 1 5 We have x + y = .

25 = 1 − Pr ( E ) . respectively.005h] – 1 = 2P ⎢ Z ≤ − 1 = 2P[Z ≤ 1.9192) – 1 = 0.005h] = P[Y ≤ 0. 2 4 0.00356h) . Therefore.10 Pr ( O ) = 0. If N(μ.0056h).005h ⎤ ⎡ = 2P[Y ≤ 0.85 = Pr ( O ) + 0.75 − Pr ( O )( 0. ) = N(0. X2 are X1 + X 2 0.005h] = P[Y ≤ 0.0044h) and X1. Solution: D Let O = Event of operating room charges E = Event of emergency room charges Then 0. It follows that Y = Page 8 of 61 . P[−0. 0.00356h ⎥⎦ ⎣ independent. Pr [ N1 + N 2 = 7 ] = ∑ n =0 Pr [ N1 = n ] Pr [ N 2 = 7 − n ] 7 7 ⎛ 1 ⎞⎛ 1 ⎞ = ∑ n =0 ⎜ n +1 ⎟⎜ 8− n ⎟ ⎝ 2 ⎠⎝ 2 ⎠ 7 1 = ∑ n =0 9 2 8 1 1 = 9 = 6 = 2 2 64 -------------------------------------------------------------------------------------------------------17.σ) denotes a normal random variable with mean μ and standard deviation σ.00442 h 2 is N (0.40 -------------------------------------------------------------------------------------------------------18. Solution: D Let X1 and X2 denote the measurement errors of the less and more accurate instruments.005h ≤ Y ≤ 0. 0. 0. Solution: D Let N1 and N 2 denote the number of claims during weeks one and two.005h] 0.00562 h 2 + 0. respectively.16.75 ) = 0.84.005h] – P[Y ≥ 0.75 ) Pr ( O )(1 − 0.4] – 1 = 2(0.005h] – P[Y ≤ −0.85 = Pr ( O ∪ E ) = Pr ( O ) + Pr ( E ) − Pr ( O ∩ E ) = Pr ( O ) + Pr ( E ) − Pr ( O ) Pr ( E ) Since So ( Independence ) Pr ( E c ) = 0. Then since N1 and N 2 are independent. it follows Pr ( E ) = 0. X2 is N(0. 0. then we are given X1 is N(0.75 .

Solution: B Apply Bayes’ Formula.03)( 0.] Pr ⎡⎣Surv.02 )( 0.] + Pr ⎡⎣Surv.08) = 0.1584 ( 0.15) + ( 0.19.⎤⎦ = = Pr ⎡⎣Surv.3) + ( 0. Let A = Event of an accident B1 = Event the driver’s age is in the range 16-20 B2 = Event the driver’s age is in the range 21-30 B3 = Event the driver’s age is in the range 30-65 B4 = Event the driver’s age is in the range 66-99 Then Pr ( A B1 ) Pr ( B1 ) Pr ( B1 A ) = Pr ( A B1 ) Pr ( B1 ) + Pr ( A B2 ) Pr ( B2 ) + Pr ( A B3 ) Pr ( B3 ) + Pr ( A B4 ) Pr ( B4 ) = ( 0.10 ) ( 0. Surv.01)( 0. Seri. Stab. Seri.005 )( 0.⎤⎦ Pr [Seri.6 ) Page 9 of 61 . Solution: B Apply Baye’s Formula: Pr ⎡⎣Seri.49 ) + ( 0.⎤⎦ Pr [Stab.9 )( 0.10 ) = 0.50 ) + ( 0.1) + ( 0.04 )( 0.0141 -------------------------------------------------------------------------------------------------------21.9 )( 0.001)( 0.40 ) + ( 0.001)( 0.28) -------------------------------------------------------------------------------------------------------- 20.29 ( 0.06 )( 0.06 )( 0.6 )( 0.3) = 0.99 )( 0. Solution: D Let S = Event of a standard policy F = Event of a preferred policy U = Event of an ultra-preferred policy D = Event that a policyholder dies Then P [ D | U ] P [U ] P [U | D ] = P [ D | S ] P [ S ] + P [ D | F ] P [ F ] + P [ D | U ] P [U ] = ( 0.⎤⎦ Pr [ Crit. Crit.08) + ( 0.] + Pr ⎡⎣Surv.] ( 0.⎤⎦ Pr [Seri.

2 ) 2 ⎣ -------------------------------------------------------------------------------------------------------23. upon applying Bayes’ Formula.04)(0.05)(0.45) + (0.42 1 + + 0.22.16) = 0. we see that P[C Y ]P[Y ] P[Y⏐C] = P[C T ]P[T ] + P[C Y ]P[Y ] + P[C M ]P[ M ] + P[C S ]P[ S ] = (0. Solution: D Let H = Event of a heavy smoker L = Event of a light smoker N = Event of a non-smoker D = Event of a death within five-year period 1 Now we are given that Pr ⎡⎣ D L ⎤⎦ = 2 Pr ⎡⎣ D N ⎤⎦ and Pr ⎡⎣ D L ⎤⎦ = Pr ⎡⎣ D H ⎤⎦ 2 Therefore.3) + 2 Pr ⎡⎣ D L ⎤⎦ ( 0.4 = = = 0.16) + (0.5 ) + Pr ⎡⎣ D L ⎤⎦ ( 0.31) -------------------------------------------------------------------------------------------------------24.08)(0. Solution: B Observe Pr [1 ≤ N ≤ 4] ⎡ 1 1 1 1 ⎤ ⎡1 1 1 1 1⎤ =⎢ + + + ⎥ ⎢ + + + + ⎥ Pr ⎡⎣ N ≥ 1 N ≤ 4 ⎤⎦ = Pr [ N ≤ 4] ⎣ 6 12 20 30 ⎦ ⎣ 2 6 12 20 30 ⎦ = 10 + 5 + 3 + 2 20 2 = = 30 + 10 + 5 + 3 + 2 50 5 Page 10 of 61 .4 Pr ⎡ D L ⎤⎦ ( 0.08) + (0.22 .2 ) 0. we find that Pr ⎡⎣ D H ⎤⎦ Pr [ H ] Pr ⎡⎣ H D ⎤⎦ = Pr ⎡⎣ D N ⎤⎦ Pr [ N ] + Pr ⎡⎣ D L ⎤⎦ Pr [ L ] + Pr ⎡⎣ D H ⎤⎦ Pr [ H ] 2 Pr ⎡⎣ D L ⎤⎦ ( 0.3 0.08)(0.25 0. Solution: D Let C = Event of a collision T = Event of a teen driver Y = Event of a young adult driver M = Event of a midlife driver S = Event of a senior driver Then using Bayes’ Theorem. (0.15)(0.

95)(0.02)(0.25) 2 2 = = . Solution: C Let: S = Event of a smoker C = Event of a circulation problem Then we are given that P[C] = 0.25 and P[S⏐C] = 2 P[S⏐CC] Now applying Bayes’ Theorem. (0.01) = = 0. 2(0.03)(0.16) + (0.16) = 0.657 .25) + 0. Solution: D Use Baye’s Theorem with A = the event of an accident in one of the years 1997.05)(0. 1998 or 1999.01) + (0. Solution: B Let Y = positive test result D = disease is present (and ~D = not D) Using Baye’s theorem: P[Y | D]P[ D] (0. we find that P[C⏐S] = = 2 P[ S C C ]P[C ] 2 P[ S C ]P[C ] + P[ S C ](1 − P[C ]) C C = P[ S C ]P[C ] P[ S C ]P[C ] + P[ S C C ]( P[C C ]) 2(0. P[ A 1997]P[1997] P[1997|A] = P[ A 1997][ P[1997] + P[ A 1998]P[1998] + P[ A 1999]P[1999] = (0. P[D|Y] = P[Y | D]P[ D] + P[Y |~ D]P[~ D] (0.05)(0.45 .25.20) -------------------------------------------------------------------------------------------------------- Page 11 of 61 .99) -------------------------------------------------------------------------------------------------------26.18) + (0.005)(0.75 2 + 3 5 -------------------------------------------------------------------------------------------------------27.95)(0.

02 )( 0.334 29 Therefore.7) =1–e 80 ∫ λe 0 − λt dt = −e− λt 80 0 = 1 – e–80λ = 1 – (0. P [ C | I1 ] = ( 0. Now we are given that 0. We are given P[N = 2] = =3 = 3 ⋅ P[N 2! 4! = 4]24 λ2 = 6 λ4 λ2 = 4 ⇒ λ = 2 Therefore.096 ( 0.435 .141)(1/ 5) + ( 0. Solution: A Let C = Event that shipment came from Company X I1 = Event that one of the vaccine vials tested is ineffective P [ I1 | C ] P [ C ] Then by Bayes’ Formula.3 = P[T ≤ 50] = 50 ∫ λe − λt dt = −e− λt 0 50 0 = 1 – e–50λ Therefore.7 or λ = − (1/50) ln(0. Var[N] = λ = 2 .141)(1/ 5) = 0. -------------------------------------------------------------------------------------------------------30. Then T is exponentially distributed with unknown parameter λ . e–50λ = 0.7)80/50 = 0.141 29 P ⎡⎣ I1 | C c ⎤⎦ = ( 130 ) ( 0. P [ C | I1 ] = P [ I1 | C ] P [ C ] + P ⎡⎣ I1 | C c ⎤⎦ P ⎡⎣C c ⎤⎦ Now 1 P [C ] = 5 1 4 P ⎡⎣C c ⎤⎦ = 1 − P [ C ] = 1 − = 5 5 P [ I1 | C ] = ( 130 ) ( 0.10 )( 0. Solution: D e− λ λ 2 e− λ λ 4 Let N be the number of claims filed.98 ) = 0.28. Solution: C Let T denote the number of days that elapse before a high-risk driver is involved in an accident.7) It follows that P[T ≤ 80] = (80/50) ln(0.90 ) = 0. Page 12 of 61 .334 )( 4 / 5) -------------------------------------------------------------------------------------------------------29.

668 19 20 ( 0. z) = probability function of X.30 ) ( 0.98) = 0.02 .31. We conclude that we should choose the payment amount C such that 2C = 120.1. 0. x k 20 − k 0.3) + f ( 0.98 ) The following table summarizes the selection process for x: x Pr [ X = x ] Pr [ X ≤ x ] 0 1 2 ( 0. 2. Then X follows a binomial distribution with parameters n = 20 and p = 0.20 ) + 4 ( 0. equivalently.98 ) = 0.993 Consequently.98 ) = 0.0488 Page 13 of 61 3 4! 2 2 ( 0.02 ) ( 0. Y. Now we want to determine x such that Pr [ X > x ] ≤ 0.20 ) 2!2! . and Z Then f is a trinomial probability function.20 ) + 4 ( 0. 2 ) = ( 0. Solution: D Let X denote the number of employees that achieve the high performance level. 000 or C = 60.272 2 18 190 ( 0. 000 -------------------------------------------------------------------------------------------------------32. y.20 ) + 4 3 = 0.053 20 0.01 or. 0.3) + f ( 0.668 0.50 )( 0.940 0. 4 ) + f (1. there is less than a 1% chance that more than two employees will achieve the high performance level.02 ) ( 0.02 )( 0. Solution: D Let X = number of low-risk drivers insured Y = number of moderate-risk drivers insured Z = number of high-risk drivers insured f(x.30 )( 0.99 ≤ Pr [ X ≤ x ] = ∑ k =0 ( 20k ) ( 0. so Pr [ z ≥ x + 2] = f ( 0.

determine the proportionality constant C from the condition ∫ 040 f ( x)dx =1: 40 2 1 = ∫ f ( x)dx = − C (10 + x) −1 |040 = C 0 25 25 so that C = = 12.5). Then.005 ⎜ 200 − 20 x + x 2 ⎟ 2 ⎠ 2 ⎠ ⎝ ⎝ where 0 < x < 20 . Therefore.5 .5. We know that the density of T has the form f (x) = C(10 + x)−2 for 0 < x < 40 (and it is equal to zero otherwise).005 ( 20 − t ) dt = 0.5 (10 + x)−2 2 over the interval (0.005 ⎜ 400 − 200 − 20 x + x 2 ⎟ = 0.5∫ (10 + x ) dx = − (10 + x ) 0 0 ⎝ 10 16 ⎠ 40 1 = ∫ C (10 + x ) dx = − C (10 + x) −1 −2 0 40 = -------------------------------------------------------------------------------------------------------35. 6): 6 −2 −1 6 ⎛1 1⎞ = ⎜ − ⎟ (12.5 ) = 0. Page 14 of 61 .005 ⎜ 20t − t 2 ⎟ 20 x x 2 ⎠ ⎝ 1 ⎞ 1 ⎞ ⎛ ⎛ = 0. Then. 12. calculate the probability over the interval (0. Solution: C Let the random variable T be the future lifetime of a 30-year-old. or 12. calculate P(T < 5) by integrating f (x) = 12.33. Solution: C −2 We know the density has the form C (10 + x ) for 0 < x < 40 (equals zero otherwise). First.47 . 2 Pr [ X > 16] 200 − 20 (16 ) + 1 2 (16 ) 8 1 Pr ⎡⎣ X > 16 X > 8⎤⎦ = = = = 2 1 Pr [ X > 8] 72 9 200 − 20 ( 8 ) + ( 8 ) 2 Pr [ X > x ] = ∫ 20 -------------------------------------------------------------------------------------------------------34. determine the proportionality constant C from the condition ∫ 40 0 f ( x)dx =1 : 2 C C − = C 0 10 50 25 so C = 25 2 . Solution: B Note that 1 ⎞ ⎛ 0. First.

note that 1 k k 4 5 1 = ∫ k (1 − y ) dy = − (1 − y ) 1 = 0 5 5 0 k=5 We next need to find P[V > 10.000] = P[100. 000] P[V > 10.393 0 2 0 P[1 ≤ T ≤ 2] = 2 1 ∫ 2e −t / 2 dt = e − t / 2 2 1 = e –1/2 − e –1 = 0.000 Y > 40. It now follows that P[V > 40. .4 = (0.078 = = = 0. . Expected Refunds = 100 ∑ E [Y ] = 100(102.1 0.000 Y > 10.368 ⎩ Now E[Yi] = 200(0.4] = 1 ∫ 5 (1 − y ) dy = − (1 − y ) 4 5 1 0.393 ⎧ 200 ⎪ Yi = ⎨100 with probability 0.393) + 100(0. = P[V > 10.239) = 102.239 i = 1.56 Therefore. Solution: D Let T denote printer lifetime.256 .000] = P[100.239 1 Next. 100 ⎪0 with probability 0. 000] P[V > 40.590 -------------------------------------------------------------------------------------------------------37.000⏐V > 10.1 = (0. . . .000] = P[Y > 0.6)5 = 0.1] = 1 ∫ 5 (1 − y ) dy = − (1 − y ) 4 5 1 0.59 and P[V > 40.36. . i =1 i Page 15 of 61 .000] P[V > 40.132 . . . denote refunds for the 100 printers sold by independent and identically distributed random variables Y1.000] = P[Y > 0. 000 ∩ V > 10.56) = 10. 000] 0. Y100 where with probability 0. 0 ≤ t ≤ ∞ Note that 1 1 P[T ≤ 1] = ∫ e −t / 2 dt = e − t / 2 1 = 1 – e–1/2 = 0. Then f(t) = ½ e–t/2. Solution: B To determine k.9)5 = 0.4 0. 000] 0.078 .

we find C = ±0.5 ) (1.64 = Pr (Y < 0.5 ) = Pr ( 0 < X < 0.38. The conditions of the problem give x is a binomial distribution with n = 20 and p = 0.5 ) − ( 2 ) = = −3 1 − F (1. It follows that P[X < 2] = (0.5 + C ) = ∫ Therefore.5] = x 1 Pr ⎡⎣( X < 2 ) ∩ ( X ≥ 1. Then if 0 < X ≤ C ⎧0 Y =⎨ ⎩ X − C if C < X < 1 Now we are given that 0.189 = 0.3 Page 16 of 61 0.95)18(0. -------------------------------------------------------------------------------------------------------40. we conclude that C = 0.05)0 + 20(0.925 .5] F ( 2 ) − F (1.578 -------------------------------------------------------------------------------------------------------39.5 + C ) 2 .5 ) ⎤⎦ Pr [ X ≥ 1. Then F ( x ) = Pr [ X ≤ x ] = ∫ 3t −4 dt = −t −3 = 1 − x −3 x 1 Using this result. Solution: A Let F denote the distribution function of f.95)20(0.8 − 0.5 ) −3 −3 ⎛3⎞ = 1− ⎜ ⎟ ⎝4⎠ 3 = 0.5 + C 0 = ( 0.5+ C 0 2 x dx = x 2 0.5] Pr [ X ≥ 1.05)2 = 0. Solution: B Denote the insurance payment by the random variable Y. since 0 < C < 1 .5 Finally. solving for C.358 + 0.95)19(0.377 + 0.05 . Solution: E Let X be the number of hurricanes over the 20-year period.5] = Pr [ X < 2] − Pr [ X ≤ 1.5 ) (1. we see Pr [ X < 2| X ≥ 1.05) + 190(0.

376][1 − 0. Solution: D Let IA = Event that Company A makes a claim IB = Event that Company B makes a claim XA = Expense paid to Company A if claims are made XB = Expense paid to Company B if claims are made Then we want to find Pr ⎡⎣ I AC ∩ I B ⎤⎦ ∪ ⎡⎣( I A ∩ I B ) ∩ ( X A < X B ) ⎤⎦ { } = Pr ⎡⎣ I AC ∩ I B ⎤⎦ + Pr ⎡⎣( I A ∩ I B ) ∩ ( X A < X B ) ⎤⎦ = Pr ⎡⎣ I AC ⎤⎦ Pr [ I B ] + Pr [ I A ] Pr [ I B ] Pr [ X A < X B ] (independence) = ( 0. 000 and standard deviation σ = Var ( X B ) + Var ( X A ) = It follows that Page 17 of 61 ( 2000 ) + ( 2000 ) 2 2 = 2000 2 .8 ⎤ = 2 ⎡( 10 ⎣ 9 ) ( )( ) ( 10 ) ( ) ⎦ ⎣ ( 9 ) ( )( ) ( 10 ) ( ) ⎦ = 2 [ 0.60 )( 0.30 ) + ( 0.376] = 0. X B − X A is also a normal random variable with mean M = E [ X B − X A ] = E [ X B ] − E [ X A ] = 9. Therefore. 000 − 10.2 0. P ⎡⎣( X ≥ 9 ) ∩ ( Y < 9 ) ⎤⎦ ∪ ⎡⎣( X < 9 ) ∩ ( Y ≥ 9 ) ⎤⎦ { } = P ⎡⎣( X ≥ 9 ) ∩ ( Y < 9 ) ⎤⎦ + P ⎡⎣( X < 9 ) ∩ ( Y ≥ 9 ) ⎤⎦ = 2 P ⎡⎣( X ≥ 9 ) ∩ ( Y < 9 ) ⎤⎦ (due to symmetry) = 2 P [ X ≥ 9 ] P [Y < 9 ] = 2 P [ X ≥ 9] P [ X < 9] (again due to symmetry) = 2 P [ X ≥ 9] (1 − P [ X ≥ 9] ) 9 10 9 10 0.12 Pr [ X B − X A ≥ 0] Now X B − X A is a linear combination of independent normal random variables.18 + 0. Therefore.30 ) Pr [ X B − X A ≥ 0] = 0.8 + 10 0. Now we are given that X and Y are independent.469 -------------------------------------------------------------------------------------------------------42.41. Solution: E Let X = number of group 1 participants that complete the study.8 − 10 0.8 ⎤ ⎡1 − 10 0. Y = number of group 2 participants that complete the study. 000 = −1.2 0.40 )( 0.

18 + ( 0.1000 ⎤ ⎡ Pr [ X B − X A ≥ 0] = Pr ⎢ Z ≥ 2000 2 ⎥⎦ ⎣ 1 ⎤ ⎡ = Pr ⎢ Z ≥ 2 2 ⎥⎦ ⎣ (Z is standard normal) 1 ⎤ ⎡ = 1 − Pr ⎢ Z < 2 2 ⎥⎦ ⎣ = 1 − Pr [ Z < 0.12 )( 0.362 ) = 0. Solution: D If a month with one or more accidents is regarded as success and k = the number of failures before the fourth success.2898 Alternatively the solution is 4 4 4 2 4 3 ⎛ 2⎞ 4 ⎛ 2⎞ 3 5 ⎛ 2⎞ ⎛ 3⎞ 6 ⎛ 2⎞ ⎛ 3⎞ ⎜ ⎟ + ( 1 ) ⎜ ⎟ + ( 2 ) ⎜ ⎟ ⎜ ⎟ + ( 3 ) ⎜ ⎟ ⎜ ⎟ = 0. and iii) calculating Pr [ k ≤ 3] Page 18 of 61 .354] Finally. then k follows a negative binomial distribution and the requested probability is 4 k 3 3+ k ⎛ 3 ⎞ ⎛ 2 ⎞ Pr [ k ≥ 4] = 1 − Pr [ k ≤ 3] = 1 − ∑ ( k ) ⎜ ⎟ ⎜ ⎟ ⎝5⎠ ⎝ 5⎠ k =0 ⎛ 3⎞ = 1− ⎜ ⎟ ⎝ 5⎠ 4 ⎡ 3 ⎛ 2 ⎞0 4 ⎛ 2 ⎞1 5 ⎛ 2 ⎞ 2 6 ⎛ 2 ⎞3 ⎤ ⎢( 0 ) ⎜ ⎟ + ( 1 ) ⎜ ⎟ + ( 2 ) ⎜ ⎟ + ( 3 ) ⎜ ⎟ ⎥ ⎝5⎠ ⎝5⎠ ⎝ 5 ⎠ ⎥⎦ ⎢⎣ ⎝ 5 ⎠ 4 ⎛ 3 ⎞ ⎡ 8 8 32 ⎤ = 1 − ⎜ ⎟ ⎢1 + + + ⎥ ⎝ 5 ⎠ ⎣ 5 5 25 ⎦ = 0.362 { } Pr ⎡⎣ I AC ∩ I B ⎤⎦ ∪ ⎡⎣( I A ∩ I B ) ∩ ( X A < X B ) ⎤⎦ = 0.2898 ⎝5⎠ ⎝ 5⎠ 5 ⎝ 5⎠ ⎝ 5⎠ ⎝ 5⎠ ⎝ 5⎠ which can be derived directly or by regarding the problem as a negative binomial distribution with i) success taken as a month with no accidents ii) k = the number of failures before the fourth success. = 1 − 0.223 -------------------------------------------------------------------------------------------------------43.638 = 0.

2 ) ⎤⎦ =∫ 2 0 ∞ t 2 −t / 3 e dt + ∫ e− t / 3 dt 2 3 3 ∞ = −2e − t / 3 | 02 −te− t / 3 | ∞2 + ∫ e− t / 3 dt 2 = −2e −2 / 3 + 2 + 2e −2 / 3 − 3e− t / 3 | ∞2 = 2 + 3e −2 / 3 Page 19 of 61 .44. Solution: C If k is the number of days of hospitalization. 3 g(k) = 300 + 50 (k − 3) for k = 4. the expected payment is 5 ∑ g (k ) p k =1 k = 100 p1 + 200 p2 + 300 p3 + 350 p4 + 400 p5 = 1 (100 × 5 + 200 × 4 + 300 × 3 + 350 × 2 + 400 × 1) =220 15 -------------------------------------------------------------------------------------------------------45. { Thus. Solution: D The density function of T is 1 f ( t ) = e−t / 3 . 5. 2. 0 < t < ∞ 3 Therefore. E [ X ] = E ⎡⎣ max ( T . Solution: D 0 4 2 4 x x2 x3 x3 8 64 56 28 + =− + = = dx = − Note that E ( X ) = ∫ − dx + ∫ 0 10 − 2 10 30 −2 30 0 30 30 30 15 0 -------------------------------------------------------------------------------------------------------46. then the insurance payment g(k) is 100k for k =1.

2. Solution: D Define f ( X ) to be hospitalization payments made by the insurance policy..4 ) = 2694 -------------------------------------------------------------------------------------------------------49.3. -------------------------------------------------------------------------------------------------------48. 2. respectively. Solution: D Let T be the time from purchase until failure of the equipment.. Solution: E Let X and Y denote the year the device fails and the benefit amount. 2.6 )( 0. 4 y=⎨ if x > 4 ⎪⎩0 It follows that 2 3 E [Y ] = 4000 ( 0.6 ) ( 0.3 if X = 4.6 ) ( 0. x = 1.4 ) + 2000 ( 0.4 ) .3. 1 0 –1/10 = x(1 – ½ e x − e −t /10 2 3 1 – ½ e–3/10) = 0.4 ) + 1000 ( 0. Then the density function of X is given by x −1 f ( x ) = ( 0.47. and ⎧⎪1000 ( 5 − x ) if x = 1. We are given that T is exponentially distributed with parameter λ = 10 since 10 = E[T] = λ . Then ⎧⎪100 X f (X ) = ⎨ ⎪⎩300 + 25 ( X − 3) if X = 1. Next define the payment for 0 ≤ T ≤ 1 ⎧x ⎪x ⎪ for 1 < T ≤ 3 P under the insurance contract by P = ⎨ 2 ⎪ for T > 3 ⎪⎩0 We want to find x such that 1 x –t/10 e dt + 1000 = E[P] = ∫ 10 0 –1/10 –3/10 3 x 1 –t/10 − t /10 ∫1 2 10 e dt = − xe –1/10 = −x e + x – (x/2) e + (x/2) e We conclude that x = 5644 .4 ) + 3000 ( 0.5 and Page 20 of 61 .6 ) ( 0.1772x .

5(0.000N] – E[10. ⎩10.5 ⎤ 2.6∫ x 2.33 3 3 -------------------------------------------------------------------------------------------------------50.5 2 0.000 e–3/2 + ∞ ∑10. 2.6) 2. .5 ⎥⎦ 0. Solution: C Let N be the number of major snowstorms per year.5 2 Page 21 of 61 ∞ 2 .6) 2.5 1.000 e–3/2 + 10.5 E ⎡⎣ f ( X ) ⎤⎦ = ∑ f ( k ) Pr [ X = k ] k =1 ⎛5⎞ ⎛ 4⎞ ⎛ 3⎞ ⎛ 2⎞ ⎛1⎞ = 100 ⎜ ⎟ + 200 ⎜ ⎟ + 300 ⎜ ⎟ + 325 ⎜ ⎟ + 350 ⎜ ⎟ ⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠ 1 640 = [100 + 160 + 180 + 130 + 70] = = 213.5 (0.6) 2.5 + = − x dx 2 dx dx ∫ ⎢ x3.5(0.231 . . 000(n − 1) -------------------------------------------------------------------------------------------------------51.5(0.5(2)1.5 ⎥⎦ ∫2 ⎢⎣ x3.5(0.5(0. 000( N − 1) for N ≥ 1 Now observe that E[P] = ∞ ∑10. (2) 2.9343 .5 ⎤ ⎡ 2. = 10.5 x 2.5 x1.5 = 0. and let P be the amount paid to (3 / 2) n e −3/ 2 .000] = 10. Then Pr[N = n] = n! for N = 0 ⎧0 P=⎨ .5 0.000 e–3/2 + E[10.000 = 7. n = 0. . and the company under the policy.5 = − + + 1. Solution: C Let Y denote the manufacturer’s retained annual losses.5 2(0. for 0.000 (3/2) – 10.6)1.6 + 2(0.5 2.5(0.5 1. 1.6) 2.000 e + E[10.6) 2. 000(n − 1) n =1 (3 / 2) n e −3/ 2 n! (3 / 2) n e −3/ 2 = 10.6) 2.6) 2.6 < x ≤ 2 ⎧x Then Y = ⎨ for x > 2 ⎩2 and E[Y] = =− 2 ∞ 2 ⎡ 2.6) 2.5 1.5 2.5(0.6) 2.6 ⎣ 2.000 (N – 1)] n! n=0 –3/2 = 10.

0314 ⎟+ 2⎢ 137 N ⎝ 137 ⎠ ⎣137 ( 4 ) ⎦ ⎣137 ( 5 ) ⎦ -------------------------------------------------------------------------------------------------------53. ⎧0 X =⎨ ⎩N − 2 .. It follows that E[W] = ∫ y 3 dy + ∫ 10 3 dy = − y y y1 y 10 1 10 Page 22 of 61 . the net annual premium P = E [ X ] where = Then...05) = 137 N 137 N Now because of the deductible of 2. Solution: A Let us first determine K. if N ≤ 2 . if N > 2 P = E [ X ] = ∑ N =3 ( N − 2 ) 5 ⎡ 3 ⎤ ⎡ 3 ⎤ 3 ⎛ 1 ⎞ = (1) ⎜ ⎥ + 3⎢ ⎥ = 0. Observe that ⎛ 1 1 1 1⎞ ⎛ 60 + 30 + 20 + 15 + 12 ⎞ ⎛ 137 ⎞ 1 = K ⎜1 + + + + ⎟ = K ⎜ ⎟= K⎜ ⎟ 60 ⎝ 2 3 4 5⎠ ⎝ ⎠ ⎝ 60 ⎠ 60 K= 137 It then follows that Pr [ N = n ] = Pr ⎡⎣ N = n Insured Suffers a Loss ⎤⎦ Pr [ Insured Suffers a Loss ] 60 3 . Solution: D for 1 < y ≤ 10 ⎧y Let W denote claim payments. N = 1..52.9 .5 ( 0. Then W = ⎨ for y ≥ 10 ⎩10 10 ∞ 2 2 2 10 10 ∞ − 2 = 2 – 2/10 + 1/10 = 1.

du = dx.5 + 2e−0.5 − 2e−7.408 ) (in thousands) = 0.94 ⎧0 ⎪ Y = ⎨Max ( 0.02 )(14 ) 15 15 = ( 0.5 − 2e− x / 2 | 15 1 ⎦ = 0.28 + ( 0. x − 1) with probability 0.020012 ) ⎡⎣ −30e −7.020012 ) ⎡ −30e −7.5 + 4e −0.020012 ) ⎡ −2 xe − x / 2 | 15 +2∫ e − x / 2 dx − ∫ e − x / 2 dx ⎤ 1 1 1 ⎣⎢ ⎦⎥ 15 = 0. 0 < x < ∞ .328 It follows that the expected claim payment is 328 .04 ⎪14 with probability 0.28 + ( 0. note (1 + x) 4 The pdf of x is given by f(x) = ∞ k k 1 ∫0 (1 + x)4 dx = − 3 (1 + x)3 k=3 1= ∞ It then follows that E[x] = ∞ 0 = 3x ∫ (1 + x) 0 k 3 4 dx and substituting u = 1 + x.94 )( 0 ) + ( 0.5 + 2e −0. Solution: C k .020012 ) ⎡ ∫ xe − x / 2 dx − ∫ e − x / 2 dx ⎤ + 0.5 ) = 0. Then with probability 0. -------------------------------------------------------------------------------------------------------55.28 ⎢⎣ 1 ⎥⎦ 1 15 15 = 0.5 ) = 0.28 + ( 0.020012 )( 2. E[x] = ∫ du ( ) 3 u u du ⎢ ⎥ 4 ∫ u ⎣ 2 3⎦ ⎣ −2 −3 ⎦1 1 1 Page 23 of 61 . To find k.020012 ) ( −30e −7.28 + ( 0.5003) ∫ 15 1 ( x − 1) e− x / 2 dx + ( 0.28 + ( 0.28 + ( 0.5 + 2e −0.02 ⎩ and E [Y ] = ( 0. Solution: B Let Y denote the claim payment made by the insurance company.5 + ∫ e− x / 2 dx ⎤ ⎢⎣ ⎥⎦ 1 ⎤ = 0. we see ∞ ∞ ∞ ⎡ u −2 u −3 ⎤ 3(u − 1) ⎡1 1⎤ −3 −4 = 3 − = − = 3 ⎢ − ⎥ = 3/2 – 1 = ½ .54.020012 ) ( −32e −7.04 )( 0.5 + 2e −0.

Solution: C Let Y represent the payment made to the policyholder for a loss subject to a deductible D. 000.560(1 – 2t)–13 E[X3] = M″′(0) = 10.5 (1 – 2t)–4.000 Var[ X ] = 5.000 Var[X] = E[X2] – {E[X]}2 = 125. for 0 ≤ X ≤ D ⎧0 That is Y = ⎨ ⎩ x − D for D < X ≤ 1 Then since E[X] = 500. 000 Mx″(t) = = (1 − 2500t )6 (1 − 2500t )6 Then E[X] = Mx′ (0) = 10.000 E[X2] = Mx″ (0) = 125. Solution: B 1 for the claim size X in a certain class of accidents. 000 First. (1 − 2500t ) 4 (−4)(−2500) 10.000. Solution: E Let XJ.000)2 = 25. Then X = XJ + XK + XL and due to independence x +x +x t M(t) = E ⎣⎡e xt ⎦⎤ = E ⎣⎡e( J K L ) ⎦⎤ = E ⎣⎡e xJ t ⎦⎤ E ⎡⎣ e xK t ⎤⎦ E ⎡⎣ e xLt ⎤⎦ = MJ(t) MK(t) ML(t) = (1 – 2t)–3 (1 – 2t)–2. We are given that Mx(t) = -------------------------------------------------------------------------------------------------------58. XK. M′(t) = 20(1 – 2t)–11 M″(t) = 440(1 – 2t)–12 M″′(t) = 10. 000)(−5)(−2500) 125.000 . respectively.5 = (1 – 2t)–10 Therefore. K. and L.560 Page 24 of 61 .000. we want to choose D so that 1000 1 1 1 ( x − D) 2 1000 (1000 − D) 2 500 = ∫ ( x − D)dx = = D 4 1000 1000 2 2000 D (1000 – D)2 = 2000/4 ⋅ 500 = 5002 1000 – D = ± 500 D = 500 (or D = 1500 which is extraneous). and XL represent annual losses for cities J.56.000 – (10. compute Mx′(t) = = 5 (1 − 2500t ) (1 − 2500t )5 (10.000. -------------------------------------------------------------------------------------------------------57.

¾ = (200/Q1)2. Solution: B The distribution function of X is given by 2.01 p = xp (1 − 0.4 = 224. respectively.5 2. -------------------------------------------------------------------------------------------------------61.4 . Similarly. The interquartile range is the difference Q3 – Q1 . is found by ¾ = z ∞ Q1 f(x) dx . That is.30 ) 25 − 200 ( 0.5 2.70 ) 25 = 93. Q1. is given by Q3 = 200 (4)0.5 ( 200 ) 1 − 0.59.5 2.2 .01 p ) 25 It follows that x 70 − x 30 = 200 ( 0. the p percentile x p of X is given by ( 200 ) p = F ( xp ) = 1− 2.2X and Var[Y] = Var[1. Q3. the third quartile. Page 25 of 61 . Then Y = 1. x > 200 th Therefore.2X] = (1.5 x 2.5 .2)2 Var[X] = (1. Solution: E Let X and Y denote the annual cost of maintaining and repairing a car before and after the 20% tax.01 p ) xp = 25 = 2.4 = 348.5 or Q1 = 200 (4/3)0.5 x ( 200 ) = 1− 200 x 2.2)2(260) = 374 .5 − ( 200 ) dt = t 2.5 100 xp 2.5 200 xp 200 (1 − 0.5 ( 200 ) F ( x) = ∫ 200 t 3.06 -------------------------------------------------------------------------------------------------------60. Solution: A The first quartile.

41 54 1 4 E [Y ] = ∫ xdx + ∫ dx = x 2 | 04 + x| 54 0 5 4 5 10 5 16 20 16 8 4 12 = + − = + = 10 5 5 5 5 5 41 5 16 1 16 E ⎡⎣Y 2 ⎤⎦ = ∫ x 2 dx + ∫ dx = x 3 | 04 + x| 54 0 5 4 5 15 5 64 80 64 64 16 64 48 112 = + − = + = + = 15 5 5 15 5 15 15 15 2 2 112 ⎛ 12 ⎞ Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − ( E [Y ] ) = − ⎜ ⎟ = 1.71 15 ⎝ 5 ⎠ Page 26 of 61 . Solution: C First note that the density function of X is given by ⎧1 if x =1 ⎪2 ⎪⎪ 1< x < 2 f ( x ) = ⎨ x − 1 if ⎪ ⎪ otherwise ⎪⎩0 Then 2 2 2 1 1 1 ⎛1 1 ⎞ E ( X ) = + ∫ x ( x − 1) dx = + ∫ x 2 − x dx = + ⎜ x3 − x 2 ⎟ 1 1 2 2 2 ⎝3 2 ⎠1 ( = ( ) E X 2 ) 1 8 4 1 1 7 4 + − − + = −1 = 2 3 2 3 2 3 3 2 2 2 1 1 1 ⎛1 1 ⎞ = + ∫ x 2 ( x − 1) dx = + ∫ x3 − x 2 dx = + ⎜ x 4 − x3 ⎟ 2 1 2 1 2 ⎝4 3 ⎠1 ( = ) 1 16 8 1 1 17 7 23 + − − + = − = 2 4 3 4 3 4 3 12 ( ) Var ( X ) = E X 2 2 23 ⎛ 4 ⎞ 23 16 5 − ⎡⎣ E ( X ) ⎤⎦ = −⎜ ⎟ = − = 12 ⎝ 3 ⎠ 12 9 36 2 -------------------------------------------------------------------------------------------------------63. Solution: C ⎧ X if 0 ≤ X ≤ 4 Note Y = ⎨ ⎩4 if 4 < X ≤ 5 Therefore.62.

79] Therefore. X3. the distribution function G of Y is given by G ( y ) = Pr [Y ≤ y ] = Pr ⎡⎣( X 1 ≤ y ) ∩ ( X 2 ≤ y ) ∩ ( X 3 ≤ y ) ∩ ( X 4 ≤ y ) ⎤⎦ = Pr [ X 1 ≤ y ] Pr [ X 2 ≤ y ] Pr [ X 3 ≤ y ] Pr [ X 4 ≤ y ] = ⎡⎣ F ( y ) ⎤⎦ 4 1 3 5 4 ≤ y≤ (1 + sinπ y ) . 76.00 – 21.79 . 55. X4).10) + 6400(0. Solution: A Let X denote claim size. Now the range of claims within one standard deviation of the mean is given by [55.20) + 60(0. Then if we define Y = max (X1.05 + 0. in the event the auto is damaged. 028 − ( 521) 2 2 Var [Y ] = 403 -------------------------------------------------------------------------------------------------------66.00 + 21. 028 ( ( 250 250 1500 4500 4500 Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − { E [Y ]} = 434. Solution: E Let X1.21.10) + 80(0.30)] = (3 + 3 + 2 + 10 + 6 + 7 + 24) = 55 E[X2] = 400(0. Solution: B Let X and Y denote repair cost and insurance payment.45 . Then if x ≤ 250 ⎧0 Y =⎨ ⎩ x − 250 if x > 250 and 2 1500 1 1 2 1500 1250 E [Y ] = ∫ x − 250 dx = x − 250 = = 521 ( ) ( ) 250 250 1500 3000 3000 1500 1 1 12503 2 3 E ⎡⎣Y 2 ⎤⎦ = ∫ x − 250 ) dx = x − 250 ) 1500 = = 434.10) + 1600(0. X3.05) + 50(0.79] = [33.15) + 30(0. X2.20 + 0.10) + 4900(0. Then E[X] = [20(0.64. X2. 16 2 2 It then follows that the density function g of Y is given by = Page 27 of 61 .30) = 60 + 90 + 80 + 500 + 360 + 490 + 1920 = 3500 Var[X] = E[X2] – (E[X])2 = 3500 – 3025 = 475 and Var[ X ] = 21. and X4 denote the four independent bids with common distribution function F. the proportion of claims within one standard deviation is 0. -------------------------------------------------------------------------------------------------------65.79.05) + 2500(0.15) + 900(0. respectively.10 + 0.20) + 3600(0.10 = 0.10) + 40(0.10) + 70(0.

g ( y ) = G '( y ) = = Finally. yg ( y ) dy ycosπ y (1 + sinπ y ) dy 3 -------------------------------------------------------------------------------------------------------67.6 ) k! k =0 k − 2000e −0.6 ) e −0. 2.6 − ⎡( 2000 ) − (1000 ) ⎤ ( 0.6 = 1000 ( 0.3 and k! k ∞ 0.6 ⎣ ⎦ = ( 2000 ) e −0.6 ∑ k =0 2 = ( 2000 ) 2 ∞ = 816.564 2 2 Var [Y ] = 699 Page 28 of 61 .1.6 ) e−0.893 Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − { E [Y ]} = 816.6 E [Y ] = 0 + 1000 ( 0.6 .6 ) e −0.6 + ( 2000 ) e −0.6 − ( 0.6 − 600e−0.6 ∞ ∑ ( 0.6k 2 2 2 − ( 2000 ) e −0.6 ⎣ ⎦ k! 2 2 2 − ( 2000 ) e −0. 1 3 (1 + sinπ y ) (π cosπ y ) 4 π cosπ y (1 + sinπ y ) 4 E [Y ] = ∫ 5/ 2 =∫ 5/ 2 π 3/ 2 4 3/ 2 3 3 5 ≤ y≤ 2 2 .6 + 2000 ⎜ e −0.6 ⎟ k! ⎝ ⎠ = 2000e −0.6 ( 0.6 −0.6 )e −0.6 − ⎡( 2000 ) − (1000 ) ⎤ ( 0.6 − 1000 ( 0.6 ) e −0.6 −0.6 = 2000 − 2000e −0. The probability function for X is k e −0.6 = 573 E ⎡⎣Y 2 ⎤⎦ = (1000 ) ( 0.6 ) e + 2000e ∑ k = 2 k! k ⎛ ⎞ ∞ 0.6 ) p ( x) = k = 0.6 ∑ k = 2 2 2 ∞ 0.6k k! 0.893 − ( 573) = 488.6 ∑ k =0 − e −0. Solution: B The amount of money the insurance company will have to pay is defined by the random variable ⎧1000 x if x < 2 Y =⎨ if x ≥ 2 ⎩2000 where x is a Poisson random variable with mean 0.6 ) e −0.

004 x dx = −e −0.95 = = where F(x) is the distribution function of X . Therefore. we may determine θ as follows: 1 = F ( 4 ) = 1 − e−4 θ 2 1 = e −4 θ 2 4 − ln ( 2 ) = − θ θ= 4 ln ( 2 ) Therefore.29 . we want to find p95 such that Pr[100 < x < p95 ] F ( p95 ) − F (100) 0.50 for x ≥ 250 ⎩250 m = ∫ 0.004m 0 This condition implies e–0. Consequently.05 e –1/3 p95 = −300 ln(0.05 e–1/3) = 999 Page 29 of 61 . Solution: D The distribution function of an exponential random variable T with parameter θ is given by F ( t ) = 1 − e − t θ .004m = 0.004e −0. Solution: E Let X denote actual losses incurred. We are given that X follows an exponential distribution with mean 300. t > 0 Since we are told that T has a median of four hours. 1 − e − p95 / 300 − (1 − e −100 / 300 ) e −1/ 3 − e − p95 / 300 = = 1 − e1/ 3e − p95 / 300 Therefore. c = 0.004 x m 0 = 1 – e–0. -------------------------------------------------------------------------------------------------------69. Now let Y denote the for x < 250 ⎧x claim benefits paid.95 = 1 − (1 − e −100 / 300 ) e −1/ 3 e − p95 / 300 = 0. and we are asked to find the 95th percentile of all claims that exceed 100 .004 .42 -------------------------------------------------------------------------------------------------------70.5 ⇒ m = 250 ln 2 = 173.68. Solution: C Note that X has an exponential distribution. Pr (T ≥ 5 ) = 1 − F ( 5 ) = e −5 θ = e − 5ln ( 2 ) 4 = 2−5 4 = 0. 0. Then Y = ⎨ and we want to find m such that 0. P[ X > 100] 1 − F (100) Now F(x) = 1 – e–x/300 .

000e R Therefore. f ( y ) = F ′ ( y ) = ⎜ ⎟ e ( ) 8 ⎝ 10 ⎠ Page 30 of 61 10 8 10 − (Y ) ⎤ 10 1 e = − ⎥ ⎦ 8 .000 ) = 25ln ( v ) − 25ln (10. 000e R ≤ v ⎤⎦ = Pr ⎡⎣ R ≤ ln ( v ) − ln (10.8 ≤ y ⎤⎦ = Pr ⎢ X ≤ Y 10 ⎣ 1 1 ⎛ Y ⎞ 4 − Y 10 5 4 Therefore.000 ) 1 dr = r = ∫ 0. 000 ⎠ ⎦ -------------------------------------------------------------------------------------------------------73. Solution: A The distribution function of Y is given by G ( y ) = Pr (T 2 ≤ y ) = Pr T ≤ y = F y = 1 − 4 y ( ) ( ) for y > 4 .04 0.04 ⎡ ⎛ v ⎞ ⎤ = 25 ⎢ ln ⎜ − 0. 0. Solution: E ( ) ⎡ F ( y ) = Pr [Y ≤ y ] = Pr ⎡⎣10 X 0.71.08 ) and V = 10. the distribution function of V is given by F ( v ) = Pr [V ≤ v ] = Pr ⎡⎣10. 000 ) − 1 0.04 ln ( v ) − ln (10. Differentiate to obtain the density function g ( y ) = 4 y −2 Alternate solution: Differentiate F ( t ) to obtain f ( t ) = 8t −3 and set y = t 2 .04 ⎥ ⎟ ⎣ ⎝ 10. Then t = g ( y ) = f ( t ( y ) ) dt dy = f ( y ) dtd ( y ) = 8 y −3 2 y and ⎛ 1 −1 2 ⎞ −2 ⎜ y ⎟ = 4y ⎝2 ⎠ -------------------------------------------------------------------------------------------------------72.04. Solution: E We are given that R is uniform on the interval ( 0. 000 ) ⎤⎦ 1 ln ( v )−ln (10.04 0.

it follows that the distribution function of Y is given by G ( y ) = Pr [ X 1 ≤ y ] Pr [ X 2 ≤ y ] Pr [ X 3 ≤ y ] 3 ⎛ 1 ⎞ . -------------------------------------------------------------------------------------------------------76. y>1 . let X1. Solution: A First. x > 1 1 t t x Next. 4 ⎝ r ⎠ 2r -------------------------------------------------------------------------------------------------------75. Let us also take g to be the pdf of Y and take F and G to be the distribution functions corresponding to f and g . and X3 denote the three claims made that have this distribution. Page 31 of 61 2 . observe that the distribution function of X is given by x 3 1 1 F ( x ) = ∫ 4 dt = − 3 | 1x = 1 − 3 . 12] .74. Differentiating with respect to r⎦ ⎣T ⎦ ⎣ ⎝ r ⎠ ⎛ ⎛ 10 ⎞ ⎞ ⎛d ⎞ ⎛ −10 ⎞ r fR(r) = F′R(r) = d/dr ⎜1 − FT ⎜ ⎟ ⎟ = − ⎜ FT ( t ) ⎟ ⎜ 2 ⎟ ⎝ r ⎠⎠ ⎝ dt ⎠⎝ r ⎠ ⎝ d 1 FT (t ) = fT (t ) = since T is uniformly distributed on [8. Solution: E First note R = 10/T . dt 4 −1 ⎛ −10 ⎞ 5 Therefore fR(r) = ⎜ 2 ⎟= 2 . y>1 = ⎜1 − 3 ⎟ y ⎠ ⎝ while the density function of Y is given by 2 ⎛ 1 ⎞ ⎛ 3 ⎞ ⎛ 9 ⎞⎛ 1 ⎞ g ( y ) = G ' ( y ) = 3 ⎜1 − 3 ⎟ ⎜ 4 ⎟ = ⎜ 4 ⎟⎜ 1 − 3 ⎟ y ⎠ ⎝ y ⎠ ⎝ y ⎠ ⎝ y ⎠⎝ Therefore. X2. Solution: A Let X and Y be the monthly profits of Company I and Company II. We are given that the pdf of X is f . Then if Y denotes the largest of these three claims. respectively. Then 10 ⎤ ⎡10 ⎤ ⎡ ⎛ 10 ⎞ FR(r) = P[R ≤ r] = P ⎢ ≤ r ⎥ = P ⎢T ≥ ⎥ = 1 − FT ⎜ ⎟ . Then G(y) = Pr[Y ≤ y] = P[2X ≤ y] = P[X ≤ y/2] = F(y/2) and g(y) = G′(y) = d/dy F(y/2) = ½ F′(y/2) = ½ f(y/2) .

= 1− Note 2 ∫∫ 1 2 1 1 ( x + y )dxdy = 0.625 48 48 = 1− = 1− ∫ = 1− 2 1 c } (De Morgan's Law) 1 ∫ 8 ( x + y ) dxdy 2 1 1 ⎡ 3 3 y + 2 ) − ( y + 1) ⎤ ( ⎦ 48 ⎣ 1 21 2 x + y ) 12 dy ( ∫ 8 1 2 1 = 1 − ( 64 − 27 − 27 + 8 ) 48 = 1− 2 1 -------------------------------------------------------------------------------------------------------78. Solution: D Prob. Page 32 of 61 .E [Y ] = ∫ ∞ 1 2 ∞ 9 ⎛ 9 ⎛ 1 ⎞ 2 1 ⎞ 1 − 3 ⎟ dy = ∫ 3 ⎜ 1 − 3 + 6 ⎟ dy 3 ⎜ 1 y y ⎝ y ⎠ y ⎠ ⎝ y ∞ ⎛ 9 18 9 ⎞ ⎡ 9 18 9 ⎤ = ∫ ⎜ 3 − 6 + 9 ⎟ dy = ⎢ − 2 + 5 − 8 ⎥ 1 y y ⎠ ⎝y ⎣ 2 y 5 y 8 y ⎦1 ⎡1 2 1⎤ = 9 ⎢ − + ⎥ = 2. This evaluation is more easily performed by integrating over the unshaded region and subtracting from 1. Solution: B That the device fails within the first hour means the joint density function must be integrated over the shaded region shown below.025 (in thousands) ⎣2 5 8⎦ ∞ -------------------------------------------------------------------------------------------------------77.625 8 { Pr ⎡⎣( X ≤ 1) ∪ (Y ≤ 1) ⎤⎦ = Pr ⎡⎣( X > 1) ∩ (Y > 1) ⎤⎦ = 1 − Pr ⎡⎣( X > 1) ∩ (Y > 1) ⎤⎦ 1 2⎡ 2 2 y + 2 ) − ( y + 1) ⎤ dy ( ∫ ⎦ 16 1 ⎣ 18 30 = 1− = = 0.

the total contributions are approximately normally distributed with mean nμ = ( 2025 )( 3125 ) = 6. 1/ 2 1 1 1/ 2 ⎡⎛ 1⎞ ⎛ 1 ⎞⎤ Pr ⎢⎜ S ≤ ⎟ ∪ ⎜ T ≤ ⎟ ⎥ = ∫ ∫ f ( s. and so p = nμ + 1.328. Letting p be the 90th percentile for total contributions. Therefore.282 )(11. Solution: C By the central limit theorem. Solution: E The domain of s and t is pictured below.548 .328. 250 ) = 6.125 and standard deviation σ n = 250 2025 = 11. σ n Page 33 of 61 .282. 250 . the 90th percentile for a standard normal random variable is 1. Note that the shaded region is the portion of the domain of s and t over which the device fails sometime during the first half hour.Pr ⎡⎣( X < 1) ∪ (Y < 1) ⎤⎦ = 1− ∫ 3 1 ∫ 3 1 3 2 3 x + 2 xy x+ y 1 3 dx dy = 1 − ∫ dy = 1 − ∫ ( 9 + 6 y − 1 − 2 y ) dy 1 27 54 1 54 1 3 = 1− 1 3 1 1 32 11 8 + 4 y ) dy = 1 − ( 8 y + 2 y 2 ) = 1 − ( 24 + 18 − 8 − 2 ) = 1 − = = 0. From the tables. t ) dsdt + ∫ ∫ f ( s. p − nμ = 1.342.125 + (1.282 .282 σ n = 6. -------------------------------------------------------------------------------------------------------80.41 ( ∫ 54 1 54 54 54 27 1 -------------------------------------------------------------------------------------------------------79. t ) dsdt 0 0 2⎠ ⎝ 2 ⎠ ⎦ 0 1/ 2 ⎣⎝ (where the first integral covers A and the second integral covers B).

X25 denote the 25 collision claims. We conclude that P[ X > 20. 400 ⎤ > = P⎢ > 0.7257 = P⎢ ⎥ 1000 ⎣ 1000 ⎦ ⎣ 1000 ⎦ = 0. . -------------------------------------------------------------------------------------------------------83.400 and standard deviation (5000) = 1000 . we may conclude that S has an approximate normal distribution with E[S] = Var[S] = (2)(1250) = 2500 . As a result X also follows a normal distribution with mean 1 19. 25) follows a normal distribution with mean 19. -------------------------------------------------------------------------------------------------------82. X1250 be the number of claims filed by each of the 1250 policyholders.8186 . Solution: B Let X1.9772 ≤ Pr [ S > 40] = Pr ⎢ > ⎥ n ⎦ ⎣ n This implies that n should satisfy the following inequality: Page 34 of 61 . Since these random variables are independent and normally distributed with mean 3 and variance 1.000] 25 ⎡ X − 19.…. Solution: B Let X1. . Now we are interested in the random variable S = X1 + . 400 20. the random variable S = X1 + … + Xn is also normally distributed with mean μ = 3n and standard deviation σ= n Now we want to choose the smallest value for n such that ⎡ S − 3n 40 − 3n ⎤ 0. . 400 ⎤ ⎡ X − 19. Xn denote the life spans of the n light bulbs purchased. Therefore P[2450 < S < 2600] = S − 2500 ⎡ 2450 − 2500 S − 2500 2600 − 2500 ⎤ ⎡ ⎤ < < < 2⎥ P⎢ ⎥ = P ⎢ −1 < 50 2500 2500 2500 ⎦ ⎣ ⎦ ⎣ ⎡ S − 2500 ⎤ ⎡ S − 2500 ⎤ = P⎢ < 2⎥ − P ⎢ < −1⎥ ⎣ 50 ⎦ ⎣ 50 ⎦ S − 2500 . . It follows that E[Xi] = Var[Xi] = 2 . .-------------------------------------------------------------------------------------------------------81.8413 – 1 = 0. . . we have P[2450 < S < 2600] Then using the normal approximation with Z = 50 ≈ P[Z < 2] – P[Z > 1] = P[Z < 2] + P[Z < 1] – 1 ≈ 0.400 and standard deviation 5000 . Solution: C 1 Let X1. . .2743 . Assuming that the random variables are independent.6 ⎥ = 1 − Φ(0.9773 + 0. . . . . . We are 25 given that each Xi (i = 1. .6) = 1 – 0. We are given that each Xi follows a Poisson distribution with mean 2 . . +X25) . 000 − 19. + X1250 . and let X = (X1 + .

Page 35 of 61 . let’s solve the corresponding equation for n: 40 − 3n −2 = n −2 ≥ −2 n = 40 − 3n 3n − 2 n − 40 = 0 (3 n + 10 )( ) n −4 =0 n =4 n = 16 -------------------------------------------------------------------------------------------------------84. Y ] = 50 + 30 + 20 = 100 for a randomly selected person. ⎡ T − 7000 7100 − 7000 ⎤ Pr [T < 7100] = Pr ⎢ < ⎥⎦ 100 ⎣ 100 = Pr [ Z < 1] = 0. It then follows from the Central Limit Theorem that T is approximately normal with mean E [T ] = 100 ( 70 ) = 7000 and variance Var [T ] = 100 (100 ) = 1002 Therefore.8413 where Z is a standard normal random variable. Solution: B Observe that E [ X + Y ] = E [ X ] + E [Y ] = 50 + 20 = 70 Var [ X + Y ] = Var [ X ] + Var [Y ] + 2 Cov [ X .40 − 3n n To find such an n.

Solution: E Let X 1 . + E [ X 100 ] = 100 ( 0.000. Therefore. Var[X] = 1..5] = Pr ⎢ ≤ ⎥⎦ 9 ⎣ 9 = Pr [ Z ≤ 2.4 = 0.25 ) = 0.5 − 70 ⎤ Pr [ S ≤ 90.. Var[ X ] = 1000 and P = 100 + E[X] = 1.000 .841 ≈ 0. + Var [ X 100 ] = 100 ( 0.000 and standard deviation = 10.99 Page 36 of 61 ...159 .28] = 0... It follows from the Central Limit Theorem that S is approximately normally distributed with mean 100. 000 − 100. Now under the assumptions given.3 − ( 0.100) = 110. ⎧0 with probability 1 − 0. 000 ⎣ ⎦ – 0. 2 2 2 2 E ⎡⎣ X i ⎤⎦ = ( 0 ) ( 0.. -------------------------------------------------------------------------------------------------------86.7 ) = 0.100 .4 )( 0..000] = 1 – P[S ≤ 110..000) . 110.. it follows from what we are given that E[X] = 1000.000] = 1 – P ⎢ Z ≤ ⎥ = 1 – P[Z ≤ 1] = 1 10..1) + ( 2 ) ( 0.000.000 Moreover.-------------------------------------------------------------------------------------------------------85.6 ) + (1) ( 0.3) = 1. then Total Premium Collected = 100(1. Now if 100 policies are sold. + X 100 is approximately normally distributed with mean E [ S ] = E [ X 1 ] + .6 ⎪ X i = ⎨1 with probability ( 0. E [ X i ] = ( 0 )( 0. and assume the claims of each policy are independent of the others then E[S] = 100 E[X] = (100)(1000) and Var[S] = 100 Var[X] = (100)(1.4 )( 0.. if we denote total claims by S.6 ) + (1)( 0...000.7 .. ⎡ S − 70 90. and 2 2 Var [ X i ] = E ⎡⎣ X i ⎤⎦ − { E [ X i ]} = 1. X 100 are assumed by the consulting actuary to be independent.75 ) = 0.1 ⎪ ⎩2 with probability ( 0.3) = 0. 000 ⎤ ⎡ P[S ≥ 110. Therefore.. Solution: B Denote the policy premium by P . X 100 denote the number of pensions that will be provided to each new recruit.81) = 81 Consequently.3 .3 for i = 1.81 Since X 1 . the Central 2 Limit Theorem then implies that S = X 1 + .. Since x is exponential with parameter 1000..100 .1) + ( 2 )( 0.7 ) = 70 and variance Var [ S ] = Var [ X 1 ] + .

5 −2.5)3 =2.5.25 P ⎢ − ≤ X 48 ≤ ⎥ = P ⎢ ≤Z≤ = P[−1. We are given X is uniformly distributed on (−2. −2. 1⎤ 0. Therefore.2] – P[Z ≤ – 4⎦ 0.2] – 1 = 2(0.2083 ⎥⎦ ⎣ 4 ⎣ 0. X has pdf f(x) = 1/5. the difference between the means of the true and rounded ages.443 = distribution that is approximately normal with mean 0 and standard deviation 48 0.2] = P[Z ≤ 1.5 . -------------------------------------------------------------------------------------------------------88. Pr ⎡⎣( X ≤ 3) ∩ (Y ≤ 2 ) ⎤⎦ = Pr [ X ≤ 3] Pr [Y ≤ 2] = F ( 3) G ( 2 ) = (1 − e −1/ 2 )(1 − e −2 / 3 ) = 1 − e−2 / 3 − e−1/ 2 + e−7 / 6 Page 37 of 61 .-------------------------------------------------------------------------------------------------------87. and let Y denote the waiting time for a first claim from a bad driver.2] = 2P[Z ≤ 1. The problem statement implies that the respective distribution functions for X and Y are F ( x ) = 1 − e− x / 6 . Solution: C Let X denote the waiting time for a first claim from a good driver.2083 .2 ≤ Z ≤ 1.083 15 σx =1. That is.25 ⎤ ⎡ 1 ⎡ −0.5 2. It follows that μ x = E[X] = 0 σx2 = Var[X] = E[X2] = 2.5 = 2(2. Solution: D Let X denote the difference between true and reported age. has a 1. x > 0 and G ( y ) = 1 − e− y / 3 .5) .2.5 x2 x3 = dx ∫ 5 15 −2.2] – 1 + P[Z ≤ 1.5 < x < 2.2] = P[Z ≤ 1.8849) – 1 = 0. y > 0 Therefore.2083 1.77 .443 Now X 48 .

consider the following diagram: y 50 x>20 y>20 (20. 000 ⎪0 ⎩ for 0 < x < 50 − y < 50 otherwise and we want to determine P[X > 20 ∩ Y > 20] . 000 20∫ ∫ (50 − x − y ) dy dx . 0 < t2 < ∞ and we need to find ⎝2 ⎠⎝ 3 ⎠ 6 P[T2 < T1] = ∞ t1 ∞ 1 −t / 2 −t / 3 ⎡ 1 − t / 2 − t / 3 ⎤ t1 ∫0 ∫0 6e 1 e 2 dt2 dt1 = ∫0 ⎢⎣ − 2 e 1 e 2 ⎥⎦ 0 dt1 ∞ ∞ ∞ 3 2 ⎡ 1 − t1 / 2 1 − t1 / 2 − t1 / 3 ⎤ ⎡ 1 − t1 / 2 1 −5t1 / 6 ⎤ ⎡ − t1 / 2 3 −5t1 / 6 ⎤ + e = 1− = = ∫⎢ e dt1 = ⎢ −e − e e ⎥ dt1 = ∫ ⎢ e − e ⎥ ⎥ 5 5 5 2 2 2 2 ⎣ ⎦0 ⎦ ⎦ 0 ⎣ 0 ⎣ = 0. Then the joint pdf of T1 and T2 is ⎛1 ⎞⎛ 1 ⎞ 1 f (t1 . Solution: D We want to find P[X + Y > 1] . 30) (30. 0 < t1 < ∞ . y ) = ⎨125. 20) 50 x 30 50 − x 6 We conclude that P[X > 20 ∩ Y > 20] = 125.89.4 . and let T2 be the time until the next Deluxe policy claim. Solution: C Let T1 be the time until the next Basic Policy claim. 20 -------------------------------------------------------------------------------------------------------90. Solution: B ⎧ 6 (50 − x − y ) ⎪ We are given that f ( x. In order to determine integration limits. To this end. note that P[X + Y > 1] 1 2 2 1 1 1 ⎤ ⎡ 2x + 2 − y ⎤ ⎡1 dydx = ∫ ⎢ xy + y − y 2 ⎥ dx = ∫∫⎢ ⎥ 4 2 2 8 ⎦ 1− x ⎦ 0 1− x ⎣ 0 ⎣ = = 1 1 1 1 1 ⎡ 2⎤ ∫0 ⎢⎣ x + 1 − 2 − 2 x(1 − x) − 2 (1 − x) + 8 (1 − x) ⎥⎦ dx = 1 ⎡5 ∫ ⎢⎣ 8 x 0 1 2 + 1 ⎡ 1 ∫ ⎢⎣ x + 2 x 0 2 1 1 1 ⎤ + − x + x 2 ⎥ dx 8 4 8 ⎦ 3 1 ⎤ 3 1⎤ 5 3 1 17 ⎡5 x + ⎥ dx = ⎢ x 3 + x 2 + x ⎥ = + + = 8 8 ⎦ 0 24 8 8 24 4 8⎦ ⎣ 24 Page 38 of 61 . t2 ) = ⎜ e− t1 / 2 ⎟ ⎜ e− t2 / 3 ⎟ = e− t1 / 2 e− t2 / 3 . -------------------------------------------------------------------------------------------------------91.

92.

Solution: B

Let X and Y denote the two bids. Then the graph below illustrates the region over which

X and Y differ by less than 20:

**Based on the graph and the uniform distribution:
**

Pr ⎡⎣ X − Y < 20 ⎤⎦ =

Shaded Region Area

( 2200 − 2000 )

2

=

1

2

(180 )

2

2002

2002 − 2 ⋅

1802

2

= 1 − ( 0.9 ) = 0.19

2

200

More formally (still using symmetry)

Pr ⎡⎣ X − Y < 20 ⎤⎦ = 1 − Pr ⎡⎣ X − Y ≥ 20 ⎤⎦ = 1 − 2 Pr [ X − Y ≥ 20]

= 1−

2200

1

1

x − 20

dydx = 1 − 2 ∫

y 2000

dx

2

2020 2000 200

2020 200 2

2200

2

1

2

= 1−

x − 20 − 2000 ) dx = 1 −

x − 2020 )

2 ∫ 2020 (

2 (

200

200

= 1 − 2∫

2200

∫

x − 20

2

⎛ 180 ⎞

= 1− ⎜

⎟ = 0.19

⎝ 200 ⎠

Page 39 of 61

2200

2020

-------------------------------------------------------------------------------------------------------93.

Solution: C

Define X and Y to be loss amounts covered by the policies having deductibles of 1 and 2,

respectively. The shaded portion of the graph below shows the region over which the

total benefit paid to the family does not exceed 5:

We can also infer from the graph that the uniform random variables X and Y have joint

1

density function f ( x, y ) =

, 0 < x < 10 , 0 < y < 10

100

We could integrate f over the shaded region in order to determine the desired probability.

However, since X and Y are uniform random variables, it is simpler to determine the

portion of the 10 x 10 square that is shaded in the graph above. That is,

Pr ( Total Benefit Paid Does not Exceed 5)

= Pr ( 0 < X < 6, 0 < Y < 2 ) + Pr ( 0 < X < 1, 2 < Y < 7 ) + Pr (1 < X < 6, 2 < Y < 8 − X )

=

( 6 )( 2 ) + (1)( 5 ) + (1 2 )( 5)( 5 ) =

100

100

100

12

5 12.5

+

+

= 0.295

100 100 100

-------------------------------------------------------------------------------------------------------94.

Solution: C

Let f ( t1 , t2 ) denote the joint density function of T1 and T2 . The domain of f is pictured

below:

**Now the area of this domain is given by
**

1

2

A = 62 − ( 6 − 4 ) = 36 − 2 = 34

2

Page 40 of 61

⎧1

, 0 < t1 < 6 , 0 < t2 < 6 , t1 + t2 < 10

⎪

Consequently, f ( t1 , t2 ) = ⎨ 34

⎪⎩ 0

elsewhere

and

E [T1 + T2 ] = E [T1 ] + E [T2 ] = 2 E [T1 ]

(due to symmetry)

6 1

6

10 −t1 1

6

⎧ 4 ⎡t

⎤

⎡t

⎧ 4

⎫

= 2 ⎨ ∫ t1 ∫

dt2 dt1 + ∫ t1 ∫

dt2 dt1 ⎬ = 2 ⎨ ∫ t1 ⎢ 2 60 ⎥ dt1 + ∫ t1 ⎢ 2

0 34

4

0

4

34

⎩ 0

⎭

⎣ 34

⎩ 0 ⎣ 34 ⎦

6 1

⎧ 3t 2

⎧ 4 3t1

⎫

= 2 ⎨∫

dt1 + ∫

10t1 − t12 ) dt1 ⎬ = 2 ⎨ 1

(

4 34

⎩ 0 17

⎭

⎩ 34

4

0

+

10 − t1

0

⎤ ⎫

⎥ dt1 ⎬

⎦ ⎭

1 ⎛ 2 1 3⎞ 6⎫

⎜ 5t1 − t1 ⎟ 4 ⎬

34 ⎝

3 ⎠ ⎭

64 ⎤ ⎫

⎧ 24 1 ⎡

= 2 ⎨ + ⎢180 − 72 − 80 + ⎥ ⎬ = 5.7

3 ⎦⎭

⎩ 17 34 ⎣

-------------------------------------------------------------------------------------------------------95.

Solution: E

t X +Y + t Y − X

t −t X t +t Y

M ( t1 , t2 ) = E ⎡⎣ et1W +t2 Z ⎤⎦ = E ⎡⎣e 1 ( ) 2 ( ) ⎤⎦ = E ⎡⎣e( 1 2 ) e( 1 2 ) ⎤⎦

= E ⎡⎣e( 1

t − t2 ) X

1

⎤ E ⎡ e( t1 +t2 )Y ⎤ = e 2

⎦ ⎣

⎦

( t1 −t2 )2

1

e2

( t1 + t2 )2

1

= e2

(t

2

2

1 − 2 t1t2 + t2

) 12 (t

e

2

2

1 + 2 t1t2 + t2

)

2

= et1 +t2

2

-------------------------------------------------------------------------------------------------------96.

Solution: E

Observe that the bus driver collect 21x50 = 1050 for the 21 tickets he sells. However, he

may be required to refund 100 to one passenger if all 21 ticket holders show up. Since

passengers show up or do not show up independently of one another, the probability that

21

21

all 21 passengers will show up is (1 − 0.02 ) = ( 0.98 ) = 0.65 . Therefore, the tour

operator’s expected revenue is 1050 − (100 )( 0.65 ) = 985 .

Page 41 of 61

E[T1 + T2 ] = ∫ ∫ (t1 + t2 ) 2 dt1dt2 = L 0 0 t2 3 3 L L ⎪⎧ ⎡ t1 ⎪⎫ 2 ⎪⎧ ⎛ t2 ⎪⎫ 2 ⎤ 3⎞ ⎨ ∫ ⎢ + t2 t1 ⎥ dt1 ⎬ = 2 ⎨ ∫ ⎜ + t2 ⎟ dt2 ⎬ ⎪⎩ 0 ⎣ 3 ⎪⎭ L ⎪⎩ 0 ⎝ 3 ⎦0 ⎠ ⎪⎭ 4 L L 2 4 3 2 ⎡t ⎤ 2 = 2 ∫ t2 dt2 = 2 ⎢ 2 ⎥ = L2 3 L 03 L ⎣ 3 ⎦0 t2 2 L2 (L. ⎧ 19 for y = 0 ⎪ 27 ⎪ ⎪8 We conclude that g ( y ) = ⎨ for y = 1 27 ⎪ otherwise ⎪0 ⎪ ⎩ 19 8 t and M(t) = E ⎡⎣e yt ⎤⎦ = + e 27 27 Page 42 of 61 .97. Solution: A Let g(y) be the probability function for Y = X1X2X3 . Otherwise. 0 ≤ t1 ≤ t2 ≤ L . L t2 2 2 2 2 2 Therefore. Since P[Y = 1] = P[X1 = 1 ∩ X2 = 1 ∩ X3 = 1] = P[X1 = 1] P[X2 = 1] P[X3 = 1] = (2/3)3 = 8/27 . L) t1 -------------------------------------------------------------------------------------------------------98. Solution: C We are given f(t1. Note that Y = 1 if and only if X1 = X2 = X3 = 1 . Y = 0 . t2) = 2/L2.

We want to find Var ⎡⎣( X + 100 ) + 1. 000 + 2 Cov ( X . Solution: D Note that due to the independence of X and Y Var(Z) = Var(3X − Y − 5) = Var(3X) + Var(Y) = 32 Var(X) + Var(Y) = 9(1) + 2 = 11 .1.99.300. Y ) . Y ) = 5000 + 12. 000 = Var ( X + Y ) = 5000 + 10.1) Var Y + 2 (1. First we observe 17. Solution: B Note P(X = 0) = 1/6 P(X = 1) = 1/12 + 1/6 = 3/12 P(X = 2) = 1/12 + 1/3 + 1/6 = 7/12 . E[X] = (0)(1/6) + (1)(3/12) + (2)(7/12) = 17/12 E[X2] = (0)2(1/6) + (1)2(3/12) + (2)2(7/12) = 31/12 Var[X] = 31/12 – (17/12)2 = 0. -------------------------------------------------------------------------------------------------------102.1Y ) = Var X + (1.1) Y ⎤⎦ + 2 Cov ( X . Solution: C We use the relationships Var ( aX + b ) = a 2 Var ( X ) .58 . Y ) . Y ) = 1000. bY ) = ab Cov ( X .100 + 2200 = 19. Now the variance of an exponential random variable with mean β is β 2 .1) Cov ( X . Var [ X ] = Var [Y ] = 102 = 100 Then assuming that X and Y are independent. and so Cov ( X . -------------------------------------------------------------------------------------------------------101. Y ) . 2 -------------------------------------------------------------------------------------------------------100.1Y ) + 100 ⎤⎦ = Var [ X + 1. Solution: E Let X and Y denote the times that the two backup generators can operate.1Y ] = Var X + Var ⎡⎣(1.1Y ⎤⎦ = Var ⎡⎣( X + 1. and Var ( X + Y ) = Var ( X ) + Var (Y ) + 2 Cov ( X . we see Var [ X+Y ] = Var [ X ] + Var [ Y ] = 100 + 100 = 200 Page 43 of 61 . Cov ( aX . Therefore.

Then f(x. fire. Therefore. X 3 ) . and X 3 denote annual loss due to storm.y) can be written as the product of a function of x alone and a function of y alone. Solution: E Let X 1 .103.5 = 1 − (1 − e −3 )(1 − e −2 −3 −5 2. let Y = Max ( X 1 . Then Pr [Y > 3] = 1 − Pr [Y ≤ 3] = 1 − Pr [ X 1 ≤ 3] Pr [ X 2 ≤ 3] Pr [ X 3 ≤ 3] ( = 1 − (1 − e −3 ) 1 − e )(1 − e ) ) (1 − e ) −3 1. Y] = 0 . Page 44 of 61 . respectively.4 * 4 = 0. Solution: B Let us first determine k: 1= ∫ Then 1 0 ∫ 1 0 kxdxdy = ∫ k =2 1 1 1k 1 2 1 k kx | 0 dy = ∫ dy = 0 2 0 2 2 1 1 E [ X ] = ∫ ∫ 2 x 2 dydx = ∫ 2 x 2 dx = 0 0 0 1 1 1 E [Y ] = ∫ ∫ y 2 x dxdy = ∫ ydy = 0 0 0 E [ XY ] = ∫ = 1 0 ∫ 1 0 2x 2 ydxdy = ∫ 2 2 1 2 1 y |0 = = 6 6 3 2 31 2 x |0= 3 3 1 2 1 1 y |0= 2 2 12 2 3 1 x y | 0 dy = ∫ ydy 0 3 0 3 1 1 ⎛ 2 ⎞⎛ 1 ⎞ 1 1 Cov [ X . It follows that X and Y are independent. Y ] = E [ XY ] − E [ X ] E [Y ] = − ⎜ ⎟ ⎜ ⎟ = − = 0 3 ⎝ 3 ⎠⎝ 2 ⎠ 3 3 (Alternative Solution) Define g(x) = kx and h(y) = 1 . In addition. X 2 . X 2 . f(x.414 * Uses that if X has an exponential distribution with mean μ ∞ Pr ( X ≤ x ) = 1 − Pr ( X ≥ x ) = 1 − ∫ x 1 μ e − t μ dt = 1 − ( −e − t μ ) ∞x = 1 − e− x μ -------------------------------------------------------------------------------------------------------104. Cov[X.y) = g(x)h(x) In other words. and theft.

y) = f2(y|x) f1(x) = (1/x)(1/12).105. E(X ) = ∫ 1 0 E (Y ) = ∫ 1 0 ∫ 2x x ∫ 18 8 2 xy dy dx = ∫ xy 3 0 9 3 2x x E ( XY ) = ∫ 1 0 14 8 2 x y dy dx = ∫ x 2 y 2 0 3 3 ∫ 2x x 2x x 2x x 1 1 4 4 4 dx = ∫ x 2 ( 4 x 2 − x 2 ) dx = ∫ 4 x 4 dx = x5 = 0 3 0 5 0 5 1 1 1 56 8 56 5 56 dy dx = ∫ x ( 8 x3 − x3 ) dx = ∫ x 4 dx = x = 0 9 0 9 45 0 45 18 8 2 2 x y dy dx = ∫ x 2 y 3 0 9 3 Cov ( X . Solution: C The joint pdf of X and Y is f(x. Solution: A The calculation requires integrating over the indicated region. 0 < x < 12 . Therefore.Y) = E[XY] – E[X]E[Y] = 24 − (3)(6) = 24 – 18 = 6 . Y ) = E ( XY ) − E ( X ) E (Y ) = 1 2x x 1 56 56 28 8 2 x ( 8 x3 − x3 ) dx = ∫ x5 dx = = 0 9 0 9 54 27 dx = ∫ 1 28 ⎛ 56 ⎞⎛ 4 ⎞ − ⎜ ⎟⎜ ⎟ = 0. 0 < y < x. Page 45 of 61 . 12 x 12 12 1 y x x x 2 12 E[X] = ∫ ∫ x ⋅ =6 dydx = ∫ dx = ∫ dx = 12 x 12 0 12 24 0 0 0 0 0 12 x 12 12 ⎡ y2 ⎤ y x x 2 12 144 E[Y] = ∫ ∫ =3 dydx = ∫ ⎢ dx = ∫ dx = = 12 x 24 x ⎥⎦ 0 24 48 0 48 0 0 0 ⎣ 0 E[XY] = 12 x x 12 12 2 ⎡ y2 ⎤ y x x3 12 (12)3 = 24 dydx = dx = dx = = ∫0 ∫0 12 ∫0 ⎢⎣ 24 ⎥⎦ ∫0 24 72 0 72 0 x Cov(X.04 27 ⎝ 45 ⎠⎝ 5 ⎠ -------------------------------------------------------------------------------------------------------106.

2 E [ XY ] + 1. X ) + Cov (Y . X + 1.4 − 52 = 2. Y ) = -------------------------------------------------------------------------------------------------------107. Y ) + 1. X + 1.2 ) 7 ) = 27.2Y E[X ] = 5 E ⎡⎣ X 2 ⎤⎦ = 27.4 − 7 2 = 2. Y ) 1 1 Var ( X + Y ) − Var X − Var Y ) = ( 8 − 2.2 E [ XY ] − 71.2Y ) = Cov ( X .2Y 2 ⎤⎦ − ( E [ X ] + E [Y ]) ( E [ X ] + 1. observe Page 46 of 61 .2VarY = Var X + 2.1.6 ( 2 2 Cov ( C1 .4 − 2. Alternate solution: We are given the following information: C1 = X + Y C2 = X + 1. X ) + Cov ( X .4 2 Var ( X + Y ) = Var X + Var Y + 2 Cov ( X .2Y ) ⎤⎦ − E [ X + Y ]i E [ X + 1. we need to calculate E [ XY ] first. C2 ) = 2.107.4 2 Var Y = E (Y 2 ) − ( E (Y ) ) = 51.2Y ) = E ⎡⎣( X + Y )( X + 1.4 ) = 1.2 E [ XY ] + 1.4 ) − (12 )(13.4 + 2.2 Cov ( X .2Y ) = Var X + Cov ( X . C2 ) = Cov ( X + Y .2VarY Var X = E ( X 2 ) − ( E ( X ) ) = 27. Y ) + 1.4 E [Y ] = 7 E ⎡⎣Y 2 ⎤⎦ = 51. Y ) + 1. To this end.2Y ) + Cov ( Y.2 ( 51.2 (1. Solution: A Cov ( C1 .8 Cov ( X .4 ) = 8.2 ( 2.4 Var [ X + Y ] = 8 Now we want to calculate Cov ( C1 .72 Therefore.4 ) = 2.2 E [Y ]) = E ⎡⎣ X 2 ⎤⎦ + 2.6 ) + 1.1.2 E ⎡⎣Y 2 ⎤⎦ − ( 5 + 7 ) ( 5 + (1. C2 ) = Cov ( X + Y .2Cov ( X .2Y ] = E ⎡⎣ X 2 + 2.2 XY + 1.4 + 2.

4 + 2 E [ XY ] + 51.C2 ) = 2. t1 > 0 .4 − 144 = 2 E [ XY ] − 65.2 2 8 = Var [ X + Y ] = E ⎡( X + Y ) ⎤ − ( E [ X + Y ]) ⎣ ⎦ = E ⎡⎣ X 2 + 2 XY + Y 2 ⎤⎦ − ( E [ X ] + E [Y ]) = E ⎡⎣ X 2 ⎤⎦ + 2 E [ XY ] + E ⎡⎣Y 2 ⎤⎦ − ( 5 + 7 ) 2 2 = 27.2 ( 36.2 ) 2 = 36. t2 > 0 Therefore. Pr [ X ≤ x ] = Pr [ 2T1 + T2 ≤ x ] =∫ x 0 ∫ 1 ( x − t2 ) 2 0 ⎡ x e − t1 e −t2 dt1dt2 = ∫ e − t2 ⎢ −e − t1 0 ⎢⎣ 1 ( x − t2 ) 2 0 ⎤ ⎥ dt2 ⎥⎦ 1 1 1 1 − x + t2 ⎤ − x − t2 ⎞ x x⎛ ⎡ = ∫ e − t2 ⎢1 − e 2 2 ⎥ dt2 = ∫ ⎜ e − t2 − e 2 e 2 ⎟dt2 0 0 ⎣ ⎦ ⎝ ⎠ 1 1 1 1 1 − x − t2 ⎤ − x − x − x ⎡ = ⎢ −e − t2 + 2e 2 e 2 ⎥ 0x = −e − x + 2e 2 e 2 + 1 − 2e 2 ⎣ ⎦ − 1 x − 1 x = 1 − e − x + 2e − x − 2e 2 = 1 − 2e 2 + e − x . x > 0 g ( x) = e e e 1 2 ⎢ ⎥ dx ⎣ ⎦ Page 47 of 61 .2 E [ XY ] = ( 8 + 65. Cov ( C1.6 ) − 71. Solution: A The joint density of T1 and T2 is given by f ( t1 .6 Finally. t2 ) = e − t1 e− t2 . x > 0 It follows that the density of X is given by 1 1 − x − x ⎤ d ⎡ −x 2 2 − + = − e− x .72 = 8.8 -------------------------------------------------------------------------------------------------------108.

0 < v < ∞ ⎝2 ⎠ 2 and ⎡u ⎤ F ( x ) = Pr [ X ≤ x ] = Pr ⎢ ≤ x ⎥ = Pr [U ≤ Vx ] ⎣v ⎦ ∞ vx ∞ vx 1 e −u e − v / 2 dudv = ∫ ∫ g ( u . f(x) be the density function of X. v) be the joint density function of U and V. 0 < y < It follows that f ⎜ y x = ⎟ = 3 ⎠ 16 2 3 ⎝ 139 9 y dy = y 2 Consequently. v ) = ( e−u ) ⎜ e− v / 2 ⎟ = e−u e− v / 2 . g(u. v be annual premiums. 0 < u < ∞ . y ) = y . y ) 2 ⎛ f ⎜y x= ⎟= . v )dudv = ∫ ∫ 0 0 0 0 2 ∞ ∞⎛ 1 1 1 ⎞ = ∫ − e − u e − v / 2 | 0vx dv = ∫ ⎜ − e − vx e − v / 2 + e− v / 2 ⎟ dv 0 0 2 2 ⎝ 2 ⎠ ∞⎛ 1 1 ⎞ = ∫ ⎜ − e − v( x +1/ 2) + e − v / 2 ⎟ dv 0 2 ⎝ 2 ⎠ ∞ 1 ⎡ 1 ⎤ e − v( x +1/ 2) − e − v / 2 ⎥ = − =⎢ +1 2x + 1 ⎣ 2x + 1 ⎦0 2 Finally. f ( x ) = F ' ( x ) = 2 ( 2 x + 1) -------------------------------------------------------------------------------------------------------110. ⎛1 ⎞ 1 g ( u. 3⎠ f x (1 3) 3 ⎝ 23 23 2 3 16 ⎛1⎞ f x ⎜ ⎟ = ∫ 24 (1 3) y dy = ∫ 8 y dy = 4 y 2 = 0 9 0 ⎝ 3⎠ 0 ⎛ 1⎞ 9 9 2 f (1 3. Solution: B Let u be annual claims. Then since U and V are independent. Pr ⎡⎣Y < X X = 1 3⎤⎦ = ∫ 0 2 4 Page 48 of 61 13 = 0 1 4 . and F(x) be the distribution function of X. 0< y< .109. Solution: C Note that the conditional density function 1 ⎞ f (1 3.

9897 Pr [ H ] 0. 0 < y < x 3x 2 3⎝ x x ⎠ f x ( x) 2⎡ 1 y ⎤ 2 + = [10 + 100 y ] . y ⎥ P[Y < 0.1 0.0103 0.10) = ⎢ 3 ⎣ 0.96 + 0.97 and Pr [W | H ] = Pr [W ∩ H ] 0.10] = ∫ [10 + 100 y ] dy = ⎢ y + 3 3 3 12 12 ⎣3 ⎦0 0 so f(y|x) = -------------------------------------------------------------------------------------------------------113. 0 < y < 0. 0 < y < x < 1 .96 = = 0. y ) 2( x + y ) 2 ⎛ 1 y ⎞ = = ⎜ + 2 ⎟. Pr ⎡⎣1 < Y < 3 X = 2 ⎤⎦ = ∫ 3 1 1 −3 y dy 3 1 8 2 = − y −2 = 1 − = 1 1 9 9 4 -------------------------------------------------------------------------------------------------------112. Solution: E Let W = event that wife survives at least 10 years H = event that husband survives at least 10 years B = benefit paid P = profit from selling policies Then Pr [ H ] = P [ H ∩ W ] + Pr ⎡⎣ H ∩ W c ⎤⎦ = 0.05|X = 0.01 = 0.01 ⎥⎦ 3 0.05 2 100 2 ⎤ 0. Solution: E 3 f ( 2.y) = 2(x+y).4167 .05 1 1 5 ⎡ 20 = + = = 0. y ) = 2 1 − 4 −1 2 −1 y ( ) = y −3 4 ( 2 − 1) 2 ∞ ∞ 1 1 1 f x ( 2 ) = ∫ y −3 dy = − y −2 = 2 4 4 1 1 Finally.97 Page 49 of 61 .111.10 f(y|x = 0.97 Pr ⎡⎣W c | H ⎤⎦ = Pr ⎡⎣ H ∩ W c ⎤⎦ Pr [ H ] = 0.01 = 0. 0 < x < 1 f ( x. x Now fx(x) = ∫ (2 x + 2 y )dy = ⎡⎣ 2 xy + y 2 ⎤⎦ 0 x 0 = 2x2 + x2 = 3x2. y ) Pr ⎡⎣1 < Y < 3 X = 2 ⎤⎦ = ∫ dy 1 f x ( 2) f ( 2. Solution: D We are given that the joint pdf of X and Y is f(x.

y ) ⎧1 if: x < y < x + 1 =⎨ f1 ( x ) ⎩0 otherwise x +1 1 1 1 1 1 1 1 2 E [Y | X ] = ∫ ydy = y 2 | xx +1 = ( x + 1) − x 2 = x 2 + x + − x 2 = x + x 2 2 2 2 2 2 2 x +1 1 1 1 3 E ⎡⎣Y 2 | X ⎤⎦ = ∫ y 2 dy = y 3 | xx +1 = ( x + 1) − x3 x 3 3 3 1 1 1 1 = x3 + x 2 + x + − x3 = x 2 + x + 3 3 3 3 f ( y| x ) = 1 ⎛ 1⎞ Var [Y | X ] = E ⎡⎣Y | X ⎤⎦ − { E [Y | X ]} = x + x + − ⎜ x + ⎟ 3 ⎝ 2⎠ 1 1 1 = x2 + x + − x2 − x − = 3 4 12 2 2 Page 50 of 61 2 2 .714 E(Y2⏐X = 1) = (0)2 P(Y = 0⏐X = 1) + (1)2 P(Y = 1⏐X = 1) = 0.714) = 0.286 P(Y = 1⏐X=1) = 1 – P(Y = 0 ⏐ X = 1) = 1 – 0.714 Var(Y⏐X = 1) = E(Y2⏐X = 1) – [E(Y⏐X = 1)]2 = 0. Solution: C Note that P(Y = 0⏐X = 1) = P( X = 1.286 = 0.714)2 = 0. Y = 0) 0. 000 ( 0. 000 ) Pr ⎡⎣W c | H ⎤⎦ = 1000 − 10. x +1 x 2 xdy = 2 xy | xx +1 = 2 x ( x + 1 − x ) = 2 x .0103) = 1000 − 103 = 897 { } -------------------------------------------------------------------------------------------------------114.125 = 0.05 = = P( X = 1) P( X = 1. 0< x<1 f ( x. E(Y⏐X = 1) = (0) P(Y = 0⏐X = 1) + (1) P(Y = 1⏐X = 1) = (1)(0.20 -------------------------------------------------------------------------------------------------------115. Y = 0) + P ( X = 1.05 + 0. Then f1 ( x ) = ∫ Consequently. Y = 0) P( X = 1.714 Therefore. Y = 1) 0. Solution: A Let f1(x) denote the marginal density function of X.It follows that E [ P ] = E [1000 − B ] = 1000 − E [ B ] = 1000 − ( 0 ) Pr [W | H ] + (10.714 – (0.

12 + 0.12) + (1)2(0.06 + 0.2 .12 + 0.88 E[NQ2|NP = 0] = [(0)2(0. Solution: C The domain of X and Y is pictured below.05 + 0.05) + 3(0.02] = 1.2] = ∫ 0.9856 .116.06) + (2)2(0. 0 < y < 1 Page 51 of 61 .05 + 0. Now observe Pr [ X < 0.76 – (0.2 0 ∫ 1− x 0 0.2 6 ⎡⎣1 − ( x + y ) ⎤⎦dydx = 6 ∫ 0 1− x 1 2⎤ ⎡ ⎢⎣ y − xy − 2 y ⎥⎦ dx 0 0. -------------------------------------------------------------------------------------------------------117.05) + (3)2(0.06) + (2)(0. respectively. Solution: E The shaded portion of the graph below shows the region over which f ( x. Then E[NQ|NP = 0] = [(0)(0.02)] / [0. Solution: D Denote the number of tornadoes in counties P and Q by NP and NQ.06 + 0.2 ⎡ 0.02] = 0.488 0 2 -------------------------------------------------------------------------------------------------------118.02)] / [0.88)2 = 0.2 1 2 3 3 = 6∫ (1 − x ) dx = − (1 − x ) | 0.12) + (1)(0.2 0 = − ( 0. y ) is nonzero: We can infer from the graph that the marginal density function of Y is given by g ( y ) = ∫ 15 y dx = 15 xy y y y = 15 y y ( ) y − y = 15 y 3 2 (1 − y1 2 ) .8 ) + 1 = 0. The shaded region is the portion of the domain over which X<0.76 and Var[NQ|NP = 0] = E[NQ2|NP = 0] – {E[NQ|NP = 0]}2 = 1.2 ⎡ 1 1 2⎤ 2 2⎤ = 6∫ ⎢1 − x − x (1 − x ) − (1 − x ) ⎥ dx = 6 ∫ ⎢(1 − x ) − (1 − x ) ⎥ dx 0 0 2 2 ⎣ ⎦ ⎣ ⎦ 0.

x < y < x + 1 otherwise ∫ 1 x 2 dydx 1 ⎤ 1 1 1 7 ⎛1 ⎞ ⎡1 − x ⎟ dx = 1 − ⎢ x − x 2 ⎥ 0 2 = 1 − + = ⎜ 0 0 2 ⎦ 4 8 8 ⎝2 ⎠ ⎣2 [Note since the density is constant over the shaded parallelogram in the figure the solution is also obtained as the ratio of the area of the portion of the parallelogram above y = 0. g ( y ) = ⎨ otherwise ⎪⎩0 -------------------------------------------------------------------------------------------------------119.5] = 1 − ∫ 1 2 0 if 0 < x < 1 . 0 < y < 1 or more precisely.5 to the entire shaded area. We are told that the marginal density function of X is f x ( x ) = 1 . Solution: D The diagram below illustrates the domain of the joint density f ( x. y ) = f x ( x ) f y x ( y x ) = ⎨ ⎩0 Therefore.12 32 ⎪⎧15 y (1 − y ) . 0 < x < 1 while f y x ( y x ) = 1 . y ) of X and Y .] = 1− ∫ 1 2 y 1 2 x dx = 1 − ∫ 1 2 Page 52 of 61 .5] = 1 − Pr [Y ≤ 0. Pr [Y > 0. x < y < x + 1 ⎧1 It follows that f ( x.

778 ⎢ 64 ⎣⎝ 9 ⎠ ⎝ 9 ⎠⎦ Page 53 of 61 .120. x < t < 2 x. t t = 2x 4 2 4 3 2 1 t=x x 1 2 -------------------------------------------------------------------------------------------------------121. Now we can find P[T ≥ 3] = 4 4 2 4 3 12 ⎡ 3 2⎤ ⎛ 12 3 2 ⎞ ⎡12 1 3 ⎤ ⎛ 36 27 ⎞ xdxdt = x dt = − t dt = − t ∫3 t∫/ 2 8 ∫3 ⎢⎣16 ⎥⎦ t / 2 ∫3 ⎝⎜ 16 64 ⎠⎟ ⎣⎢16 64 ⎦⎥ 3 = 4 − 1 − ⎝⎜ 16 − 64 ⎠⎟ = 11/64 = 0. denote the time required to process a claim by T. t ) = ⎨ 8 x 8 ⎪⎩0. ⎧3 2 1 3 ⎪ x ⋅ = x .17 . otherwise. In addition. 0 ≤ x ≤ 2 Then the joint pdf of X and T is f ( x. Solution: A We are given that X denotes loss. Solution: C The marginal density of X is given by 1 1 1 ⎛ xy 3 ⎞ 1 ⎛ x⎞ 2 fx ( x) = ∫ 10 − xy dy = 10 y − = ⎜10 − ⎟ ( ) ⎜ ⎟ 0 64 64 ⎝ 3 ⎠ 0 64 ⎝ 3⎠ 1 10 10 2 2 Then E ( X ) = ∫ x f x ( x)dx = ∫ = 10 1 ⎛ 2 x3 ⎞ 1 ⎛ x2 ⎞ ⎜ 5x − ⎟ ⎜10 x − ⎟ dx = 64 ⎝ 9 ⎠2 64 ⎝ 3⎠ 1 ⎡⎛ 1000 ⎞ ⎛ 8 ⎞⎤ ⎜ 500 − ⎟ − ⎜ 20 − ⎟ ⎥ = 5.

∫ 2 y e–2y dy = 1/2 0 ∞ and ∫ 3 y e–3y dy = 1/3 . Solution: D y The marginal distribution of Y is given by f2(y) = ∫ 6 e e Therefore. E(Y) = ∫y 0 ∞ ∞ ∞ f2(y) dy = ∫ (6 ye −2 y –2y dx = 6 e –2y 0 = −6 e–2y e–y + 6e–2y = 6 e–2y – 6 e–3y. Solution: C Observe Pr [ 4 < S < 8] = Pr ⎡⎣ 4 < S < 8 N = 1⎤⎦ Pr [ N = 1] + Pr ⎡⎣ 4 < S < 8 N > 1⎤⎦ Pr [ N > 1] −8 1 −4 1 −1 = e 5 − e 5 + e 2 − e −1 * 3 6 = 0. -------------------------------------------------------------------------------------------------------123. 0 < y < ∞ ∞ –x − 6 ye −3 y y ∫e −x dx 0 ∞ ) dy = 6 0 ∫ ye −2 y ∞ dy – 6 0 ∫y e–3y dy = 0 6 6 2 ye–2y dy − ∫ 3 y e–3y dy ∫ 20 30 ∞ ∞ 0 0 But ∫ 2 y e–2y dy and ∫ 3 y e–3y dy are equivalent to the means of exponential random ∞ variables with parameters 1/2 and 1/3.122 *Uses that if X has an exponential distribution with mean μ ( ) ( ) ∞ Pr ( a ≤ X ≤ b ) = Pr ( X ≥ a ) − Pr ( X ≥ b ) = ∫ a 1 μ Page 54 of 61 e −t μ ∞ dt − ∫ b 1 μ e −t μ dt = e − a μ −e − b μ .122. respectively.83 . In other words. We conclude that E(Y) = (6/2) (1/2) – (6/3) (1/3) = 3/2 – 2/3 = 0 9/6 − 4/6 = 5/6 = 0.

y ) = f ( y | x) f X ( x) = 2 on that support. Because of the memoryless property of the exponential distribution.124. --------------------------------------------------------------------------------------------------------------------125. the requested variance is 0. Solution: A Because f(x.y) is a cross product. Because a location shift does not affect the variance. X and Y are independent. f X .Y ( x. y ) y f Y ( y) f Y ( y ) = ∫ 2dx = 2 − 2 y ⇒ f ( x | y ) = Page 55 of 61 = 2 1 = for y < x < 1 2 − 2y 1− y . Solution: E The support of (X. Thus.Y) is 0 < y < x < 1.Y ( x. 1) so that f ( x | y ) = 1 for y < x < 1 . the conditional variance of Y is equal to the unconditional variance of Y.y) can be written as f ( x) f ( y ) = e − x 2e −2 y and the support of f(x. 1− y By computation: 1 f X . It is clear geometrically (a flat joint density over the triangular region 0 < y < x < 1) that when Y = y we have X ~ U(y.5 and the variance of an exponential distribution is always equal to the square of its mean. Because the mean of Y is 0.25. the conditional density of Y is the same as the unconditional density of Y+3. the condition on X can be ignored and it suffices to just consider f ( y ) = 2e −2 y .

781741613 < < 1.375 . ⎡ ⎤ S − (200)(5625) P[1. Thus p 0 + ( p 0 − c ) + ( p 0 − 2c ) + .250. 2 Also p0 + p1 = p0 + ( p0 − c ) = 2 p0 − c = .75 * 7500 = 5625 .000] = P ⎢− 1.25 and otherwise the payout is U(0. Let pn − pn +1 = c for all n ≤ 4 . 120 120 120 6 p0 − 3c = ----------------------------------------------------------------------------------------------------------- 127.9626)=0. Solution: C Using the notation of the problem. Then pn = p0 − nc for 1 ≤ n ≤ 5 . 15000). ⇒ −6 p0 + 15c = −1 . E[ X 2 ] = 0. we can apply the central limit theorem and assume the total payout S is normal. Page 56 of 61 .25 * 0 + 0.000 .000.609. So c = and 2 p0 = + = 60 5 60 60 120 1 12c = 5 17 15 32 We want p4 + p5 = ( p0 − 4c ) + ( p0 − 5c ) = + = = 0. Thus p0 = .75 * (7500 2 + Applying the CLT. E[ X ] = 0. 15000 2 ) = 56. So..126. we know that p0 + p1 = 2 and 5 p0 + p1 + p2 + p3 + p4 + p5 = 1 . + ( p 0 − 5c ) = 6 p 0 − 15c = 1. so the variance of one claim is 12 Var ( X ) = E[ X 2 ] − E[ X ]2 = 24.000 < S < 1.267 .25 * 0 + 0.8201 from the provided table.069044968⎥ (200)(24. Solving simultaneously 5 ⎧6 p0 − 15c = 1 ⎪ ⎨ 2 ⎪⎩2 p0 − c = 5 6 5 1 2 1 25 25 . For one loss there is no payout with probability 0..8575-(1-0. Solution: D Because the number of payouts (including payouts of zero when the loss is below the deductible) is large.375) ⎢⎣ ⎥⎦ which interpolates to 0.200.609.

which implies that 10% have both renters and auto insurance. Because H = 2R. Key: B Let H be the percentage of clients with homeowners insurance and R be the percentage of clients with renters insurance. Therefore. but not auto insurance. the conditional distribution of health care costs greater than 20 is the same as the unconditional distribution of health care costs.5) = 100 1 = 41. which is 130 greater than the deductible of 20. we calculate that 8% (36% – 17% – 11%) must have renters insurance.5) X ] = 100E[(0.5) ] = 100E[e ( X ln 0. and none have both homeowners and renters insurance. R must be 18%. so (H + R – 19)% must equal 35%.727 . Key: B The reimbursement is positive if health care costs are greater than 20.5 ) X ] = 100M Page 57 of 61 X (ln 0. (R – 8)% have both renters and auto insurance. We observe that a reimbursement of 115 corresponds to health care costs of 150 (100% x (120 – 20) + 50% x (150 – 120)). (H – 11)% have both homeowners and auto insurance. 129. Key: C [ E 100(0. Because 36% of clients do not have auto insurance and none have both homeowners and renters insurance.128. G (115) = F (130) = 1 − e 130. − 130 100 = 0.5 . and because of the memoryless property of the exponential distribution.9 1 − 2 ln 0.

140 1000 e −e 1−1. n2 ) . ⎛10 ⎞⎛ 70 ⎞ ⎜⎜ ⎟⎟⎜⎜ ⎟⎟ 2 3 The probability that exactly two of a random sample of five are defective is ⎝ ⎠⎝ ⎠ = 0. n 2 ) = e − n1 1 − e − n1 p1 (n1 ) ( ) n2 −1 .0696 Expected Benefit = 5000 Pr(man dies before age 50) = (5000) (0. ⎛ 80 ⎞ ⎜⎜ ⎟⎟ ⎝5⎠ 133. p1 (n1 ) where p1 (n1 ) is the marginal probability function of N 1 .102 .150 ) 1000 = 0. sum the joint probability function over all possible values of N 2 obtaining First.140 1000 = 1− e (1.96 Page 58 of 61 .150 1000 1−1. The mean of this distribution is 1 / p = 1 / e − n1 = e n1 . To find the latter. n2 ) = n2 =1 n1 −1 ∞ 3⎛1⎞ ⎜ ⎟ 4⎝4⎠ ( ∑ e −n1 1 − e −n1 ) n2 −1 = n2 =1 3⎛1⎞ ⎜ ⎟ 4⎝4⎠ n1 −1 . The n2 =1 conditional probability function is p 2|1 (n 2 | n1 ) = p (n1 . = 1 as the sum of the probabilities of a geometric random variable. Solution: E p(n1 . which is the probability function of a geometric random variable with parameter p = e − n1 . find the conditional probability function of N 2 given N 1 = n1 : p 2|1 (n 2 | n1 ) = p1 (n1 ) = ∑ e (1 − e ) ∞ since − n1 − n1 n2 −1 ∞ ∑ p(n1 .140 −1. and becomes e 2 when n1 = 2 . Solution: B Pr(man dies before age 50) = Pr(T < 50 | T > 40) = = Pr(40 < T < 50) F (50) − F (40) = Pr(T > 40) 1 − F (40) e 1−1.0696) = 347. 132.131. Solution: C The number of defective modems is 20% x 30 + 8% x 50 = 10.

80. Solutions: C Letting t denote the relative frequency with which twin-sized mattresses are sold. we have that the relative frequency with which king-sized mattresses are sold is 3t and the relative frequency with which queen-sized mattresses are sold is (3t+t)/4. The probability we seek is 3t + t = 0. Thus. Page 59 of 61 .134. or t. t = 0.2 since t + 3t + t = 1.

70. The value we seek is thus 0. the moment generating function of X + Y equals K2(t). 0.30e . K(t) = -t t 0. 1 + 2 = 6 + 2 = 8 . 0. Key: D 1 . Thus. and 1 with respective probabilities 0. so E [X Y = 2] = 0. where K(t) is the moment generating function common to X and Y.8(8) = 6.40. Page 60 of 61 .2(1) + 0. This means a 5 is obtained for the first time on the first roll (probability = 20%) or a 5 is obtained for the first time on the third or later roll (probability = 80%). Y = 2 implies the first roll is not a 6 and the 6 second roll is a 6.30.135.30e + 0.25 136.30.6 p Key: E Because X and Y are independent and identically distributed. X follows a geometric distribution with p = E [X | X ≥ 3] = 137. This is the moment generating function of a discrete random variable that assumes the values -1.75 = 2. Key: E Var (N) = E [ Var ( N | λ )] + Var [ E ( N | λ )] = E (λ) + Var (λ) = 1.40 + 0. and 0.50 + 0.

5 ⋅0 + ⋅1 + ⋅ 2 = 0. Thus. the probability that the total loss will be less than 1 is 0. This is represented by the triangle with vertices at (0.4 and r = 2 “successes” needed.6) . 0). Because the density is uniform over this region.42 + 0. 0.6) n −1 n = = (0.49 + 0. Thus. Key: B The unconditional probabilities for the number of people in the car who are hospitalized are 0. Key: D Suppose the component represented by the random variable X fails last. (10. the unconditional expected operational time of the machine must be 5 as well.6) . Key: B Let X equal the number of hurricanes it takes for two losses to occur. However.5 0. if two people are hospitalized. given that the total loss due to hospitalizations from the accident is less than 1 is 0. the mode is 3.4) (0.09 ⋅ 0.4) (0. ⎝ r −1⎠ ⎝ 2 − 1⎠ We need to maximize P[X = n]. 2 n−2 (n − 1)(0.42 + 0.49.138. then the total loss will be less than 1.09 ⋅ 0. if the component represented by the random variable Y fails last.4) (1 − 0. 1 and 2. 139.49 + 0.09 for 0.6) P[ X = n] n −1 This ratio of “consecutive” probabilities is greater than 1 when n = 2 and less than 1 when n ≥ 3.49 0. By symmetry.49 + 0. for n ≥ 2.42 + 0.4) = (n − 1)(0. Page 61 of 61 . If the number of people hospitalized is 0 or 1.42 0. the mean value of X and thus the expected operational time of the machine is 5.5. Thus. 5).09 ⋅ 0. ⎛ n − 1⎞ r ⎛ n − 1⎞ n−r 2 n−2 2 n−2 P[ X = n] = ⎜ ⎟ p (1 − p) = ⎜ ⎟ (0.4) 2 (0. P[X = n] is maximized at n = 3.5 140.42 and 0. the expected number of people in the car who are hospitalized. Then X is negative binomial with “success” probability p = 0. 0) and (5. respectively. the expected operational time of the machine is also 5. Note that the ratio P[ X = n + 1] n(0.534 0.09 ⋅ 0.5 0.