2023/4/18 13:47 6 of 7 - Assignment - Practice

6 of 7 Finish Assignment

2 ≤ T < 10
pp y p y ,
failure if , with no benefits payable otherwise.

You are also given that δ = 5%.

Calculate the 90th percentile of the present value of the future benefits under this warranty.

41% A 82,000

84,000
18%

25% C 87,000

10% D 91,000

Exhibit

Solution

Written Solution
For the warranty, the PV random variable is:

Z = 100,000
0 {
vT = 100,000e−0.05T , 2 ≤ T < 10
, otherwise
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 z0.90be the 90th percentile of Z. Thus:
2023/4/18 13:47 6 of 7 - Assignment - Practice

Let

By definition, Pr[Z < z0.90] = 0.90. Thus:

Pr[Z > z0.90] = 0.10
Pr[2 < T < h] = 0.10
h
2
f(t)dt = 0.10
∫

h
2
0.4 t −2dt = 0.10
∫

0.4t−1 h = 0.10
−1 2 [ ]

h=4
h = 4 is the value of T that corresponds to the 90th percentile. The 90th percentile of
Z
Note that
is:

z0.90 = 100,000e−0.05h= 100,000e−0.05(4)= 81,873

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2023/4/18 13:47 6 of 7 - Assignment - Practice

Video Solution

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