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Actuarial CT3 Probability & Mathematical Statistics Sample Paper 2011 by ActuarialAnswers

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We are a team of actuaries engaged for the last 3 years in assisting students specializing in Actuarial Science. Our core team members include University toppers from leading Commerce colleges, including SRCC, Jesus & Mary and from the Indian Institute of Management and bring diverse work experience from Deloitte, Mercer and Milliman. We have also worked with various MBA institutes enabling them to prepare actuarial students professionally. Besides, we have also tie-ups with actuarial firms through which we will help students gain live project knowledge. We are also soon starting with some unique programs to help students in understanding the practical application of actuarial concepts.

Please note: The material of the sample papers are the collection of the questions from the IAI/IOA exams based on our analysis. Actuarial Answers is not declaring/saying anywhere that this is the product created by Actuarial Answers. There is every possibility that students will find the questions of this sample paper in past year IAI/IOA exams

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Sample Paper CT3 Probability & Mathematical Statistics

Our Analysis After analyzing the IAI CT3 examinations of last 7 years, we have identified some trends which could help candidates in preparing for this exam in a better manner. As the result of CT3 exam in the last attempt is 0%, we believe there is a need to identify the more important sections where paying more attention from students can help them in cracking the exam. Below graphs indicate the chapter wise-weightage for CT3 papers historically:

30.00% 27.50% 25.00% 22.50% 20.00% 17.50% 15.00% 12.50% 10.00% 7.50% 5.00% 2.50% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Chapters May2011 May2010 Nov2010 May2009 Nov2009 May2008 Nov2008 May2007 Nov2007

18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Chapters

Keeping this in mind, we have developed this paper from the most appearing chapters: Chapter 7 (Conditional expectation) Chapter 10 (Point Estimation) Chapter 12 (Hypothesis Testing) Chapter 13 (Correlation and Regression) and Chapter 14 (Analysis of Variance) These chapters covered 60% of the examination paper historically. This will help you do targeted revision for the upcoming examinations. Its recommended though that you do revise for other chapters also, but focusing on this paper will help you get the maximum ROI on your effort

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Sample Paper CT3 Probability & Mathematical Statistics

SAMPLE PAPER I

Max. Marks: 100 Time Allotted: 3 hours Note: Use of Scientific Calculators & Actuarial Tables is allowed Q.1 For a group of policies the probability distribution of the total number of claims, N, arising during a period of one year is given by P(N = 0) = 0.70, P(N = 1) = 0.15, P(N = 2) = 0.10, P(N = 3) = 0.05. Each claim amount, X (in units of 1,000), follows a gamma distribution with parameters = 2 and = 0.1 independently of each other claim amount and of the number of claims. Calculate the expected value and the standard deviation of the total of the claim amounts for a period of one year. [5] Q.2 The number of claims, X, arising on each policy in a certain portfolio depends on another random variable Y. X is considered to follow a Poisson distribution with mean Y. The variable Y itself is assumed to have a gamma distribution with parameters (a,b) Find expressions for the unconditional moments E[X] and E[X 2] using appropriate conditional moments. [5] Q.3 An investigation concerning the improvement in the average performance of female track athletes relative to male track athletes was conducted using data from various international athletics meetings over a period of 16 years in the 1950s and 1960s. For each year and each selected track distance the observation y was recorded as the average of the ratios of the twenty best male times to the corresponding twenty best female times. The data for the 100 meters event are given below together with some summaries. year t: 1 2 3 4 5 6 7 8 ratio y: 0.882 0.879 0.876 0.888 0.890 0.882 0.885 0.886 year t: 9 10 11 12 13 14 15 16 ratio y: 0.885 0.887 0.882 0.893 0.878 0.889 0.888 0.890 t=136, t2=1496, y =14.160, y2=12.531946, ty =120.518 (i) Draw a scatterplot of these data and comment briefly on any relationship between ratio and year. [3] (ii) Verify that the equation of the least squares fitted regression line of ratio on year is given by: y = 0.88105 + 0.000465t. 3

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Sample Paper CT3 Probability & Mathematical Statistics

[4] (iii) (a) Calculate the standard error of the estimated slope coefficient in part (ii). (b) Determine whether the null hypothesis of no linear relationship would be accepted or rejected at the 5% level. (c) Calculate a 95% confidence interval for the underlying slope coefficient for the linear model. Corresponding data for the 200 meters event resulted in an estimated slope coefficient of: = 0.000487 with standard error 0.000220. [5] (iv) (a) Determine whether the no linear relationship hypothesis would be accepted or rejected at the 5% level. (b) Calculate a 95% confidence interval for the underlying slope coefficient for the linear model and comment on whether or not the underlying slope coefficients for the two events, 100m and 200m, can be regarded as being equal. (c) Discuss why the results of the tests in parts (iii)(b) and (iv)(a) seem to contradict the conclusion in part (iv)(b). [6] [18]

Q.4 In the collection of questionnaire data, randomized response sampling is a method which is used to obtain answers to sensitive questions. For example a company is interested in estimating the proportion, p, of its employees who falsely take days off as sick. Employees are unlikely to answer a direct question truthfully and so the company uses the following approach. Each employee selected in the survey is given a fair six-sided die and asked to throw it. If it comes up as a 5 or 6, then the employee answers yes or no to the question have you falsely taken any days off sick during the last year? If it comes up as a 1, 2, 3 or 4, then the employee is instructed to toss a coin and answer yes or no to the question did you obtain heads? So an individuals answer is either yes or no, but it is not known which question the individual has answered. For the purpose of the following analysis you should assume that each employee answers the question truthfully.

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Sample Paper CT3 Probability & Mathematical Statistics

(i) Show that the probability that an individual answers yes is (p +1) . [2] Suppose that 100 employees are surveyed and that this results in 56 yes answers. (ii) (a) Show that the likelihood function L(p) can be expressed in the form: L(p)(p+1)56(2 p)44 . (b) Hence show that the maximum likelihood estimate (MLE) of p is p = 0.68. Let = (p + 1) and note that, using binomial results, the MLE of = . [5] (iii) Explain why p can be obtained as the solution of that p = 0.68 . = (P + 1) , and hence verify [3] (iv) (a) Determine the second derivative of the log likelihood for p and bevaluate it at p = 0.68 (b) State an approximate large-sample distribution for the MLE p (c) Hence calculate approximate 95% confidence limits for p [5] [15] Q.5 Let N be the number of claims arising on a group of policies in a period of one week and suppose that N follows a Poisson distribution with mean 60. Let X1, X2, . . , XN be the corresponding claim amounts and suppose that, independently of N, these are independent and identically distributed with mean 500 and standard deviation 400. Let S = i. be the total claim amount for the period of one week.

ii.

Explain why the distribution of S can be taken as approximately normal, and hence calculate, approximately, the probability that S is greater than 40,000.

[3] [6] Q.6 The random variable X has a Poisson distribution with mean Y, where Y itself is considered to be a random variable. The distribution of Y is lognormal with parameters and 2. 5

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Sample Paper CT3 Probability & Mathematical Statistics

Derive the unconditional mean E[X] and variance V[X] using appropriate conditional moments. (You may use any standard results without proof, including results from the book of Formulae and Tables.) [5] Q.7 A life insurance company issuing critical illness insurance wants to compare the delay times from the date when a claim is made until it is settled, for different causes of illness covered. Random samples of 12 claims associated with two types of illness (A and B) related to heart disease have been collected. The logarithms of the delay times are given below (where the original times were measured in days): Cause A, yA: 4.0 5.4 4.6 3.5 4.2 4.5 4.2 4.9 5.1 5.2 5.1 5.4 Cause B, yB: 5.7 5.6 4.2 5.1 4.4 5.9 5.4 3.9 5.7 4.5 4.8 3.9 For these data: =56.1, =266.33, =59.1, =297.03 (i) Use a suitable t-test to investigate the hypothesis that the mean delay time is the same for claims related to the two causes of illness and state clearly your conclusion. [7] (ii) Give a possible reason why the logarithms of the original delay time observations are used in this analysis. [3] (iii) (a) Calculate an equal-tailed 95% confidence interval for , the ratio of the variances of the delay times for the two causes of illness. (b) Comment on the validity of the test in part (i) based on this confidence interval. [5] [15] Q.8 As part of a project in a modeling module, a statistics student is required to submit are port on the sums insured on home contents insurance policies based on samples of such policies covering risks in five medium-sized towns in each of England, Wales, and Scotland. Data are provided on the average sum insured (Y, in units of 1,000) for each of the 15 towns and are as follows:

The student decides to use an analysis of variance approach. (i) Suggest brief comments the student should make on the basis of the plot below:

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Sample Paper CT3 Probability & Mathematical Statistics

[3] (ii) (a) Carry out the analysis of variance on the average sums insured. (b) Comment on your conclusions. [7] [10] Q.9 Consider the following three independent random samples from a normally distributed population with unknown mean : Sample 1: 19.9 20.4 20.3 22.3 16.7 18.7 20.5 19.0 20.1 16.4 21.5 21.4 17.8 22.5 15.2 For these data: n = 15, =292.7, =5,778.69 Sample 2: 20.8 25.9 22.1 21.7 16.0 12.1 27.6 16.1 16.8 17.1 21.3 18.6 24.9 14.8 22.2 For these data: n = 15, =298.0, =6,192.32 Sample mean = 19.867, sample variance = 19.432 Sample 3: 20.6 18.5 21.5 16.9 21.5 21.2 20.9 22.4 14.5 22.0 20.2 17.0 20.3 23.0 19.3 18.9 20.6 20.9 15.3 21.5 16.8 18.5 21.6 16.8 20.4 For these data: n = 25, =491.1, =9,773.77 Sample mean = 19.644, sample variance = 5.275 7

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Sample Paper CT3 Probability & Mathematical Statistics

Consider t-tests of the hypotheses H0: = 18 v H1: > 18. (i) (a) Calculate the sample mean and variance for Sample 1. (b) Carry out a t-test of the stated hypotheses using the Sample 1 data (stating the approximate Pvalue) and show that H0 can be rejected at the 1% level of testing. [7] (ii) (a) Carry out a t-test of the stated hypotheses using the Sample 2 data (stating the approximate Pvalue and the conclusion clearly). (b) Discuss the comparison of the results with those based on Sample 1 (include reasons for any difference or similarity in the test conclusions). [7] (iii) (a) Carry out a t-test of the stated hypotheses using the Sample 3 data (stating the approximate Pvalue and your conclusion clearly). (b) Discuss the comparison of the results with those based on Sample 1 (include reasons for any difference or similarity in the test conclusions). [7] [21]

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Sample Paper CT3 Probability & Mathematical Statistics

Evaluation

We would be sending out the evaluation for this exam in a weeks time. In the meanwhile, we are open to providing one-to-one evaluation for your attempt at this sample paper. You may email us your solutions in a document or scanned copies at actuarialanswers@gmail.com. Team ActuarialAnswers

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