CAS Exam ST

Practice Exam #1
These practice exams should be used during the month prior to your exam.

This practice exam contains 25 questions, of equal value,
corresponding to about a 2.5 hour exam.
Prior to the start of this exam, give yourself a 10 minute reading period in which you can silently
read the questions. Writing is not permitted during this time and you are not permitted to hold pens
or pencils. You are also not allowed to use calculators during the reading period.
Each problem is similar to a problem in my study guides, sold separately.
Solutions to problems are at the end of each practice exam.
prepared by
Howard C. Mahler, FCAS
Copyright 2014 by Howard C. Mahler.

Howard Mahler
hmahler@mac.com
www.howardmahler.com/Teaching

CAS Exam ST, Practice Exam #1

HCM1/27/14,

Page 1

CAS Exam ST, Practice Exam #1
1. You are given the following information:
• x1 , ... , x20 is a random sample from a normal distribution with unknown parameters µ and σ.
• H0 : σ = 7
• H1 : σ < 7
• H0 is rejected if S2 < k, where S2 is the unbiased sample variance.
Calculate the minimum value of k that results in a probability of Type I error of no more than 2.5%.
(A) Less than 20
(B) At least 20, but less than 25
(C) At least 25, but less than 30
(D) At least 30, but less than 35
(E) At least 35

2. Two independent estimators, α and β, are available for estimating the parameter, τ, of a given
distribution.
To test their performance, you have conducted 5000 simulated trials of each estimator, using τ = 3,
with the following results:
5000

5000

5000

5000

i=1

i=1

i=1

i=1

∑ αi = 14,130, ∑ αi2 = 41,062, ∑ βi = 15,682, ∑ βi2 = 49,975.

Consider the class of estimators of τ which are of the form: wα + (1-w)β.
Determine the value of w that results in an estimator with the smallest mean squared error.
A. 40%
B. 42%
C. 44%
D. 46%
E. 48%

3. Each doctor makes medical errors via a Poisson Process with annual intensity λ.
λ varies across a group of doctors via a Gamma Distribution with α = 0.5 and θ = 1.7.
13% of medical errors result in the filing of a medical malpractice insurance claim.
Determine the probability that a doctor picked at random from this group will have exactly 4 medical
malpractice insurance claims over the next 10 years.
A. 2.6%
B. 2.8%
C. 3.0%
D. 3.2%
E. 3.4%

. Practice Exam #1 HCM1/27/14. but less than 5 E. . A. • Y1 . . respectively.. • The two samples are independent.CAS Exam ST. Calculate the minimum possible value of the sample size. At least 3. • The unbiased sample variances Sx2 and Sy2 are 600 and 130. Less than 2 B.. Xn is a random sample from a normal distribution with mean µx and standard deviation σx.. Yn is a random sample from a normal distribution with mean µy and standard deviation σy.. • Sample size = 8. Calculate Variance(XMin). At least 2. You are given the following information: • X is random variable that has a two-parameter Pareto distribution with α = 3 and θ = 50. You are given the following information: • X1 . • H0 : σx2 = σy2 • H1 : σx2 ≠ σy2 • Use of the F test results in rejection of the null hypothesis at a significance level of 2%. the variance of the first order statistic. but less than 4 D. (A) 9 (B) 10 (C) 11 (D) 12 (E) 13 . n.. but less than 3 C. At least 5 5. Page 2 4. At least 4.

1 ESS B. RSS ≥ 2. One has fit a regression model with 6 variables (5 independent variables plus the intercept).4 ESS E.2 ESS C. X2 .5 ESS ..∑ lnYi ≥ c (E) None of A. One is testing the hypothesis H0 : β2 = β3 = β4 = β5 = β6 = 0. to 18 observations. . What is the critical region for a test at a 1% significance level? A. ESS is the error sum of squares.. and g(y) = µyµ−1 for 0 < y < 1. versus the alternative hypothesis that H0 is false. Practice Exam #1 HCM1/27/14. Xn and Y1 . µ = 4 against the alternative H1 : λ = 3. . What is the form of the critical region for the best (Neyman-Pearson) test of H0 : λ = 2. RSS ≥ 2. C. RSS ≥ 2. Let X1 .∑ lnYi ≤ c (D) 2 ∑ lnX i . B. RSS ≥ 2. µ = 6? (A) (B) n m i=1 i =1 n m i=1 i =1 ∑ lnXi + 2 ∑ lnYi ≤ c ∑ lnXi + 2 ∑ lnYi ≥ c n m i=1 i=1 n m i=1 i=1 (C) 2 ∑ lnX i . or D 7.3 ESS D. RSS is the regression sum of squares. Page 3 6. Ym be random samples from X and Y.CAS Exam ST. Y2 . .. RSS ≥ 2. Two independent populations X and Y have density functions f(x) = λxλ−1 for 0 < x < 1. .. respectively.

1. Fit a Poisson to the above data via maximum likelihood. 1. but less than 75% E. and ranks these absolute differences. A. Reject H0 at 5%. 2. You are given the following information: • The occurrence of hurricanes in a given year has a Poisson distribution. 0. You are given the following information about a random sample of claim amounts that are independent and identically distributed: • Claim severity follows a Inverse Gamma distribution with α = 4 and θ = 200. A. • For the last 20 years. and estimate the probability of more than 2 hurricanes occurring in a single year. At least 70%. 3. 20% E. 2. At least 65%. 1. The actuary subtracts 800 from each of the claim sizes. D. the average medical only claim for workers compensation insurance is 800. At least 60%. 9. 17% B. A. Less than 60% B. 1. 2. Calculate the probability that the sample mean will lie between 65 and 70 by using the limiting distribution for the sample mean.CAS Exam ST. but less than 70% D. 0. Reject H0 at 2%. E. Do not reject H0 at 2%. but less than 65% C. Do not reject H0 at 10%. 1. 1. 3. B. 0. The mean of the Wilcoxon Signed-Rank test statistic is: n(n+1) / 4. • The sample size is 500. 6. C. Do not reject H0 at 1%. At least 75% . Reject H0 at 10%. Page 4 8. Use the Normal Approximation. 1. The sum of the ranks of the positive differences is 271. 2. 19% D. She looks at 1000 medical only claims of her insurer. The variance of the Wilcoxon Signed-Rank test statistic is: n (n+1)(2n+1) / 24. Reject H0 at 1%. H0 : µ = 800. 1. An actuary is testing whether for her insurance company the average medical only claim in the state of Franklin is 800. Perform the Wilcoxon Signed Rank Test. 21% 10. Practice Exam #1 HCM1/27/14. 18% C. 0. H1 : µ ≠ 800. In the state of Franklin.800. Do not reject H0 at 5%. the following number of hurricanes has occurred: 1.

0 12. You are given: (i) Each insured has a frequency per exposure that is Poisson with mean λ. -30% E. A. -13θ/60 E.CAS Exam ST. You observe 5 losses. Determine the bias of this estimator of θ. ∞ Hint: ∫0 x e . You estimate θ by taking the sample median of these 5 values. You are given information on their distance from the coast in feet and the percentage each was damaged. Home Distance Damage A 100 70% B 300 60% C 900 80% D 1200 55% E 2100 40% F 4900 30% G 7200 45% H 9400 65% Calculate Kendallʼs tau. -θ/4 D. -θ/3 B. -45% B. Page 5 11. A. Each of eight homes in the same neighborhood were damaged by Hurricane Carter. -35% D.λx dx = 1 / λ2. -25% 13. (ii) Across the portfolio. -40% C. (iv) The posterior estimate of the future claim frequency for this insured is one fourth of the prior estimate. X(3) the third order statistic. Practice Exam #1 HCM1/27/14. -17θ/60 C. λ has a Gamma Distribution with parameters α and θ. How many exposures did this insured have? 2 1 3 3 α (A) (B) (C) (D) (E) θ αθ θ αθ θ . Losses are Exponential with mean θ. (iii) A given insured is observed to have no claims.

Reject H0 at 0. reject H0 at 0. A sample of size 5 from a Normal Distribution with unknown mean µ and variance σ2 > 0 has a sample standard deviation of 18. What is the probability that this insured will have an expected future mean severity m between 220 and 230? A.005. reject H0 at 0.200)2 ] 512 16 2 π . Less than 30 years B. The size of claim distribution for any particular policyholder is Normal with mean m and variance 500. but less than 32 years C. -∞ < m < ∞.050. but less than 34 years D. Use the following information: • A loss may be caused by either wind or fire. What is the expected wait until the first loss of size greater than 100 is observed? A. The size of fire losses follows a Uniform Distribution from 0 to 150. 38% D. The expected amount of time between fire losses is 20 years.010. At least 30 years. Do not reject H0 at 0.010. 34% B. 15. C. Practice Exam #1 HCM1/27/14. Test the hypothesis that σ = 11 versus the alternative σ > 11.025. 230. E. The expected amount of time between wind losses is 30 years. reject H0 at 0.025.050. Fire losses follow a Poisson Process. Do not reject H0 at 0. At least 36 years . Wind losses follow a Poisson Process. 36% C. A. At least 34 years. • • • • • • • Wind and fire losses occur independently of one another. The m values of the portfolio of policyholders have probability density function: exp[f(m) = (m. The size of wind losses follows an Exponential Distribution with mean 125. At least 32 years. D. and 280. but less than 36 years E. Do not reject H0 at 0. Do not reject H0 at 0. 42% 16. B.CAS Exam ST. 40% E.005. Page 6 14. An insured has 3 claims of sizes 190.

Y^ i )2 = 25. Take a random sample of size 13 from the uniform distribution on (0. 36% C. versus H1 : the mean of the first distribution is larger than the mean of the second distribution. Reject H0 at 1%. Reject H0 at 1%. H1 : β ≠ 0. 18.Y ) = 21. Reject H0 at 1/2%. Do not reject H0 at 2. 38% D. 40% E. Do not reject H0 at 10%. C. E.X )2 = 56. Let Y be the fourth value in the sample from smallest to largest. Determine the probability that Y ≥ 30.X )(Yi . D. 34% B. Let H0 be the hypothesis that β = 0. Reject H0 at 5%. Reject H0 at 2. Reject H0 at 5%.CAS Exam ST. Σ(Xi . 19.03.43. Practice Exam #1 HCM1/27/14.5%. Do not reject H0 at 1%. Σ(Xi . 100). A. Do not reject H0 at 1%. Do not reject H0 at 1/2%. For two independent random samples from Normal Distributions with the same variance you are given: Sample 1 Sample 2 Sample Size 25 20 Sample Mean 90 65 Sample Variance 800 1000 Test the hypothesis H0 : the means of the two distributions are equal. Do not reject H0 at 5%. 42% . Page 7 17. Which of the following is true? A. B. E. Σ (Yi . Reject H0 at 10%. A. Do not reject H0 at 2%. B. ^ Let Yi be the fitted values.24.5%. You fit a linear regression to 19 observations via least squares: Y = α + βX + ε. Do not reject H0 at 5%. Reject H0 at 2%. D. C.

17 or more .302 9. The following table displays the number of policyholders by class and territory.4]? A.5% level. 2n / i=1 ∑ xi i=1 E.048 3. B. but less than 0. or D 21.17 E.151 69. You are given the following information: • The probability of y successes in m trials is given by a Binomial distribution with parameters m and q.159 Sum 16.5% level but not at the 1% level. Less than 0.CAS Exam ST.672 2. but less than 0.777 26.231 12. x > 0.719 1. Reject at the 1% level but not at the 0.5% level. B. E. 0. Which of the following statements is a correct decision about the null hypothesis? A.15 D. Do not reject at the 5% level.720 9.448 17. Reject at the 0. None of A.330 2. C. C. • The prior distribution of q is uniform on [0. but less than 0. Determine a Minimum Variance Unbiased Estimator (MVUE) of λ.13 C. 2 Terr. Class Terr. 3 Terr. n A. 1 Terr. 2 / i=1 ∑ xi n C. At least 0. • One success was observed in three trials. At least 0.285 7. 1 / ∑ xi n B. Reject at the 2. 4 Sum A B C 2. Reject at the 5% level but not at the 2.678 A Chi-Square goodness of fit test is used to test the null hypothesis that class and territory are independent. What is the posterior estimate for the probability that the unknown parameter q is in the interval [0.446 20. D. 1].373 13.13.444 1.11 B.184 7.3. At least 0. We have a sample of size n from the density: f(x) = λ2 x e-λx.058 1. Page 8 20.15. 22.352 1.5% level.11. 0. n / i=1 n ∑ xi D. Practice Exam #1 HCM1/27/14.335 53.

000.CAS Exam ST. At least 0.40. 40 B. 60 25. of a loss being \$500 is twice the probability of it being \$1. Practice Exam #1 HCM1/27/14. At least 0. While riding down the highway. 55 E. At least 0.60 E.300| ≥ c.50. but less than 0. but less than 0. 50 D. less than 100 B. You are given a random sample from a Normal Distribution with σ = 60. • The probability. and a power of 95% at µ = 280.60 \$1.30. At least 0. 45 C. Page 9 23. The critical region has the form | X . Justine is looking for cars with license plates from the state of Kenenbarby. at least 175 24.000 END OF PRACTICE EXAM \$1000 \$5000 . If the test is to have a significance level of 1%.30 B. \$1000 or \$5000. Such cars become visible to Justine at a Poisson rate of 1 every 20 minutes. at least 100 but less than 125 C. How many minutes must Justine ride down the highway so that there is at least a 95% chance of her seeing at least one such car? A. • The following 6 claims are observed: \$500 \$500 \$500 What is the maximum likelihood estimate of p? A. at least 150 but less than 175 E.40 C. but less than 0. Less than 0.50 D. You are given the following: • An insurance company provides a coverage which can result in only three loss amounts in the event that a claim is filed: \$500. You test H0 : µ = 300 versus H1 : µ ≠ 300. at least 125 but less than 150 D. what is the minimum sample size? A. p.

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995 . E[α2] = 41.3 = 0.31599 + 2(-0.3104w.214.” Since H1 : σ < 7. E[α] = 14.3λ follows a Gamma Distribution with α = 0. Therefore.3104)(0. medical malpractice insurance claims are Poisson with annual intensity 0.0.3104w .21. Thus we can take k = 23.5% = Prob[Type I error] = Prob[rejecting | H0 ] = Prob[19S2 /49 < 8. For a doctor.13642 = 0.0. Var[β] = 9.3λ.5) (2.2. E[β] = 15.0. (n-1)S2 /σ2 is Chi-Square with n .214 = 3. Bias[wα + (1-w)β] = 3.384119w2 .43%.384119w2 .682/5000 = 3.2124 .0. 0 = 0.82602 = 0.1 degrees of freedom. then 19S2 /49 is Chi-Square with 19 degrees of freedom.5 Comment: Similar to Q.0.417.31599w + 0.30 in “Mahlerʼs Guide to Statistics.995. 5/10.1364. Q. E[β2] = 49. Practice Exam #1 HCM1/27/14.768238w .3104w)2 . The probability of 4 claims over ten years from a doctor picked at random is the density at four for this Negative Binomial: (0.157995) = 0. ⇒ w = 0.5% at 8. For the Chi-Square with 19 degrees of freedom.5) 2.9 in “Mahlerʼs Guide to Poisson Processes.0.1364 = 3. Since α and β are independent: Var[wα + (1-w)β] = w2 Var[α] + (1 . the mixed distribution is Negative Binomial with r = 0.51 (CAS3L. 4! 3.062/5000 = 8.157995.5 and θ = (1. we reject H0 when the statistic is small. If the null hypothesis is true.130/5000 = 2.5) (3. Page 11 Solutions: 1.3104w.5 and β = 2.40067.226124. the number of claims over ten years is Poisson with mean: (10)(0.8260 + (1-w)3.91. the distribution function is 2. Setting the partial derivative of the MSE with respect w equal to zero: 0 = 0.w)2 Var[β] = w2 0.21. 37.960934w .1364 . E[wα + (1-w)β] = w2.1364 . Var[α] = 8. Thinning. 1. MSE[wα + (1-w)β] = Var[wα + (1-w)β] + Bias[wα + (1-w)β]2 = = 0. 20.3)(1.” .3104w).0.13λ. Comment: Similar to Q.13λ) = 1.226124 + (1 .22) in “Mahlerʼs Guide to Statistics.0. E. 2. B.1364 . 8.0.w)2 (0.31599w + 0. B.157995. 2.157995 + (0.1364 .5) (1.1364 .960934 = 0.2124.CAS Exam ST.8260.40067 / 0.7) = 2.” 3. Comment: See Q.3.91] = Prob[S2 < 23].975/5000 = 9.

11/13. We reject when this F statistic is greater than the 1% critical value. E. D. and we would not reject. ⎝ 50 + x ⎠ Prob[XMin > x] = Prob[All 8 items > x] = S(x)8 ⎛ 50 ⎞ 24 = .174.24) in “Mahlerʼs Guide to Statistics. α . The sample sizes of X and Y are given as the same.CAS Exam ST. Q. F = 600/130 = 4.881. we take the twice the probability in the righthand tail. 5/09.155. S(x) = HCM1/27/14.881 . then the F-statistic has 11 and 11 degrees of freedom.25 (CAS3L. Practice Exam #1 4. ⎝ 50 + x ⎠ Thus the minimum follows a Pareto Distribution with α = 24 and θ = 50. Rejecting at 2% ⇔ less than 1% area in the righthand tail. we perform a two-sided test. If n = 11. If n = 12. Page 12 ⎛ 50 ⎞ 3 . the minimum of a sample of size N from a Pareto Distribution follows another Pareto Distribution with parameters Nα and θ.2) Variance = 9. 23.615.2. and (α − 1) (α − 2) (24 -1) (24 .1742 = 5.1 2 θ2 (2)(502) = = 9. then the F-statistic has 10 and 10 degrees of freedom.1) = 2.615. Comment: Similar to Q.117 (CAS3L.” .. For the Pareto. The 1% critical value is 4.46 < 4.85. 35. For this other Pareto we have: Mean = Second Moment = θ = 50 / (24 .” In general. 5. and we would reject. Comment: Similar to Q.21) in “Mahlerʼs Guide to Statistics. Q. Since H1 : σx2 ≠ σy2. The 1% critical value is 4.

1 = 5.45(1 + 1. The observed mean is 29/20 = 1.4 RSS / ESS ≥ 5. B. ESS / (N .250. and N . B. the loglikelihood is: n ln(2) + Σln(xi) + m ln(4) + 3Σln(yi). µ = 6. ⇒ 2. 5/88. ⇒ Σln(xi) + 2Σln(yi) ≥ c. µ = 4.250) / 83.458.1)ln(x). Comment: Similar to Q. B.452 /2) = 17.30) in “Mahlerʼs Guide to Statistics. 25.k) ESS / (18 .11 ESS.CAS Exam ST. Z = (271.36]) = 1. Thus the critical region for the best (Neyman-Pearson) test of H0 against H1 is: n ln(3/2) + Σln(xi) + m ln(6/4) + 2Σln(yi) ≥ b.{f(0) + f(1) + f(2)} = 1 . Comment: Similar to Q.1 in “Mahlerʼs Guide to Statistics.06. A.458. For H1 : λ = 3. which is when F ≥ 5.” 9. For this two-sided test.1)Σln(yi).06.20 in “Mahlerʼs Guide to Statistics.1)Σln(xi) + m ln(µ) + (µ .e-1. f(x) = λxλ−1.45 = λ. Do not reject H0 at 1%. Prob[more than 2] = 1 . 4. the p-value is: 2(1 . Reject H0 at 2%.” .800 . The difference between the loglikelihoods for H1 and H0 is: n ln(3/2) + Σln(xi) + m ln(6/4) + 2Σln(yi). g(y) = µyµ−1.375 = 2.06. 7.250 Var[T+] = n (n+1)(2n+1) / 24 = 83. ln f(x) = ln(λ) + (λ .4 RSS / ESS. Comment: Similar to Q. and the 1% critical value is 5. Comment: Similar to Q.1) = = 2. the loglikelihood is: n ln(3) + 2Σln(xi) + m ln(6) + 5Σln(yi).3 in “Mahlerʼs Guide to NonParametric Tests. Q.82%.375. Critical region is when we reject H0 .1)ln(y). Compute F-Statistic = RSS / (k -1) RSS / (6 . E[T+] = n(n+1) / 4 = (1000)(1001)/4 = 250. Page 13 6.” 8.45 + 1. ⇒ RSS ≥ 2. Maximum Iikelihood is equal to method of moments.19 (2.5 = 12 degrees of freedom.359. 34. Thus the loglikelihood is: n ln(λ) + (λ .6) F has k .” 7. Practice Exam #1 HCM1/27/14. ln g(y) = ln(µ) + (µ . For H0 : λ = 2.Φ[2.9%.

The Inverse Gamma has a second moment of: θ2 / {(α-1)(α-2)} = 2002 / {(4 -1)(4 .9429 . The density at x for the sample median of 5 values is: Prob[one value = x. Practice Exam #1 HCM1/27/14.e-x/θ)2 e-3x/θ + 5(1 .e-x/θ)e-4x/θ + e-5x/θ = 10e-3x/θ .44.” 11. the sample mean has mean of 200/3.2148 = 0.2e-4x/θ + e-5x/θ). By the central limit theorem. two values > x] = {(5!)/(2!)(2!)} f(x) F(x)2 S(x)2 = 30(e-x/θ/θ)(1 .44 0.3x / θ .θ = -13θ/60. 5/09.Φ[ ] = Φ[1. the expected value of the sample median is: ∞ ∫0 x (30 / θ) (e . For a sample size of 500. Bias of the estimator = Expected Value of the Estimator .Φ[-0.e-x/θ)2 e-2x/θ = (30/θ)(e-3x/θ . Comment: Similar to Q.000/3 .5x / θ ) dx = (30/θ){(θ/3)2 .CAS Exam ST.44 4.” . The Inverse Gamma has a mean of: θ/(α-1) = 200/(4 . Expected value of the sample median is the integral from 0 to ∞ of Prob[sample median > x]: 10(θ/3) . two values < x.15e-4x/θ + 6e-5x/θ. 70 .1 in “Mahlerʼs Guide to Statistics. Alternately.000/3.4x / θ + e. Q. Proceed as before. Therefore.58] .0. Page 14 10.True Value = 47θ/60 .200 / 3 Prob[60 < X < 70] ≅ Φ[ ] .7281.2)} = 20. D. and variance of 2222/500 = 4.200 / 3 65 .18) in “Mahlerʼs Guide to Statistics. 7.15(θ/4) + 6(θ/5) = 47θ/60. Comment: Similar to Q. the sample mean goes to a Normal Distribution.79] = 4. the variance of the Inverse Gamma is: 20. 37.(200/3)2 = 2222. D. Therefore. Prob[sample median > x] = Prob[3 values ≥ x] + Prob[4 values ≥ x] + Prob[5 values ≥ x] = 10F(x)2 S(x)3 + 5F(x) S(x)4 + S(x)5 = 10(1 .1) = 200/3.2e.2(θ/4)2 + (θ/5)2} = 47θ/60.41 (CAS3L.

In other words.5%. The test statistic is: (4)(182 )/112 = 10. its damage rank is 5. This Chi-Square Distribution is 95% at 9. there are 2 values below it with damage ranks more than 5 and 4 values below it with damage rank less than 5.6 in “Mahlerʼs Guide to NonParametric Tests.1 = 4 degrees of freedom. The prior estimate is: αθ.14.49 and 97. D.5% at 11.1)S2 /σ2 has a Chi-Square Distribution with 5 . Comment: Similar to Q. therefore reject when S2 is large. C. Practice Exam #1 HCM1/27/14. C . 6. C. Perform a one-sided test. Reject at 5%. Posterior estimate is 1/4 of prior estimate.D 9 . 1/θʼ = 1/θ + E. the survival function is 5% at 9. 5.14.71. Comment: Similar to Q. do not reject at 2.5% at 11. The homes are already ordered by distance form the coast.” 14. E = 3/θ. αʼ = α + 0 = α.” . ⇒ 4 = 1 + Eθ.3 in “Mahlerʼs Guide to Statistics.50 in “Mahlerʼs Guide to Bayes Analysis & Conjugate Priors.” 13. C + D 9 + 19 Comment: Similar to Q.71 < 11. (n . Home Distance Rank of Damage Concordant Discordant A 100 7 1 6 B 300 5 2 4 C 900 8 0 5 D 1200 4 1 3 E 2100 2 2 1 F 4900 1 2 0 G 7200 3 1 0 H 9400 6 Sum 9 19 For example.7%.14. H1 : σ > 11. ⇒ The posterior estimate is: αʼθʼ = αθ / (1 + Eθ).CAS Exam ST.49 and 2. 11. for home B. 9. This is a Gamma-Poisson. Page 15 12. ⇒ θʼ = θ/(1 + Eθ).19 τ= = = -5/14 = -35.49 < 10.

2.95 ] . The pooled sample variance is sp 2 = {(24)(800) + (19)(1000)} / (24 + 19) = 888. The posterior distribution is a Normal.100) / (150 . A. Reject at 1/2%.02) = 0. 17. t = (90 . Comment: Similar to Q. Thus fire losses of size greater than 100 follow a Poisson Process with intensity: (1/20)(1/3) = 0.4493.95.” 16.03165 = 31. Wind losses follow a Poisson Process with intensity 1/30. Therefore. Thus wind losses of size greater than 100 follow a Poisson Process with intensity: (1/30)(0. 9. Therefore.796.0.01667.” 17.65) / 888 / 25 + 888 / 20 = 2. B.Φ[(220-220.Φ(-0.01498.796. A.” .8365 . Page 16 15. Comment: Similar to Q.3445.6 years.19)/ 100.704 < 2. with mean equal to: (Lσ2 + µs2 ) / (Cσ2 + s2 ) = {(700)(256) + (200)(500)} / {(3)(256) + 500} = 220.03165.4493) = 0. A Normal-Normal with prior Normal with mean 200 and standard deviation 16.95 ] = Φ(0. 4.CAS Exam ST.01498 + 0. losses of size greater than 100 are given by a Poisson Process.9 in “Mahlerʼs Guide to Bayes Analysis & Conjugate Priors.19)/ 100.19 and variance equal to: σ2 s2 / (Cσ2 + s2 ) = (256)(500) / {(3)(256) + 500} = 100. Performing a one-sided test.220. The chance that a wind loss is of size greater than 100 is: e-100/125 = 0.61 in “Mahlerʼs Guide to Poisson Processes. Practice Exam #1 HCM1/27/14. Comment: Similar to Q. the expected wait until the first loss of size greater than 100 is observed is: 1/0. The chance that a fire loss is of size greater than 100 is: (150 .4920 = 0.01667 = 0.98) . Fire losses follow a Poisson Process with intensity 1/20. with intensity: 0. with 24 + 19 = 43 degrees of freedom. Thus the probability that this insured will have an expected future mean severity between 220 and 230 is: Φ[(230.3 in “Mahlerʼs Guide to Statistics.0) = 1/3.

110 < 2. Prob[Y ≥ 30] = Prob[At most 3 of the sample < 30] = Prob[0 of the sample < 30] + Prob[1 of the sample < 30] + Prob[2 of the sample < 30] + Prob[3 of the sample < 30] = 0.2) = 1.4206. here we have used deviations form.02660 = 0.711)(0. Y ≥ 30 ⇔ At most 3 of the sample < 30.110 2. ^ t = β / sβ^ = 0.43. Comment: Similar to Q.X )2 = 1.1631. the critical values are: 10% 5% 2% 1% 1. ^ ESS ≡ Σ ^εi 2 = Σ(Yi .” It is unclear to me whether for your exam you need to know how to get the fitted slope.32 ) + {(13)(12)(11)/6}(0.43/(19 .Y^ i )2 = 25.” .(∑Xi) 2 . ^ Another formula for the fitted slope: β = N ∑Xi Yi N ∑ Xi2 ∑Xi ∑Yi .567 2.713 + 13(0.X )2 = 21.712)(0.X )(Yi . s2 = ESS/(N .CAS Exam ST.33 ) = 0. Page 17 18.710)(0. For 19 . for a two-tailed test using the t-distribution.4959/56.292. β = Σxiy i / Σxi2 = Σ(Xi .Y ) / Σ(Xi .03/56. 31.11 in “Mahlerʼs Guide to Statistics.740 2.292 < 2.567.2 = 17 degrees of freedom. 19.02660.24 = 0.1631 = 2. Practice Exam #1 HCM1/27/14.4959. E. 35.898 Since 2. Comment: Similar to Q.3739.k) = 25. we reject H0 at 5% and do not reject H0 at 2%. C. sβ^2 = s2 / Σ(Xi .24 = 0. sβ^ = 0.3739/0.3) + {(13)(12)/2}(0.16 in “Mahlerʼs Guide to Statistics.

Page 18 20. n Now each xi is Gamma with α = 2 and θ = 1/λ. 42. n Thus.CAS Exam ST. E. n > 1.λ ∑ xi . Practice Exam #1 HCM1/27/14. ^ i=1 i=1 However. Thus either - n n i=1 i=1 ∑ xi or ∑ xi is a sufficient statistic for λ. Setting the partial derivative of the loglikelihood with respect lambda equal to zero: n 0 = 2n/λ - n ∑ xi . ln[f(x)] = 2 ln[λ] + ln[x] . as will be seen.7 in “Mahlerʼs Guide to Statistics. (2n-1) / ∑ xi is an unbiased estimator of λ which is a function of a sufficient statistic.1] / Γ[α] = λ (2n-2)! / (2n-1)! = λ / (2n-1). which is: i=1 θ−1 Γ[α .λx. this maximum likelihood estimator of lambda is biased.” . This is an Exponential family with A(λ) = λ and B(x) = -x. i=1 and therefore is a Minimum Variance Unbiased Estimator of λ. ∑ xi is Gamma with α = 2n and θ = 1/λ. n n n i=1 i=1 i=1 ∑ ln[f(xi)] = 2n ln[λ] + ∑ ln[xi] . i=1 n E[1/ ∑ xi ] is the negative first moment of this Gamma. ⇒ λ = 2n / ∑ xi . Therefore. Comment: Similar to Q.

184.672 2.462.352 1.62 1.3 7. 2 Terr.80 4.23.0 12.1 1.231 12.05 1.678.23 < 14.0 53.0 17.01 1.45.01 Sum 6.058 1.302 9.302)(9335) / 69.777 26.6 20. Since 12.373 13.719 1.4 9.309.159.285 7.1) = 6 degrees of freedom.0 7.16 2.0 A B C 1.76 2.88 0.762.159 Sum 16. Page 19 21.67 1.2 Sum 9. 26) in “Mahlerʼs Guide to Statistics. D. 5/88.151 69. Comment: Similar to Q.84 3. For example.187. Class Terr.0 26. 4 Sum A B C B 2.67 0. As computed below.9 2. the Chi-Square Statistic is 13.5%.048 3.23 Expected Policies 1.302.” .46 0.678 A B C 2. (2231 .0 69.448.717.335 53.0 Sum 16.0)2 / 2184.678 = 2184.8 13. (16.004.CAS Exam ST. Q.0 = 1.9 3. reject at 5% and do not reject at 2.777.151.40 4.01.448 17.091.335.0 1.444 1. 1 Terr.59 < 13.184 7. 13. There are: (3 .5 2.2184. 3 Terr.443. Practice Exam #1 HCM1/27/14.08 1.12 (2.44 For example.0 Contribution to Chi-Square 0.0.184.3 1.81 Sum 2.47 2.543.674.01 0.446 20.55 13.720 9.330 2.297.1)(4 .

0.33 ) + (1/4)(0.r = 1 + 3 . bʼ = b + n . The uniform distribution is a Beta distribution with a = 1 and b = 1. 0 ≤ q ≤ 1.1765. The posterior chance of q in [0.0. 0. Proceed as before Comment: Similar to Q.32 ) . A Beta-Bernoulli conjugate prior situation.34 )} ∫ q=0. the posterior distribution of q is proportional to the product of the chance of the observation and the prior distribution: 3q(1-q)2 . the chance of observing one successes in three trials is: 3q(1-q)2 .CAS Exam ST. E. By Bayes Theorem.” .0. Page 20 22. Practice Exam #1 HCM1/27/14.1 = 3. Thus the posterior distribution of q is proportional to: q(1-q)2 . 8.43 .4 12 (q . Thus the posterior distribution of q is: 12q(1-q)2 .44 .42 . the prior distribution of q is: π(q) = 1.2q2 + q3 ). The integral of q(1-q)2 from 0 to 1 is 1/12.3 = 0. aʼ = a + r = 1 + 1 = 2.4] is: q=0.(2/3)(0. The posterior distribution is Beta is: {(4!) /(2!)(1!)} q2-1(1-q)3-1 = 12(q .3.2q2 + q3 ) dq = (12) {(1/2)(0.18 “Mahlerʼs Guide to Bayes Analysis & Conjugate Priors. Assuming a given value of q. Alternately.

Comment: Similar to Q.9 minutes.” When we are determining the power at 280. 20. ⇒ 1.2/(60/ 160 )] = 1 . If µ = 280.” . we need to take into account both tails.98. D. 95% = Prob[ X < 300 . Prob[ X > 300 + c | µ = 280] = Prob[ X > 312. Assuming Justine drives t minutes.79] ≅ 0. Q.576 = c /(60/ n ).  Since the two probabilities sum to 5%.70/ n .98.70/ n . 95% = Power of test at µ = 280 is: Prob[reject | µ = 280] = Prob[ X > 300 + c | µ = 280] + Prob[ X < 300 .33 (CAS3.c | µ = 280]. We are told that we will reject when X is very small or very large compared to 300.05 = e-t/20.300| ≥ c | µ = 300] = 2 Φ[-c /(60/ n )]. The probability in the lefthand tail in this case must be much larger than the probability in the righthand tail. ⇒ n = 160. Setting that equal to 5%: 0.2 | µ = 280] = 1 .18) in “Mahlerʼs Guide to Poisson Processes. the probability in the right hand tail is vanishingly small.56/ n . Page 21 23. 24. the chance of seeing no such car arriving is e-t/20.9 in “Mahlerʼs Guide to Statistics. Comment: Similar to Q. ⇒ c = 154.2. For the power to be 95%. Practice Exam #1 HCM1/27/14. the probability that X is a lot larger than 300 is small compared to the probability that X is a lot smaller than 300.Φ[32. As shown below.c | µ = 280] = Φ[(20-c) /(60/ n )].645 = (20-c) /(60/ n ). ⇒ 154. the probability in both tails has to sum to 5%.CAS Exam ST. 2. 11/04.56/ 160 = 12. 1% = Prob[| X . E. ⇒ 2.56/ n = 20 . Assuming that the first probability is very small. ⇒ t = 59.Φ[6. ⇒ c = 154. the probability in the righthand tail has to be very small. ⇒ c = 20 .

6 p While these solutions are believed to be correct.4 0.” A graph of the likelihood as a function of p: Likelihood 0.5p.5 0.5p) = p5 /4 . The likelihood of the observation is: p p p (p/2) (p/2) (1 . 4.CAS Exam ST.com . 11/08. D. 0 ≤ p ≤ 2/3. Comment: Similar to Q.002 0. send any corrections or comments to: Howard Mahler. Practice Exam #1 HCM1/27/14. Therefore.555.2 0.(6)(0.0015 0.83 (CAS3L.0.6) in “Mahlerʼs Guide to Statistics. Email: hmahler@mac.375)p5 = 0.1 0. ⇒ p = 0.3 0. Prob[X = 5000] = 1 . Prob[X = 1000] = Prob[X = 500]/2 = p/2. anyone can make a mistake.375p6 .1. If you believe youʼve found something that may be wrong. Q. Therefore. Set the derivative with respect to p equal to zero: 5 p4 /4 .1. Page 22 25.0005 0.001 0.