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[RL] = P[R] + P[L] P[RL] = P[R] + P[L] 1 + P[~(RL)]
= 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

7.

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,
Pr ( A H ) = 0.15
Pr ( A H c ) = Pr ( A ) Pr ( A H ) = 0.65 0.15 = 0.50

Pr ( Ac H ) = Pr ( H ) Pr ( A H ) = 0.50 0.15 = 0.35

and the portion of policyholders that will renew at least one policy is given by
0.4 Pr ( A H c ) + 0.6 Pr ( Ac H ) + 0.8 Pr ( A H )
= ( 0.4 )( 0.5 ) + ( 0.6 )( 0.35 ) + ( 0.8 )( 0.15 ) = 0.53

( = 53% )

-------------------------------------------------------------------------------------------------------100292
01B-9
8.
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 ] + 0.14
Pr ( C T ) = 0.22

Pr ( C c T c ) = 0.12
Therefore,
0.88 = 1 Pr C c T c = Pr [C T ] = Pr [C ] + Pr [T ] Pr [C T ]
= Pr [T ] + 0.14 + Pr [T ] 0.22
= 2 Pr [T ] 0.08
or

Pr [T ] = ( 0.88 + 0.08 ) 2 = 0.48

Page 4 of 61

9.

Solution: B
Let
M = event that customer insures more than one car
S = event that customer insures a sports car
Then applying DeMorgans Law, 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 0.70 0.20 + ( 0.15 )( 0.70 ) = 0.205

-------------------------------------------------------------------------------------------------------10.

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, non-sports). But P ( Ac Bc) = 1 P (A B)
And, by the Additive Law, P ( A B ) = P ( A) + P ( B ) P ( A B ).
By the Multiplicative Law, P ( A B ) = P ( B | A ) P (A) = 0.15 * 0.64 = 0.096
It follows that P ( A B ) = 0.64 + 0.20 0.096 = 0.744 and P (Ac Bc ) = 0.744 =
0.256

-------------------------------------------------------------------------------------------------------11.

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 .
By the independence of C and D, it therefore follows that
0.15 = P[C D] = P[C] P[D] = 2P[D] P[D] = 2(P[D])2
(P[D])2 = 0.15/2 = 0.075
P[D] = 0.075 and P[C] = 2P[D] = 2 0.075
Now the independence of C and D also implies the independence of CC and DC . As a
result, we see that P[CC DC] = P[CC] P[DC] = (1 P[C]) (1 P[D])
= (1 2 0.075 ) (1 0.075 ) = 0.33 .

Page 5 of 61

12.

Solution: E
Boxed numbers in the table below were computed.
High BP Low BP Norm BP

Total

Regular heartbeat
0.09
0.20
0.56
0.85
Irregular heartbeat
0.05
0.02
0.08
0.15
Total
0.14
0.22
0.64
1.00
From the table, we can see that 20% of patients have a regular heartbeat and low blood
pressure.
-------------------------------------------------------------------------------------------------------13.

Solution: C
The Venn diagram below summarizes the unconditional probabilities described in the
problem.

In addition, 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 + 0.12 ) = x + 0.04
3
3
2
x = 0.04
3
x = 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 ( 0.10 ) 3 ( 0.12 ) 0.06

1 0.10 2 ( 0.12 ) 0.06

0.28
= 0.467
0.60

Page 6 of 61

14.

Solution: A
1
11
1 1 1
1
pk 2 = pk 3 = ... = p0
pk = pk 1 =
5
55
5 5 5
5
k

k0

p0
5
1
=
= p0
p

k
p0 =
1 4
k =0
k =0 5
1
5
p0 = 4/5 .
Therefore, P[N > 1] = 1 P[N 1] = 1 (4/5 + 4/5 1/5) = 1 24/25 = 1/25 = 0.04 .

1=

-------------------------------------------------------------------------------------------------------15.

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 = , x + z = , 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, y = 1/6, 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

16.

Solution: D
Let N1 and N 2 denote the number of claims during weeks one and two, respectively.
Then since N1 and N 2 are 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.

Solution: D
Let
O = Event of operating room charges
E = Event of emergency room charges
Then
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 ) = 0.25 = 1 Pr ( E ) , it follows Pr ( E ) = 0.75 .
0.85 = Pr ( O ) + 0.75 Pr ( O )( 0.75 )
Pr ( O )(1 0.75 ) = 0.10
Pr ( O ) = 0.40

-------------------------------------------------------------------------------------------------------18.

Solution: D
Let X1 and X2 denote the measurement errors of the less and more accurate instruments,
respectively. If N(,) denotes a normal random variable with mean and standard
deviation , then we are given X1 is N(0, 0.0056h), X2 is N(0, 0.0044h) and X1, X2 are
X1 + X 2
0.00562 h 2 + 0.00442 h 2
is N (0,
) = N(0,
2
4
0.00356h) . Therefore, P[0.005h Y 0.005h] = P[Y 0.005h] P[Y 0.005h] =
P[Y 0.005h] P[Y 0.005h]
0.005h

= 2P[Y 0.005h] 1 = 2P Z
1 = 2P[Z 1.4] 1 = 2(0.9192) 1 = 0.84.
0.00356h

independent. It follows that Y =

Page 8 of 61

19.

Solution: B
Apply Bayes Formula. Let
A = Event of an accident
B1 = Event the drivers age is in the range 16-20
B2 = Event the drivers age is in the range 21-30
B3 = Event the drivers age is in the range 30-65
B4 = Event the drivers 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 )
=

( 0.06 )( 0.08)
= 0.1584
( 0.06 )( 0.08) + ( 0.03)( 0.15) + ( 0.02 )( 0.49 ) + ( 0.04 )( 0.28)

--------------------------------------------------------------------------------------------------------

20.

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 ]
=

( 0.001)( 0.10 )
( 0.01)( 0.50 ) + ( 0.005 )( 0.40 ) + ( 0.001)( 0.10 )

= 0.0141
-------------------------------------------------------------------------------------------------------21.

Solution: B
Apply Bayes Formula:
Pr Seri. Surv.
=
=

Pr Surv. Seri. Pr [Seri.]

Pr Surv. Crit. Pr [ Crit.] + Pr Surv. Seri. Pr [Seri.] + Pr Surv. Stab. Pr [Stab.]

( 0.9 )( 0.3)
= 0.29
( 0.6 )( 0.1) + ( 0.9 )( 0.3) + ( 0.99 )( 0.6 )

Page 9 of 61

22.

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, upon applying Bayes Formula, 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 ( 0.2 )
0.4
=
=
= 0.42
1
+
+
0.25
0.3
0.4
Pr D L ( 0.5 ) + Pr D L ( 0.3) + 2 Pr D L ( 0.2 )
2
-------------------------------------------------------------------------------------------------------23.

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, we see that
P[C Y ]P[Y ]
P[YC] =
P[C T ]P[T ] + P[C Y ]P[Y ] + P[C M ]P[ M ] + P[C S ]P[ S ]
=

(0.08)(0.16)
= 0.22 .
(0.15)(0.08) + (0.08)(0.16) + (0.04)(0.45) + (0.05)(0.31)

-------------------------------------------------------------------------------------------------------24.

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

25.

Solution: B
Let
Y = positive test result
D = disease is present (and ~D = not D)
Using Bayes theorem:
P[Y | D]P[ D]
(0.95)(0.01)
=
= 0.657 .
P[D|Y] =
P[Y | D]P[ D] + P[Y |~ D]P[~ D] (0.95)(0.01) + (0.005)(0.99)

-------------------------------------------------------------------------------------------------------26.

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[SC] = 2 P[SCC]
Now applying Bayes Theorem, we find that P[CS] =
=

2 P[ S C C ]P[C ]
2 P[ S C ]P[C ] + P[ S C ](1 P[C ])
C

P[ S C ]P[C ]

P[ S C ]P[C ] + P[ S C C ]( P[C C ])

2(0.25)
2
2
=
= .
2(0.25) + 0.75 2 + 3 5

-------------------------------------------------------------------------------------------------------27.

Solution: D
Use Bayes Theorem with A = the event of an accident in one of the years 1997, 1998 or
1999.
P[ A 1997]P[1997]
P[1997|A] =
P[ A 1997][ P[1997] + P[ A 1998]P[1998] + P[ A 1999]P[1999]
=

(0.05)(0.16)
= 0.45 .
(0.05)(0.16) + (0.02)(0.18) + (0.03)(0.20)

--------------------------------------------------------------------------------------------------------

Page 11 of 61

28.

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, 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 )( 0.90 ) = 0.141
29

P I1 | C c = ( 130 ) ( 0.02 )( 0.98 ) = 0.334

29

Therefore,

P [ C | I1 ] =

( 0.141)(1/ 5)
= 0.096
( 0.141)(1/ 5) + ( 0.334 )( 4 / 5)

-------------------------------------------------------------------------------------------------------29.

Solution: C
Let T denote the number of days that elapse before a high-risk driver is involved in an
accident. Then T is exponentially distributed with unknown parameter . Now we are
given that
0.3 = P[T 50] =

50

dt = e t

50
0

= 1 e50

Therefore, e50 = 0.7 or = (1/50) ln(0.7)

It follows that P[T 80] =
(80/50) ln(0.7)

=1e

80

e
0

dt = e t

80
0

= 1 e80

= 1 (0.7)80/50 = 0.435 .

-------------------------------------------------------------------------------------------------------30.

Solution: D

e 2
e 4
Let N be the number of claims filed. We are given P[N = 2] =
=3
= 3 P[N
2!
4!
= 4]24 2 = 6 4
2 = 4 = 2
Therefore, Var[N] = = 2 .

Page 12 of 61

31.

Solution: D
Let X denote the number of employees that achieve the high performance level. Then X
follows a binomial distribution with parameters n = 20 and p = 0.02 . Now we want to
determine x such that
Pr [ X > x ] 0.01
or, equivalently,
x
k
20 k
0.99 Pr [ X x ] = k =0 ( 20k ) ( 0.02 ) ( 0.98 )

The following table summarizes the selection process for x:

x
Pr [ X = x ]
Pr [ X x ]
0
1
2

( 0.98) = 0.668
19
20 ( 0.02 )( 0.98 ) = 0.272
2
18
190 ( 0.02 ) ( 0.98 ) = 0.053
20

0.668
0.940
0.993

Consequently, there is less than a 1% chance that more than two employees will achieve
the high performance level. We conclude that we should choose the payment amount C
such that
2C = 120, 000
or
C = 60, 000
-------------------------------------------------------------------------------------------------------32.

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, y, z) = probability function of X, Y, and Z
Then f is a trinomial probability function, so
Pr [ z x + 2] = f ( 0, 0, 4 ) + f (1, 0,3) + f ( 0,1,3) + f ( 0, 2, 2 )
= ( 0.20 ) + 4 ( 0.50 )( 0.20 ) + 4 ( 0.30 )( 0.20 ) +
4

= 0.0488

Page 13 of 61

4!
2
2
( 0.30 ) ( 0.20 )
2!2!

33.

Solution: B
Note that

0.005 ( 20 t ) dt = 0.005 20t t 2 20

x
x
2

1
1

= 0.005 400 200 20 x + x 2 = 0.005 200 20 x + x 2

2
2

where 0 < x < 20 . Therefore,

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.

Solution: C
2
We know the density has the form C (10 + x ) for 0 < x < 40 (equals zero otherwise).

First, 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 , or 12.5 . Then, calculate the probability over the interval (0, 6):
6
2
1 6
1 1
= (12.5 ) = 0.47 .
12.5 (10 + x ) dx = (10 + x )
0
0
10 16
40

1 = C (10 + x ) dx = C (10 + x) 1
2

40

-------------------------------------------------------------------------------------------------------35.

Solution: C
Let the random variable T be the future lifetime of a 30-year-old. 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). First, 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, calculate P(T < 5) by integrating f (x) = 12.5 (10 + x)2
2
over the interval (0.5).

Page 14 of 61

36.

Solution: B
To determine k, 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 Y > 10,000] = P[Y > 0.1]
=

5 (1 y ) dy = (1 y )
4

5 1

0.1

0.1

= (0.9)5 = 0.59 and P[V > 40,000]

= P[100,000 Y > 40,000] = P[Y > 0.4] =

5 (1 y ) dy = (1 y )
4

5 1

0.4

0.4

= (0.6)5 = 0.078 .

It now follows that P[V > 40,000V > 10,000]

P[V > 40, 000 V > 10, 000] P[V > 40, 000] 0.078
=
=
= 0.132 .
=
P[V > 10, 000]
P[V > 10, 000] 0.590
-------------------------------------------------------------------------------------------------------37.

Solution: D
Let T denote printer lifetime. Then f(t) = et/2, 0 t
Note that
1
1
P[T 1] = e t / 2 dt = e t / 2 1 = 1 e1/2 = 0.393
0
2
0
P[1 T 2] =

2e

t / 2

dt = e t / 2

2
1

= e 1/2 e 1 = 0.239

Next, denote refunds for the 100 printers sold by independent and identically distributed
random variables Y1, . . . , Y100 where
with probability 0.393
200

Yi = 100
with probability 0.239
i = 1, . . . , 100
0
with probability 0.368

Now E[Yi] = 200(0.393) + 100(0.239) = 102.56

Therefore, Expected Refunds =

100

E [Y ] = 100(102.56) = 10,256 .
i =1

Page 15 of 61

38.

Solution: A
Let F denote the distribution function of f. Then
F ( x ) = Pr [ X x ] = 3t 4 dt = t 3 = 1 x 3
x

Using this result, we see

Pr [ X < 2| X 1.5] =

Pr ( X < 2 ) ( X 1.5 )
Pr [ X 1.5]

Pr [ X < 2] Pr [ X 1.5]
Pr [ X 1.5]

F ( 2 ) F (1.5 ) (1.5 ) ( 2 )
=
=
3
1 F (1.5 )
(1.5 )
3

3
= 1
4

= 0.578

-------------------------------------------------------------------------------------------------------39.

Solution: E
Let X be the number of hurricanes over the 20-year period. The conditions of the
problem give x is a binomial distribution with n = 20 and p = 0.05 . It follows that
P[X < 2] = (0.95)20(0.05)0 + 20(0.95)19(0.05) + 190(0.95)18(0.05)2
= 0.358 + 0.377 + 0.189 = 0.925 .

-------------------------------------------------------------------------------------------------------40.

Solution: B
Denote the insurance payment by the random variable Y. Then
if 0 < X C
0
Y =
X C if C < X < 1
Now we are given that
0.64 = Pr (Y < 0.5 ) = Pr ( 0 < X < 0.5 + C ) =
Therefore, solving for C, we find C = 0.8 0.5
Finally, since 0 < C < 1 , we conclude that C = 0.3

Page 16 of 61

0.5+ C
0

2 x dx = x

0.5 + C
0

= ( 0.5 + C )

41.

Solution: E
Let
X = number of group 1 participants that complete the study.
Y = number of group 2 participants that complete the study.
Now we are given that X and Y are independent.
Therefore,
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
0.2 0.8 + 10 0.8 1 10 0.2 0.8 10 0.8
= 2 ( 10
9 ) ( )( ) ( 10 ) ( ) ( 9 ) ( )( ) ( 10 ) ( )
= 2 [ 0.376][1 0.376] = 0.469

-------------------------------------------------------------------------------------------------------42.

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)

= ( 0.60 )( 0.30 ) + ( 0.40 )( 0.30 ) Pr [ X B X A 0]

= 0.18 + 0.12 Pr [ X B X A 0]
Now X B X A is a linear combination of independent normal random variables.
Therefore, 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, 000 10, 000 = 1, 000
and standard deviation = Var ( X B ) + Var ( X A ) =
It follows that

Page 17 of 61

( 2000 ) + ( 2000 )
2

= 2000 2

1000

Pr [ X B X A 0] = Pr Z
2000 2

= Pr Z
2 2

(Z is standard normal)

= 1 Pr Z <
2 2

= 1 Pr [ Z < 0.354]

Finally,

= 1 0.638 = 0.362

Pr I AC I B ( I A I B ) ( X A < X B ) = 0.18 + ( 0.12 )( 0.362 )

= 0.223

-------------------------------------------------------------------------------------------------------43.

Solution: D
If a month with one or more accidents is regarded as success and k = the number of
failures before the fourth success, 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

3 2 0 4 2 1 5 2 2 6 2 3
( 0 ) + ( 1 ) + ( 2 ) + ( 3 )
5
5
5
5

3 8 8 32
= 1 1 + + +
5 5 5 25
= 0.2898
Alternatively the solution is
4

2
4 2 3
5 2 3
6 2 3
+ ( 1 ) + ( 2 ) + ( 3 ) = 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, and
iii) calculating Pr [ k 3]

Page 18 of 61

44.

Solution: C
If k is the number of days of hospitalization, then the insurance payment g(k) is
100k
for k =1, 2, 3
g(k) =
300 + 50 (k 3) for k = 4, 5.

Thus, the expected payment is

g (k ) p
k =1

= 100 p1 + 200 p2 + 300 p3 + 350 p4 + 400 p5 =

1
(100 5 + 200 4 + 300 3 + 350 2 + 400 1) =220
15
-------------------------------------------------------------------------------------------------------45.

Solution: D

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.

Solution: D
The density function of T is
1
f ( t ) = et / 3 , 0 < t <
3
Therefore,
E [ X ] = E max ( T , 2 )
=

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

47.

Solution: D
Let T be the time from purchase until failure of the equipment. We are given that T is
exponentially distributed with parameter = 10 since 10 = E[T] = . 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

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 .

1
0

1/10

= x(1 e

x
e t /10
2

3
1

e3/10) = 0.1772x .

-------------------------------------------------------------------------------------------------------48.

Solution: E
Let X and Y denote the year the device fails and the benefit amount, respectively. Then
the density function of X is given by
x 1
f ( x ) = ( 0.6 ) ( 0.4 ) , x = 1, 2,3...
and

1000 ( 5 x ) if x = 1, 2,3, 4
y=
if x > 4
0
It follows that
2
3
E [Y ] = 4000 ( 0.4 ) + 3000 ( 0.6 )( 0.4 ) + 2000 ( 0.6 ) ( 0.4 ) + 1000 ( 0.6 ) ( 0.4 )
= 2694

-------------------------------------------------------------------------------------------------------49.

Solution: D
Define f ( X ) to be hospitalization payments made by the insurance policy. Then
100 X
f (X ) =
300 + 25 ( X 3)

if X = 1, 2,3
if X = 4,5

and

Page 20 of 61

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] =
= 213.33
3
3

-------------------------------------------------------------------------------------------------------50.

Solution: C
Let N be the number of major snowstorms per year, and let P be the amount paid to
(3 / 2) n e 3/ 2
, n = 0, 1, 2, . . . and
the company under the policy. Then Pr[N = n] =
n!
for N = 0
0
P=
.
10, 000( N 1) for N 1
Now observe that E[P] =

10, 000(n 1)
n =1

(3 / 2) n e 3/ 2
n!

(3 / 2) n e 3/ 2
= 10,000 e3/2 + E[10,000 (N 1)]
n!
n=0
3/2
= 10,000 e + E[10,000N] E[10,000] = 10,000 e3/2 + 10,000 (3/2) 10,000 = 7,231 .

= 10,000 e3/2 +

10, 000(n 1)

-------------------------------------------------------------------------------------------------------51.

Solution: C
Let Y denote the manufacturers retained annual losses.
for 0.6 < x 2
x
Then Y =
for x > 2
2
and E[Y] =
=

2
2.5(0.6) 2.5
2.5(0.6) 2.5
2.5(0.6) 2.5
2(0.6) 2.5
+
=

x
dx
2
dx
dx
x3.5 2 x3.5 0.6 x 2.5
x 2.5
0.6

2.5(0.6) 2.5
1.5 x1.5

2
0.6

2(0.6) 2.5
2.5(0.6) 2.5 2.5(0.6) 2.5 (0.6) 2.5
=

+
+ 1.5 = 0.9343 .
(2) 2.5
1.5(2)1.5
1.5(0.6)1.5
2

Page 21 of 61

52.

Solution: A
Let us first determine K. 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
, N = 1,...,5
( 0.05) =
137 N
137 N
Now because of the deductible of 2, the net annual premium P = E [ X ] where
=

Then,

0
X =
N 2

, if N 2
, if N > 2

P = E [ X ] = N =3 ( N 2 )
5

3
3
3
1
= (1)
+ 3
= 0.0314
+ 2
137 N
137
137 ( 4 )
137 ( 5 )

-------------------------------------------------------------------------------------------------------53.

Solution: D

for 1 < y 10
y
Let W denote claim payments. Then W =
for y 10
10
10

2
2
2 10
10
2
= 2 2/10 + 1/10 = 1.9 .
It follows that E[W] = y 3 dy + 10 3 dy =
y
y
y1
y 10
1
10

Page 22 of 61

54.

Solution: B
Let Y denote the claim payment made by the insurance company.
Then
with probability 0.94
0

Y = Max ( 0, x 1) with probability 0.04

14
with probability 0.02

and
E [Y ] = ( 0.94 )( 0 ) + ( 0.04 )( 0.5003)

15

( x 1) e x / 2 dx + ( 0.02 )(14 )

15
15
= ( 0.020012 ) xe x / 2 dx e x / 2 dx + 0.28
1

1
15
15
= 0.28 + ( 0.020012 ) 2 xe x / 2 | 15
+2 e x / 2 dx e x / 2 dx
1
1
1

15
= 0.28 + ( 0.020012 ) 30e 7.5 + 2e 0.5 + e x / 2 dx

= 0.28 + ( 0.020012 ) 30e 7.5 + 2e 0.5 2e x / 2 | 15

1

= 0.28 + ( 0.020012 ) ( 30e 7.5 + 2e 0.5 2e7.5 + 2e0.5 )

= 0.28 + ( 0.020012 ) ( 32e 7.5 + 4e 0.5 )
= 0.28 + ( 0.020012 )( 2.408 )

(in thousands)
= 0.328
It follows that the expected claim payment is 328 .
-------------------------------------------------------------------------------------------------------55.

Solution: C
k
, 0 < x < . To find k, 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] =

3x

(1 + x)
0

k
3

dx and substituting u = 1 + x, du = dx, we see

u 2 u 3
3(u 1)
1 1
3
4
=
3

= 3 = 3/2 1 = .
E[x] =
du
(
)
3
u
u
du

u
2 3
2 3 1
1
1

Page 23 of 61

56.

Solution: C
Let Y represent the payment made to the policyholder for a loss subject to a deductible D.
for 0 X D
0
That is Y =
x D for D < X 1
Then since E[X] = 500, 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).

-------------------------------------------------------------------------------------------------------57.

Solution: B

1
for the claim size X in a certain class of accidents.
(1 2500t ) 4
(4)(2500)
10, 000
First, compute Mx(t) =
=
5
(1 2500t )
(1 2500t )5
(10, 000)(5)(2500) 125, 000, 000
Mx(t) =
=
(1 2500t )6
(1 2500t )6
Then E[X] = Mx (0) = 10,000
E[X2] = Mx (0) = 125,000,000
Var[X] = E[X2] {E[X]}2 = 125,000,000 (10,000)2 = 25,000,000
Var[ X ] = 5,000 .

We are given that Mx(t) =

-------------------------------------------------------------------------------------------------------58.

Solution: E
Let XJ, XK, and XL represent annual losses for cities J, K, and L, respectively. 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)2.5 (1 2t)4.5 = (1 2t)10
Therefore,
M(t) = 20(1 2t)11
M(t) = 440(1 2t)12
M(t) = 10,560(1 2t)13
E[X3] = M(0) = 10,560

Page 24 of 61

59.

Solution: B
The distribution function of X is given by
2.5 ( 200 )
F ( x) =
200
t 3.5
x

2.5

( 200 )
dt =
t 2.5

2.5 x

( 200 )
= 1

200

x 2.5

2.5

x > 200

th

Therefore, the p percentile x p of X is given by

( 200 )
p
= F ( xp ) = 1
2.5
100
xp

2.5

( 200 )
1 0.01 p =
xp

(1 0.01 p )
xp =

25

2.5

2.5

200
xp

200

(1 0.01 p )

25

It follows that x 70 x 30 =

200

( 0.30 )

25

200

( 0.70 )

25

= 93.06

-------------------------------------------------------------------------------------------------------60.

Solution: E
Let X and Y denote the annual cost of maintaining and repairing a car before and after
the 20% tax, respectively. Then Y = 1.2X and Var[Y] = Var[1.2X] = (1.2)2 Var[X] =
(1.2)2(260) = 374 .

-------------------------------------------------------------------------------------------------------61.

Solution: A
The first quartile, Q1, is found by =

Q1

f(x) dx . That is, = (200/Q1)2.5 or

Q1 = 200 (4/3)0.4 = 224.4 . Similarly, the third quartile, Q3, is given by Q3 = 200 (4)0.4
= 348.2 . The interquartile range is the difference Q3 Q1 .

Page 25 of 61

62.

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
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

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

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,
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

64.

Solution: A
Let X denote claim size. Then E[X] = [20(0.15) + 30(0.10) + 40(0.05) + 50(0.20) +
60(0.10) + 70(0.10) + 80(0.30)] = (3 + 3 + 2 + 10 + 6 + 7 + 24) = 55
E[X2] = 400(0.15) + 900(0.10) + 1600(0.05) + 2500(0.20) + 3600(0.10) + 4900(0.10)
+ 6400(0.30) = 60 + 90 + 80 + 500 + 360 + 490 + 1920 = 3500
Var[X] = E[X2] (E[X])2 = 3500 3025 = 475 and Var[ X ] = 21.79 .
Now the range of claims within one standard deviation of the mean is given by
[55.00 21.79, 55.00 + 21.79] = [33.21, 76.79]
Therefore, the proportion of claims within one standard deviation is
0.05 + 0.20 + 0.10 + 0.10 = 0.45 .

-------------------------------------------------------------------------------------------------------65.

Solution: B
Let X and Y denote repair cost and insurance payment, respectively, in the event the auto
is damaged. 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, 028
(
(
250
250 1500
4500
4500
Var [Y ] = E Y 2 { E [Y ]} = 434, 028 ( 521)
2

Var [Y ] = 403

-------------------------------------------------------------------------------------------------------66.

Solution: E
Let X1, X2, X3, and X4 denote the four independent bids with common distribution
function F. Then if we define Y = max (X1, X2, X3, X4), 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 )

1
3
5
4
y
(1 + sin y ) ,
16
2
2
It then follows that the density function g of Y is given by
=

Page 27 of 61

g ( y ) = G '( y )
=
=

Finally,

1
3
(1 + sin y ) ( cos y )
4

cos y (1 + sin y )

E [Y ] =

5/ 2

5/ 2

3/ 2

3/ 2

3
5
y
2
2

yg ( y ) dy
ycos y (1 + sin y ) dy
3

-------------------------------------------------------------------------------------------------------67.

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 . The probability function for X is
k
e 0.6 ( 0.6 )
p ( x) =
k = 0,1, 2,3 and
k!
k
0.6
0.6
0.6
E [Y ] = 0 + 1000 ( 0.6 ) e + 2000e k = 2
k!
k

0.6
= 1000 ( 0.6 ) e 0.6 + 2000 e 0.6 k =0
e 0.6 ( 0.6 ) e0.6
k!

= 2000e

0.6

( 0.6 )
k!

k =0

2000e 0.6 1000 ( 0.6 )e 0.6 = 2000 2000e 0.6 600e0.6

= 573
E Y 2 = (1000 ) ( 0.6 ) e 0.6 + ( 2000 ) e 0.6 k = 2
2

0.6k
k!

0.6k
2
2
2
( 2000 ) e 0.6 ( 2000 ) (1000 ) ( 0.6 ) e 0.6

k!
2
2
2
( 2000 ) e 0.6 ( 2000 ) (1000 ) ( 0.6 ) e 0.6

= ( 2000 ) e 0.6 k =0
2

= ( 2000 )

= 816,893
Var [Y ] = E Y 2 { E [Y ]} = 816,893 ( 573) = 488,564
2

Var [Y ] = 699

Page 28 of 61

68.

Solution: C
Note that X has an exponential distribution. Therefore, c = 0.004 . Now let Y denote the
for x < 250
x
claim benefits paid. Then Y =
and we want to find m such that 0.50
for x 250
250
m

= 0.004e 0.004 x dx = e 0.004 x

= 1 e0.004m

This condition implies e0.004m = 0.5 m = 250 ln 2 = 173.29 .

-------------------------------------------------------------------------------------------------------69.

Solution: D
The distribution function of an exponential random variable
T with parameter is given by F ( t ) = 1 e t , t > 0
Since we are told that T has a median of four hours, we may determine as follows:
1
= F ( 4 ) = 1 e4
2
1
= e 4
2
4
ln ( 2 ) =

4
ln ( 2 )

Therefore, Pr (T 5 ) = 1 F ( 5 ) = e 5 = e

5ln ( 2 )
4

= 25 4 = 0.42

-------------------------------------------------------------------------------------------------------70.

Solution: E
Let X denote actual losses incurred. We are given that X follows an exponential
distribution with mean 300, and we are asked to find the 95th percentile of all claims that
exceed 100 . Consequently, we want to find p95 such that
Pr[100 < x < p95 ] F ( p95 ) F (100)
0.95 =
=
where F(x) is the distribution function of X .
P[ X > 100]
1 F (100)
Now F(x) = 1 ex/300 .
1 e p95 / 300 (1 e 100 / 300 ) e 1/ 3 e p95 / 300
=
= 1 e1/ 3e p95 / 300
Therefore, 0.95 =
1 (1 e 100 / 300 )
e 1/ 3
e p95 / 300 = 0.05 e 1/3
p95 = 300 ln(0.05 e1/3) = 999

Page 29 of 61

71.

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 . 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 . 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.

Solution: E
We are given that R is uniform on the interval ( 0.04, 0.08 ) and V = 10, 000e R
Therefore, the distribution function of V is given by
F ( v ) = Pr [V v ] = Pr 10, 000e R v = Pr R ln ( v ) ln (10, 000 )
1 ln ( v )ln (10,000 )
1
dr =
r
=

0.04
0.04
0.04

ln ( v ) ln (10,000 )

= 25ln ( v ) 25ln (10, 000 ) 1

0.04

= 25 ln
0.04

10, 000

-------------------------------------------------------------------------------------------------------73.

Solution: E

( )

F ( y ) = Pr [Y y ] = Pr 10 X 0.8 y = Pr X Y
10

1 Y 4 Y 10 5 4
Therefore, f ( y ) = F ( y ) = e ( )
8 10

Page 30 of 61

10

10

(Y )

10
1
e
=

74.

Solution: E
First note R = 10/T . Then
10
10

10
FR(r) = P[R r] = P r = P T = 1 FT . Differentiating with respect to
r
T

10
d
10
r fR(r) = FR(r) = d/dr 1 FT = FT ( t ) 2
r
dt
r

d
1
FT (t ) = fT (t ) = since T is uniformly distributed on [8, 12] .
dt
4
1 10
5
Therefore fR(r) =
2 = 2 .
4 r 2r

-------------------------------------------------------------------------------------------------------75.

Solution: A
Let X and Y be the monthly profits of Company I and Company II, respectively. We are
given that the pdf of X is f . 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 . 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) = F(y/2) = f(y/2) .

-------------------------------------------------------------------------------------------------------76.

Solution: A
First, observe that the distribution function of X is given by
x 3
1
1
F ( x ) = 4 dt = 3 | 1x = 1 3 , x > 1
1 t
t
x
Next, let X1, X2, and X3 denote the three claims made that have this distribution. Then if
Y denotes the largest of these three claims, 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
, 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,

Page 31 of 61

, y>1

E [Y ] =

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 + = 2.025 (in thousands)
2 5 8

-------------------------------------------------------------------------------------------------------77.

Solution: D
Prob. = 1
Note

1
( x + y )dxdy = 0.625
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
=
= 0.625
48 48
= 1

= 1
= 1

2
1

(De Morgan's Law)

1
8 ( x + y ) dxdy
2

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: B
That the device fails within the first hour means the joint density function must be
integrated over the shaded region shown below.

This evaluation is more easily performed by integrating over the unshaded region and
subtracting from 1.

Page 32 of 61

Pr ( X < 1) (Y < 1)
= 1

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
=
= 0.41
(

54 1
54
54
54 27
1

-------------------------------------------------------------------------------------------------------79.

Solution: E
The domain of s and t is pictured below.

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. Therefore,
1/ 2 1
1 1/ 2

1
1
Pr S T = f ( s, t ) dsdt + f ( s, t ) dsdt
0 0
2
2 0 1/ 2

(where the first integral covers A and the second integral covers B).
-------------------------------------------------------------------------------------------------------80.

Solution: C
By the central limit theorem, the total contributions are approximately normally
distributed with mean n = ( 2025 )( 3125 ) = 6,328,125 and standard deviation

n = 250 2025 = 11, 250 . From the tables, the 90th percentile for a standard normal

random variable is 1.282 . Letting p be the 90th percentile for total contributions,
p n
= 1.282, and so p = n + 1.282 n = 6,328,125 + (1.282 )(11, 250 ) = 6,342,548 .
n

Page 33 of 61

-------------------------------------------------------------------------------------------------------81.
Solution: C
1
Let X1, . . . , X25 denote the 25 collision claims, and let X =
(X1 + . . . +X25) . We are
25
given that each Xi (i = 1, . . . , 25) follows a normal distribution with mean 19,400 and
standard deviation 5000 . As a result X also follows a normal distribution with mean
1
19,400 and standard deviation
(5000) = 1000 . We conclude that P[ X > 20,000]
25
X 19, 400 20, 000 19, 400
X 19, 400

>
= P
> 0.6 = 1 (0.6) = 1 0.7257
= P

1000
1000

1000

= 0.2743 .
-------------------------------------------------------------------------------------------------------82.

Solution: B
Let X1, . . . , X1250 be the number of claims filed by each of the 1250 policyholders.
We are given that each Xi follows a Poisson distribution with mean 2 . It follows that
E[Xi] = Var[Xi] = 2 . Now we are interested in the random variable S = X1 + . . . + X1250 .
Assuming that the random variables are independent, we may conclude that S has an
approximate normal distribution with E[S] = Var[S] = (2)(1250) = 2500 .
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
, 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 0.9773 + 0.8413 1 = 0.8186 .

-------------------------------------------------------------------------------------------------------83.

Solution: B
Let X1,, Xn denote the life spans of the n light bulbs purchased. Since these random
variables are independent and normally distributed with mean 3 and variance 1, the
random variable S = X1 + + Xn is also normally distributed with mean
= 3n
and standard deviation
= n
Now we want to choose the smallest value for n such that
S 3n 40 3n
0.9772 Pr [ S > 40] = Pr
>

n
n
This implies that n should satisfy the following inequality:

Page 34 of 61

40 3n
n
To find such an n, lets 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.

Solution: B
Observe that
E [ X + Y ] = E [ X ] + E [Y ] = 50 + 20 = 70
Var [ X + Y ] = Var [ X ] + Var [Y ] + 2 Cov [ X , Y ] = 50 + 30 + 20 = 100
for a randomly selected person. 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,

T 7000 7100 7000

Pr [T < 7100] = Pr
<

100
100
= Pr [ Z < 1] = 0.8413
where Z is a standard normal random variable.

Page 35 of 61

-------------------------------------------------------------------------------------------------------85.
Solution: B
Denote the policy premium by P . Since x is exponential with parameter 1000, it follows
from what we are given that E[X] = 1000, Var[X] = 1,000,000, Var[ X ] = 1000 and P =
100 + E[X] = 1,100 . Now if 100 policies are sold, then Total Premium Collected =
100(1,100) = 110,000
Moreover, if we denote total claims by S, 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)(1,000,000) . It follows from the Central Limit Theorem that S is approximately
normally distributed with mean 100,000 and standard deviation = 10,000 . Therefore,
110, 000 100, 000

P[S 110,000] = 1 P[S 110,000] = 1 P Z

= 1 P[Z 1] = 1
10, 000

0.841 0.159 .
-------------------------------------------------------------------------------------------------------86.

Solution: E
Let X 1 ,..., X 100 denote the number of pensions that will be provided to each new recruit.
Now under the assumptions given,
0 with probability 1 0.4 = 0.6

X i = 1 with probability ( 0.4 )( 0.25 ) = 0.1

2 with probability ( 0.4 )( 0.75 ) = 0.3

for i = 1,...,100 . Therefore,
E [ X i ] = ( 0 )( 0.6 ) + (1)( 0.1) + ( 2 )( 0.3) = 0.7 ,

2
2
2
2
E X i = ( 0 ) ( 0.6 ) + (1) ( 0.1) + ( 2 ) ( 0.3) = 1.3 , and
2
2
Var [ X i ] = E X i { E [ X i ]} = 1.3 ( 0.7 ) = 0.81
Since X 1 ,..., X 100 are assumed by the consulting actuary to be independent, the Central
2

Limit Theorem then implies that S = X 1 + ... + X 100 is approximately normally distributed
with mean
E [ S ] = E [ X 1 ] + ... + E [ X 100 ] = 100 ( 0.7 ) = 70
and variance
Var [ S ] = Var [ X 1 ] + ... + Var [ X 100 ] = 100 ( 0.81) = 81
Consequently,

S 70 90.5 70
Pr [ S 90.5] = Pr

9
9
= Pr [ Z 2.28]
= 0.99

Page 36 of 61

-------------------------------------------------------------------------------------------------------87.
Solution: D
Let X denote the difference between true and reported age. We are given X is uniformly
distributed on (2.5,2.5) . That is, X has pdf f(x) = 1/5, 2.5 < x < 2.5 . It follows that
x = E[X] = 0
x2 = Var[X] = E[X2] =

2.5

x2
x3
=
dx
5
15
2.5

2.5

2.5

2(2.5)3
=2.083
15

x =1.443
Now X 48 , the difference between the means of the true and rounded ages, has a
1.443
=
distribution that is approximately normal with mean 0 and standard deviation
48
0.2083 . Therefore,
1
0.25
1
0.25
P X 48 = P
Z
= P[1.2 Z 1.2] = P[Z 1.2] P[Z
4
0.2083
4
0.2083
1.2]
= P[Z 1.2] 1 + P[Z 1.2] = 2P[Z 1.2] 1 = 2(0.8849) 1 = 0.77 .
-------------------------------------------------------------------------------------------------------88.

Solution: C
Let X denote the waiting time for a first claim from a good driver, and let Y denote the
waiting time for a first claim from a bad driver. The problem statement implies that the
respective distribution functions for X and Y are
F ( x ) = 1 e x / 6 , x > 0
and
G ( y ) = 1 e y / 3 , y > 0

Therefore,
Pr ( X 3) (Y 2 ) = Pr [ X 3] Pr [Y 2]

= F ( 3) G ( 2 ) = (1 e 1/ 2 )(1 e 2 / 3 ) = 1 e2 / 3 e1/ 2 + e7 / 6

Page 37 of 61

89.

Solution: B
6
(50 x y )

We are given that f ( x, y ) = 125, 000

0

for 0 < x < 50 y < 50

otherwise

and we want to determine P[X > 20 Y > 20] . In order to determine integration limits,
consider the following diagram:
y
50

x>20 y>20
(20, 30)
(30, 20)

50

30 50 x

6
We conclude that P[X > 20 Y > 20] =
125, 000 20

(50 x y ) dy dx .

20

-------------------------------------------------------------------------------------------------------90.

Solution: C
Let T1 be the time until the next Basic Policy claim, and let T2 be the time until the next
Deluxe policy claim. Then the joint pdf of T1 and T2 is
1
1
1
f (t1 , t2 ) = e t1 / 2 e t2 / 3 = e t1 / 2 e t2 / 3 , 0 < t1 < , 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
= 0.4 .

-------------------------------------------------------------------------------------------------------91.

Solution: D
We want to find P[X + Y > 1] . To this end, note that P[X + Y > 1]
1 2

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

2
0 x + 1 2 2 x(1 x) 2 (1 x) + 8 (1 x) dx =
1

8 x
0

x + 2 x
0

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

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 )

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

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

E e( t1 +t2 )Y = e 2

( t1 t2 )2

e2

( t1 + t2 )2

= e2

(t

2
2
1 2 t1t2 + t2

) 12 (t
e

2
2
1 + 2 t1t2 + t2

= et1 +t2

-------------------------------------------------------------------------------------------------------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
operators expected revenue is 1050 (100 )( 0.65 ) = 985 .

Page 41 of 61

97.

Solution: C
We are given f(t1, t2) = 2/L2, 0 t1 t2 L .
L t2
2
2 2
2
2
Therefore, 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, L)

t1

-------------------------------------------------------------------------------------------------------98.

Solution: A
Let g(y) be the probability function for Y = X1X2X3 . Note that Y = 1 if and only if
X1 = X2 = X3 = 1 . Otherwise, Y = 0 . 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 .
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

99.

Solution: C
We use the relationships Var ( aX + b ) = a 2 Var ( X ) , Cov ( aX , bY ) = ab Cov ( X , Y ) , and
Var ( X + Y ) = Var ( X ) + Var (Y ) + 2 Cov ( X , Y ) . First we observe
17, 000 = Var ( X + Y ) = 5000 + 10, 000 + 2 Cov ( X , Y ) , and so Cov ( X , Y ) = 1000.
We want to find Var ( X + 100 ) + 1.1Y = Var ( X + 1.1Y ) + 100
= Var [ X + 1.1Y ] = Var X + Var (1.1) Y + 2 Cov ( X ,1.1Y )
= Var X + (1.1) Var Y + 2 (1.1) Cov ( X , Y ) = 5000 + 12,100 + 2200 = 19,300.
2

-------------------------------------------------------------------------------------------------------100.

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 = 0.58 .

-------------------------------------------------------------------------------------------------------101.

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 .

-------------------------------------------------------------------------------------------------------102.

Solution: E
Let X and Y denote the times that the two backup generators can operate. Now the
variance of an exponential random variable with mean is 2 . Therefore,
Var [ X ] = Var [Y ] = 102 = 100
Then assuming that X and Y are independent, we see
Var [ X+Y ] = Var [ X ] + Var [ Y ] = 100 + 100 = 200

Page 43 of 61

103.

Solution: E
Let X 1 , X 2 , and X 3 denote annual loss due to storm, fire, and theft, respectively. In

addition, let Y = Max ( X 1 , X 2 , X 3 ) .

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
1.5

= 1 (1 e 3 )(1 e 2

2.4

= 0.414
* Uses that if X has an exponential distribution with mean

Pr ( X x ) = 1 Pr ( X x ) = 1
x

e t dt = 1 ( e t ) x = 1 e x

-------------------------------------------------------------------------------------------------------104.

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

E [ X ] = 2 x 2 dydx = 2 x 2 dx =
0

0 0

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 , Y ] = E [ XY ] E [ X ] E [Y ] = = = 0
3 3 2 3 3
(Alternative Solution)
Define g(x) = kx and h(y) = 1 . Then
f(x,y) = g(x)h(x)
In other words, f(x,y) can be written as the product of a function of x alone and a function
of y alone. It follows that X and Y are independent. Therefore, Cov[X, Y] = 0 .

Page 44 of 61

105.

Solution: A
The calculation requires integrating over the indicated region.

E(X ) =

E (Y ) =

2x

18
8 2
xy dy dx = xy 3
0 9
3

2x

E ( XY ) =

14
8 2
x y dy dx = x 2 y 2
0 3
3

2x

2x

2x

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 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 , Y ) = E ( XY ) E ( X ) E (Y ) =

2x

1 56
56 28
8 2
x ( 8 x3 x3 ) dx =
x5 dx =
=
0 9
0 9
54 27

dx =

28 56 4
= 0.04
27 45 5

-------------------------------------------------------------------------------------------------------106.

Solution: C
The joint pdf of X and Y is f(x,y) = f2(y|x) f1(x)
= (1/x)(1/12), 0 < y < x, 0 < x < 12 .
Therefore,
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

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,Y) = E[XY] E[X]E[Y] = 24 (3)(6) = 24 18 = 6 .

Page 45 of 61

107.

Solution: A
Cov ( C1 , C2 ) = Cov ( X + Y , X + 1.2Y )
= Cov ( X , X ) + Cov (Y , X ) + Cov ( X ,1.2Y ) + Cov ( Y,1.2Y )
= Var X + Cov ( X , Y ) + 1.2Cov ( X , Y ) + 1.2VarY
= Var X + 2.2 Cov ( X , Y ) + 1.2VarY
Var X = E ( X 2 ) ( E ( X ) ) = 27.4 52 = 2.4
2

Var Y = E (Y 2 ) ( E (Y ) ) = 51.4 7 2 = 2.4

2

Var ( X + Y ) = Var X + Var Y + 2 Cov ( X , Y )

1
1
Var ( X + Y ) Var X Var Y ) = ( 8 2.4 2.4 ) = 1.6
(
2
2
Cov ( C1 , C2 ) = 2.4 + 2.2 (1.6 ) + 1.2 ( 2.4 ) = 8.8
Cov ( X , Y ) =

-------------------------------------------------------------------------------------------------------107.

Alternate solution:
We are given the following information:
C1 = X + Y
C2 = X + 1.2Y
E[X ] = 5

E X 2 = 27.4
E [Y ] = 7

E Y 2 = 51.4

Var [ X + Y ] = 8
Now we want to calculate
Cov ( C1 , C2 ) = Cov ( X + Y , X + 1.2Y )
= E ( X + Y )( X + 1.2Y ) E [ X + Y ]i E [ X + 1.2Y ]

= E X 2 + 2.2 XY + 1.2Y 2 ( E [ X ] + E [Y ]) ( E [ X ] + 1.2 E [Y ])

= E X 2 + 2.2 E [ XY ] + 1.2 E Y 2 ( 5 + 7 ) ( 5 + (1.2 ) 7 )
= 27.4 + 2.2 E [ XY ] + 1.2 ( 51.4 ) (12 )(13.4 )
= 2.2 E [ XY ] 71.72

Therefore, we need to calculate E [ XY ] first. To this end, observe

Page 46 of 61

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 )

= 27.4 + 2 E [ XY ] + 51.4 144

= 2 E [ XY ] 65.2
E [ XY ] = ( 8 + 65.2 ) 2 = 36.6

Finally, Cov ( C1,C2 ) = 2.2 ( 36.6 ) 71.72 = 8.8

-------------------------------------------------------------------------------------------------------108.

Solution: A
The joint density of T1 and T2 is given by
f ( t1 , t2 ) = e t1 e t2 , t1 > 0 , 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 e x + 2e x 2e 2 = 1 2e 2 + e x , x > 0
It follows that the density of X is given by
1
1
x
x

d
x
2
2

+
=
e x , x > 0
g ( x) =
e
e
e
1
2

dx

Page 47 of 61

109.

Solution: B
Let
u be annual claims,
v be annual premiums,
g(u, v) be the joint density function of U and V,
f(x) be the density function of X, and
F(x) be the distribution function of X.
Then since U and V are independent,
1
1
g ( u, v ) = ( eu ) e v / 2 = eu e v / 2 , 0 < u < , 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 , 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.

Solution: C
Note that the conditional density function
1 f (1 3, y )
2

f y x= =
, 0< y< ,
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, y ) = y , 0 < y <
It follows that f y x = =
3 16
2
3

139
9
y dy = y 2
Consequently, Pr Y < X X = 1 3 =
0 2
4

Page 48 of 61

13

=
0

1
4

111.

Solution: E

3 f ( 2, y )
Pr 1 < Y < 3 X = 2 =
dy
1
f x ( 2)

f ( 2, 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, 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: D
We are given that the joint pdf of X and Y is f(x,y) = 2(x+y), 0 < y < x < 1 .
x

Now fx(x) = (2 x + 2 y )dy = 2 xy + y 2

0

x
0

= 2x2 + x2 = 3x2, 0 < x < 1

f ( x, y ) 2( x + y ) 2 1 y
=
= + 2 , 0 < y < x
3x 2
3 x x
f x ( x)
2 1
y 2
+
= [10 + 100 y ] , 0 < y < 0.10
f(y|x = 0.10) =
3 0.1 0.01 3
0.05
2
100 2 0.05 1 1
5
20
= + =
= 0.4167 .
y
P[Y < 0.05|X = 0.10] = [10 + 100 y ] dy = y +
3
3
3 12 12
3
0
0

so f(y|x) =

-------------------------------------------------------------------------------------------------------113.

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 = 0.96 + 0.01 = 0.97
and

Pr [W | H ] =

Pr [W H ] 0.96
=
= 0.9897
Pr [ H ]
0.97

Pr W c | H =

Pr H W c
Pr [ H ]

0.01
= 0.0103
0.97

Page 49 of 61

It follows that
E [ P ] = E [1000 B ] = 1000 E [ B ] = 1000 ( 0 ) Pr [W | H ] + (10, 000 ) Pr W c | H
= 1000 10, 000 ( 0.0103) = 1000 103 = 897

-------------------------------------------------------------------------------------------------------114.

Solution: C
Note that
P(Y = 0X = 1) =

P( X = 1, Y = 0)
P( X = 1, Y = 0)
0.05
=
=
P( X = 1)
P( X = 1, Y = 0) + P ( X = 1, Y = 1) 0.05 + 0.125

= 0.286
P(Y = 1X=1) = 1 P(Y = 0 X = 1) = 1 0.286 = 0.714
Therefore, E(YX = 1) = (0) P(Y = 0X = 1) + (1) P(Y = 1X = 1) = (1)(0.714) = 0.714
E(Y2X = 1) = (0)2 P(Y = 0X = 1) + (1)2 P(Y = 1X = 1) = 0.714
Var(YX = 1) = E(Y2X = 1) [E(YX = 1)]2 = 0.714 (0.714)2 = 0.20
-------------------------------------------------------------------------------------------------------115.

Solution: A
Let f1(x) denote the marginal density function of X. Then
f1 ( x ) =

Consequently,

x +1

2 xdy = 2 xy | xx +1 = 2 x ( x + 1 x ) = 2 x

0< x<1

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

Page 50 of 61

116.

Solution: D
Denote the number of tornadoes in counties P and Q by NP and NQ, respectively. Then
E[NQ|NP = 0]
= [(0)(0.12) + (1)(0.06) + (2)(0.05) + 3(0.02)] / [0.12 + 0.06 + 0.05 + 0.02] = 0.88
E[NQ2|NP = 0]
= [(0)2(0.12) + (1)2(0.06) + (2)2(0.05) + (3)2(0.02)] / [0.12 + 0.06 + 0.05 + 0.02]
= 1.76 and Var[NQ|NP = 0] = E[NQ2|NP = 0] {E[NQ|NP = 0]}2 = 1.76 (0.88)2
= 0.9856 .

-------------------------------------------------------------------------------------------------------117.

Solution: C
The domain of X and Y is pictured below. The shaded region is the portion of the domain
over which X<0.2 .

Now observe
Pr [ X < 0.2] =

0.2

1 x

0.2

6 1 ( x + y ) dydx = 6
0

1 x

1 2

y xy 2 y dx
0

0.2
0.2
1
1
2
2
2
= 6 1 x x (1 x ) (1 x ) dx = 6 (1 x ) (1 x ) dx
0
0
2
2

0.2 1
2
3
3
= 6
(1 x ) dx = (1 x ) | 0.2
0 = ( 0.8 ) + 1 = 0.488
0 2

-------------------------------------------------------------------------------------------------------118.

Solution: E
The shaded portion of the graph below shows the region over which f ( x, 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

= 15 y
y

y y = 15 y 3 2 (1 y1 2 ) , 0 < y < 1

Page 51 of 61

12
32
15 y (1 y ) , 0 < y < 1
or more precisely, g ( y ) =
otherwise
0

-------------------------------------------------------------------------------------------------------119.

Solution: D
The diagram below illustrates the domain of the joint density f ( x, y ) of X and Y .

We are told that the marginal density function of X is f x ( x ) = 1 , 0 < x < 1

while f y x ( y x ) = 1 , x < y < x + 1

1
It follows that f ( x, y ) = f x ( x ) f y x ( y x ) =
0
Therefore,
Pr [Y > 0.5] = 1 Pr [Y 0.5] = 1

if 0 < x < 1 , x < y < x + 1

otherwise

1
x

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 = 0.5 to the entire shaded area.]
= 1

2
x

dx = 1

Page 52 of 61

120.

Solution: A
We are given that X denotes loss. In addition, denote the time required to process a claim
by T.
3 2 1 3
x = x , x < t < 2 x, 0 x 2
Then the joint pdf of X and T is f ( x, t ) = 8
x 8
0,
otherwise.
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 = 0.17 .
t
t = 2x
4 2

4
3
2
1

t=x

1 2

-------------------------------------------------------------------------------------------------------121.

Solution: C
The marginal density of X is given by

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

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 = 5.778

64
9
9

Page 53 of 61

122.

Solution: D
y

The marginal distribution of Y is given by f2(y) = 6 e e

Therefore, E(Y) =

f2(y) dy = (6 ye

2 y

2y

dx = 6 e

2y

= 6 e2y ey + 6e2y = 6 e2y 6 e3y, 0 < y <

6 ye

3 y

dx

) dy = 6

ye

2 y

dy 6

e3y dy =

6
6
2 ye2y dy 3 y e3y dy

20
30

But 2 y e2y dy and 3 y e3y dy are equivalent to the means of exponential random

variables with parameters 1/2 and 1/3, respectively. In other words, 2 y e2y dy = 1/2
0

and 3 y e3y dy = 1/3 . We conclude that E(Y) = (6/2) (1/2) (6/3) (1/3) = 3/2 2/3 =
0

9/6 4/6 = 5/6 = 0.83 .

-------------------------------------------------------------------------------------------------------123.

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
= 0.122
*Uses that if X has an exponential distribution with mean

) (

Pr ( a X b ) = Pr ( X a ) Pr ( X b ) =
a

Page 54 of 61

dt
b

dt = e

124.

Solution: A
Because f(x,y) can be written as f ( x) f ( y ) = e x 2e 2 y and the support of f(x,y) is a cross
product, X and Y are independent. Thus, the condition on X can be ignored and it suffices
to just consider f ( y ) = 2e 2 y .
Because of the memoryless property of the exponential distribution, the conditional
density of Y is the same as the unconditional density of Y+3.
Because a location shift does not affect the variance, the conditional variance of Y is
equal to the unconditional variance of Y.
Because the mean of Y is 0.5 and the variance of an exponential distribution is always
equal to the square of its mean, the requested variance is 0.25.

--------------------------------------------------------------------------------------------------------------------125.

Solution: E
The support of (X,Y) is 0 < y < x < 1.
f X ,Y ( x, y ) = f ( y | x) f X ( x) = 2 on that support. 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, 1) so that f ( x | y ) =

1
for y < x < 1 .
1 y

By computation:
1

f X ,Y ( x, 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

126.

Solution: C
Using the notation of the problem, we know that p0 + p1 =

2
and
5

p0 + p1 + p2 + p3 + p4 + p5 = 1 .
Let pn pn +1 = c for all n 4 . Then pn = p0 nc for 1 n 5 .
Thus p 0 + ( p 0 c ) + ( p 0 2c ) + ... + ( p 0 5c ) = 6 p 0 15c = 1.

2
Also p0 + p1 = p0 + ( p0 c ) = 2 p0 c = . Solving simultaneously
5

6 p0 15c = 1

2
2 p0 c = 5

6
5
1
2 1 25
25
. Thus p0 =
.
6 p0 + 15c = 1 . So c =
and 2 p0 = +
=
60
5 60 60
120
1
12c =
5
17 15
32
We want p4 + p5 = ( p0 4c ) + ( p0 5c ) =
+
=
= 0.267 .
120 120 120
6 p0 3c =

-----------------------------------------------------------------------------------------------------------

127.

Solution: D
Because the number of payouts (including payouts of zero when the loss is below the
deductible) is large, we can apply the central limit theorem and assume the total payout S
is normal. For one loss there is no payout with probability 0.25 and otherwise the payout
is U(0, 15000). So,
E[ X ] = 0.25 * 0 + 0.75 * 7500 = 5625 ,
15000 2
) = 56,250,000 , so the variance of one claim is
12
Var ( X ) = E[ X 2 ] E[ X ]2 = 24,609,375 .
E[ X 2 ] = 0.25 * 0 + 0.75 * (7500 2 +

Applying the CLT,

S (200)(5625)
P[1,000,000 < S < 1,200,000] = P 1.781741613 <
< 1.069044968
(200)(24,609,375)

which interpolates to 0.8575-(1-0.9626)=0.8201 from the provided table.

Page 56 of 61

128.

Key: B
Let H be the percentage of clients with homeowners insurance and R be the percentage of
clients with renters insurance.
Because 36% of clients do not have auto insurance and none have both homeowners and
renters insurance, we calculate that 8% (36% 17% 11%) must have renters insurance,
but not auto insurance.
(H 11)% have both homeowners and auto insurance, (R 8)% have both renters and
auto insurance, and none have both homeowners and renters insurance, so (H + R 19)%
must equal 35%. Because H = 2R, R must be 18%, which implies that 10% have both
renters and auto insurance.

129.

Key: B
The reimbursement is positive if health care costs are greater than 20, and because of the
memoryless property of the exponential distribution, the conditional distribution of health
care costs greater than 20 is the same as the unconditional distribution of health care
costs.
We observe that a reimbursement of 115 corresponds to health care costs of 150 (100% x
(120 20) + 50% x (150 120)), which is 130 greater than the deductible of 20.
Therefore, G (115) = F (130) = 1 e

130.

130
100

= 0.727 .

Key: C

E 100(0.5)

] = 100E[(0.5) ] = 100E[e (
X

ln 0.5 ) X

] = 100M

Page 57 of 61

(ln 0.5) = 100

1
= 41.9
1 2 ln 0.5

131. Solution: E

p(n1 , n2 )
,
p1 (n1 )
where p1 (n1 ) is the marginal probability function of N 1 . To find the latter, sum the joint
probability function over all possible values of N 2 obtaining

First, 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 , n2 ) =

n2 =1

n1 1

31

44

e n1 1 e n1

n2 1

n2 =1

31

44

n1 1

= 1 as the sum of the probabilities of a geometric random variable. The

n2 =1

conditional probability function is

p 2|1 (n 2 | n1 ) =

p (n1 , n 2 )
= e n1 1 e n1
p1 (n1 )

n2 1

which is the probability function of a geometric random variable with parameter p = e n1 . The
mean of this distribution is 1 / p = 1 / e n1 = e n1 , and becomes e 2 when n1 = 2 .
132.

Solution: C

The number of defective modems is 20% x 30 + 8% x 50 = 10.

10 70

2 3
The probability that exactly two of a random sample of five are defective is = 0.102 .
80

5
133. 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

11.140
1000

11.150
1000

11.140
1000

= 1 e

(1.140 1.150 )
1000

= 0.0696
Expected Benefit = 5000 Pr(man dies before age 50) = (5000) (0.0696) = 347.96

Page 58 of 61

134.

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, or t. Thus, t =
0.2 since t + 3t + t = 1. The probability we seek is 3t + t = 0.80.

Page 59 of 61

135.

Key: E
Var (N) = E [ Var ( N | )] + Var [ E ( N | )] = E () + Var () = 1.50 + 0.75 = 2.25

136.

Key: D

1
. Y = 2 implies the first roll is not a 6 and the
6
second roll is a 6. 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%).

X follows a geometric distribution with p =

E [X | X 3] =

137.

1
+ 2 = 6 + 2 = 8 , so E [X Y = 2] = 0.2(1) + 0.8(8) = 6.6
p

Key: E

Because X and Y are independent and identically distributed, the moment generating function of X
+ Y equals K2(t), where K(t) is the moment generating function common to X and Y. Thus, K(t) =
-t
t
0.30e + 0.40 + 0.30e . This is the moment generating function of a discrete random variable that
assumes the values -1, 0, and 1 with respective probabilities 0.30, 0.40, and 0.30. The value we
seek is thus 0.70.

Page 60 of 61

138.

Key: D
Suppose the component represented by the random variable X fails last. This is
represented by the triangle with vertices at (0, 0), (10, 0) and (5, 5). Because the density
is uniform over this region, the mean value of X and thus the expected operational time of
the machine is 5. By symmetry, if the component represented by the random variable Y
fails last, the expected operational time of the machine is also 5. Thus, the unconditional
expected operational time of the machine must be 5 as well.

139.

Key: B
The unconditional probabilities for the number of people in the car who are hospitalized
are 0.49, 0.42 and 0.09 for 0, 1 and 2, respectively. If the number of people hospitalized
is 0 or 1, then the total loss will be less than 1. However, if two people are hospitalized,
the probability that the total loss will be less than 1 is 0.5. Thus, the expected number of
people in the car who are hospitalized, given that the total loss due to hospitalizations
from the accident is less than 1 is

0.49
0.42
0.09 0.5
0 +
1 +
2 = 0.534
0.49 + 0.42 + 0.09 0.5
0.49 + 0.42 + 0.09 0.5
0.49 + 0.42 + 0.09 0.5

140.

Key: B

Let X equal the number of hurricanes it takes for two losses to occur. Then X is negative
binomial with success probability p = 0.4 and r = 2 successes needed.
n 1 r
n 1
nr
2
n2
2
n2
P[ X = n] =
p (1 p) =
(0.4) (1 0.4) = (n 1)(0.4) (0.6) , for n 2.
r 1
2 1

We need to maximize P[X = n]. Note that the ratio

P[ X = n + 1]
n(0.4) 2 (0.6) n 1
n
=
=
(0.6) .
2
n2
(n 1)(0.4) (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. Thus, P[X = n] is maximized at n = 3; the mode is 3.

Page 61 of 61