SOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY

EXAM P PROBABILITY

EXAM P SAMPLE SOLUTIONS

Copyright 2007 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.

P-09-07 PRINTED IN U.S.A.

Page 1 of 55
 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
Pr ⎡( G ∪ B ∪ S ) ⎤ = 1 − Pr ( G ∪ B ∪ S )
c
⎣ ⎦
= 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

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2. Solution: A
Let R = event of referral to a specialist
L = event of lab work
We want to find
P[R∩L] = P[R] + P[L] – P[R∪L] = P[R] + P[L] – 1 + P[~(R∪L)]
= P[R] + P[L] – 1 + P[~R∩~L] = 0.30 + 0.40 – 1 + 0.35 = 0.05 .

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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 55
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 I R2 ) U ( B1 I B2 )] = Pr[ R1 I R2 ] + Pr [ B1 I B2 ]
= Pr [ R1 ] Pr [ R2 ] + Pr [ B1 ] Pr [ B2 ]
4 ⎛ 16 ⎞ 6 ⎛ x ⎞
= ⎜ ⎟+ ⎜ ⎟
10 ⎝ x + 16 ⎠ 10 ⎝ x + 16 ⎠
Therefore,
32 3x 3x + 32
2.2 = + =
x + 16 x + 16 x + 16
2.2 x + 35.2 = 3x + 32
0.8 x = 3.2
x=4

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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 .

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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
P ⎡ H ∩ F ⎤⎦ 108 625 108
c

and P ⎡⎣ H | F c ⎤⎦ = ⎣ = = = 0.173
P ⎡⎣ F c ⎤⎦ 937 937 625

Page 3 of 55
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% )
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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 I T ) = 0.22
Pr ( C c I T c ) = 0.12
Therefore,
0.88 = 1 − Pr ⎡⎣C c I T c ⎤⎦ = Pr [C U T ] = Pr [C ] + Pr [T ] − Pr [C I 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 55
9. Solution: B
Let
M = event that customer insures more than one car
S = event that customer insures a sports car
Then applying DeMorgan’s Law, we may compute the desired
probability as follows:
Pr ( M c ∩ S c ) = Pr ⎡( M ∪ S ) ⎤ = 1 − Pr ( M ∪ S ) = 1 − ⎡⎣ Pr ( M ) + Pr ( S ) − Pr ( M ∩ S ) ⎤⎦
c
⎣ ⎦
= 1 − Pr ( M ) − Pr ( S ) + Pr ( S M ) Pr ( M ) = 1 − 0.70 − 0.20 + ( 0.15 )( 0.70 ) = 0.205

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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

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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 55
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.

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

In addition, we are told that

1 P[ A ∩ B ∩ C] x
= P [ A ∩ B ∩ C | A ∩ B] = =
3 P [ A ∩ B] x + 0.12
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
P ⎡( A ∪ B ∪ C ) ⎤
c

P ⎡( A ∪ B ∪ C ) | Ac ⎤ = ⎣ ⎦
c
⎣ ⎦ ⎡
P ⎣A ⎦c
⎤
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 55
14. Solution: A
k
1 11 1 1 1 ⎛1⎞
pk = pk −1 = pk − 2 = ⋅ ⋅ pk −3 = ... = ⎜ ⎟ p0 k≥0
5 55 5 5 5 ⎝5⎠
∞ ∞ k
⎛1⎞ p0 5
1= ∑ pk = ∑ ⎜ ⎟ p0 =
k =0 ⎝ 5 ⎠
= p0
1 4
k =0
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 .

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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
1
x+ y+ z =
2
1 1
w = 1− ( x + y + z ) = 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

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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 ⎠
1
= ∑ n=0 9
7

2
8 1 1
= 9 = 6 =
2 2 64

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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 ) ( Independence )
Since Pr ( E c ) = 0.25 = 1 − Pr ( E ) , it follows Pr ( E ) = 0.75 .
So 0.85 = Pr ( O ) + 0.75 − Pr ( O )( 0.75)
Pr ( O )(1 − 0.75 ) = 0.10
Pr ( O ) = 0.40

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18. Solution: D
Let X1 and X2 denote the measurement errors of the less and more accurate instruments,
respectively. If N(μ,σ) denotes a normal random variable with mean μ and standard
deviation σ, 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
independent. It follows that Y = 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 ⎦⎥

Page 8 of 55
19. Solution: B
Apply Bayes’ Formula. Let
A = Event of an accident
B1 = Event the driver’s age is in the range 16-20
B2 = Event the driver’s age is in the range 21-30
B3 = Event the driver’s age is in the range 30-65
B4 = Event the driver’s age is in the range 66-99
Then
Pr ( A B1 ) Pr ( B1 )
Pr ( B1 A ) =
Pr ( A B1 ) Pr ( B1 ) + Pr ( A B2 ) Pr ( B2 ) + Pr ( A B3 ) Pr ( B3 ) + Pr ( A B4 ) Pr ( B4 )

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

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21. Solution: B
Apply Baye’s 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 55
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
Pr ⎡⎣ D L ⎤⎦ ( 0.5 ) + Pr ⎡⎣ D L ⎦⎤ ( 0.3) + 2 Pr ⎣⎡ D L ⎤⎦ ( 0.2 ) 0.25 + 0.3 + 0.4
1
2

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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[Y⏐C] =
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)

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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 55
 25. Solution: B
Let Y = positive test result
D = disease is present (and ~D = not D)
Using Baye’s theorem:
P[Y | D]P[ D] (0.95)(0.01)
P[D|Y] = = = 0.657 .
P[Y | D]P[ D] + P[Y |~ D]P[~ D] (0.95)(0.01) + (0.005)(0.99)

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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[S⏐C] = 2 P[S⏐CC]
P[ S C ]P[C ]
Now applying Bayes’ Theorem, we find that P[C⏐S] =
P[ S C ]P[C ] + P[ S C C ]( P[C C ])
2 P[ S C C ]P[C ] 2(0.25) 2 2
= = = = .
2 P[ S C ]P[C ] + P[ S C ](1 − P[C ])
C C
2(0.25) + 0.75 2 + 3 5

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27. Solution: D
Use Baye’s 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)

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Page 11 of 55
 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)
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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 λ . Now we are
given that
50

∫ λe
− λt
0.3 = P[T ≤ 50] = dt = −e − λt 50
= 1 – e–50λ
0
0

Therefore, e –50λ
= 0.7 or λ = − (1/50) ln(0.7)
80

∫ λe
− λt
It follows that P[T ≤ 80] = dt = −e − λt 80
0
= 1 – e–80λ
0
(80/50) ln(0.7)
=1–e = 1 – (0.7)80/50 = 0.435 .

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30. Solution: D
e− λ λ 2 e− λ λ 4
Let N be the number of claims filed. We are given P[N = 2] = =3 = 3 ⋅ P[N
2! 4!
= 4]24 λ2 = 6 λ4
λ2 = 4 ⇒ λ = 2
Therefore, Var[N] = λ = 2 .

Page 12 of 55
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,
0.99 ≤ Pr [ X ≤ x ] = ∑ k =0 ( 20k ) ( 0.02 ) ( 0.98 )
x k 20 − k

The following table summarizes the selection process for x:

33. Solution: B
Note that
⎛ 1 ⎞
Pr [ X > x ] = ∫0.005 ( 20 − t ) dt = 0.005 ⎜ 20t − t 2 ⎟ 20
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,
Pr [ X > 16] 200 − 20 (16 ) + 1 2 (16 )
2
8 1
Pr ⎡⎣ X > 16 X > 8⎤⎦ = = = =
Pr [ X > 8] 200 − 20 ( 8 ) + 1 ( 8 )
2
72 9
2

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

40
First, determine the proportionality constant C from the condition ∫ 0
f ( x)dx = 1 :
40
C C 2
1 = ∫ C (10 + x ) dx = − C (10 + x)−1
40 −2
− = C =
0 0 10 50 25
so C = 25 2 , or 12.5 . Then, calculate the probability over the interval (0, 6):
−1 6 ⎛ 1 1⎞
12.5∫ (10 + x ) dx = − (10 + x ) = ⎜ − ⎟ (12.5 ) = 0.47 .
6 −2
0 0 ⎝ 10 16 ⎠

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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 55
 36. Solution: B
To determine k, note that
1
k k
1 = ∫ k (1 − y ) dy = − (1 − y ) 1 =
4 5

0
5 0 5
k=5
We next need to find P[V > 10,000] = P[100,000 Y > 10,000] = P[Y > 0.1]
1

∫ 5 (1 − y ) dy = − (1 − y )
4 5 1
= 0.1
= (0.9)5 = 0.59 and P[V > 40,000]
0.1
1

∫ 5 (1 − y ) dy = − (1 − y )
4 5 1
= P[100,000 Y > 40,000] = P[Y > 0.4] = 0.4
= (0.6)5 = 0.078 .
0.4

1
 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 x

1 1
Using this result, we see
Pr ⎡⎣( X < 2 ) ∩ ( X ≥ 1.5 ) ⎤⎦ Pr [ X < 2] − Pr [ X ≤ 1.5]
Pr [ X < 2| X ≥ 1.5] = =
Pr [ X ≥ 1.5] Pr [ X ≥ 1.5]
F ( 2 ) − F (1.5 ) (1.5 ) − ( 2 )
−3 −3 3
⎛3⎞
= = = 1− ⎜ ⎟ = 0.578
1 − F (1.5 ) (1.5)
−3
⎝4⎠

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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 .

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40. Solution: B
Denote the insurance payment by the random variable Y. Then
⎧0 if 0 < X ≤ C
Y =⎨
⎩ X − C if C < X < 1
Now we are given that
0.5 + C 0.5 + C
⎪0.64 = Pr (Y < 0.5 ) = Pr ( 0 < X 0.5 C ) 2×x dx ( 0.5 )
2 2
x
0 0
 ⎡ 1000 ⎤
Pr [ X B − X A ≥ 0] = Pr ⎢ Z ≥ (Z is standard normal)
⎣ 2000 2 ⎥⎦
⎡ 1 ⎤
= Pr ⎢ Z ≥
⎣ 2 2 ⎥⎦
⎡ 1 ⎤
= 1 − Pr ⎢ Z <
⎣ 2 2 ⎥⎦
= 1 − Pr [ Z < 0.354]
= 1 − 0.638 = 0.362
Finally,
{ }
Pr ⎡⎣ I AC ∩ I B ⎤⎦ ∪ ⎡⎣( I A ∩ I B ) ∩ ( X A < X B ) ⎤⎦ = 0.18 + ( 0.12 )( 0.362 )
= 0.223

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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

[ ] [ ] ( )

() ()
44. Solution: C
If k is the number of days of hospitalization, then the insurance payment g(k) is
g(k) ={ 100 for 1, 2, 3
 5
E ⎡⎣ f ( X ) ⎤⎦ = ∑ f ( k ) Pr [ X = k ]
k =1

⎛5⎞ ⎛ 4⎞ ⎛ 3⎞ ⎛ 2⎞ ⎛1⎞
= 100 ⎜ ⎟ + 200 ⎜ ⎟ + 300 ⎜ ⎟ + 325 ⎜ ⎟ + 350 ⎜ ⎟
⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠ ⎝ 15 ⎠
1 640
= [100 + 160 + 180 + 130 + 70] = = 213.33
3 3

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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
the company under the policy. Then Pr[N = n] = , n = 0, 1, 2, . . . and
n!
⎧0 for N = 0
P=⎨ .
⎩10, 000( N − 1) for N ≥ 1
∞
(3 / 2)n e−3/ 2
Now observe that E[P] = ∑10, 000(n − 1)
n =1 n!
∞
(3 / 2) n e−3/ 2
= 10,000 e–3/2 +
n=0
∑10, 000(n − 1)
n!
= 10,000 e–3/2 + E[10,000 (N – 1)]

= 10,000 e + E[10,000N] – E[10,000] = 10,000 e–3/2 + 10,000 (3/2) – 10,000 = 7,231 .

–3/2

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

51. Solution: C
Let Y denote the manufacturer’s retained annual losses.
⎧x for 0.6 < x ≤ 2
Then Y = ⎨
⎩2 for x > 2
∞
2
⎡ 2.5(0.6) 2.5 ⎤ ⎡ 2.5(0.6) 2.5 ⎤ 2
2.5(0.6) 2.5 2(0.6) 2.5
∫ ⎢ x3.5 ⎥⎦ ∫2 ⎢⎣ x3.5 ⎥⎦ 0.6∫ x2.5
∞
and E[Y] = x dx + 2 dx = dx −
0.6 ⎣
x 2.5 2

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

=− 2
+ =− + + 1.5 = 0.9343 .
1.5 x1.5 0.6 (2) 2.5 1.5(2)1.5 1.5(0.6)1.5 2

Page 21 of 55
 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⎜ ⎟
⎝ 2 3 4 5⎠ ⎝ 60 ⎠ ⎝ 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
= ( 0.05) = , N = 1,...,5
137 N 137 N
Now because of the deductible of 2, the net annual premium P = E [ X ] where
⎧0 , if N ≤ 2
X =⎨
⎩N − 2 , if N > 2
Then,
3 ⎛ 1 ⎞ ⎡ 3 ⎤ ⎡ 3 ⎤
P = E [ X ] = ∑ N =3 ( N − 2 ) = (1) ⎜
5
⎟+ 2⎢ ⎥ + 3⎢ ⎥ = 0.0314
137 N ⎝ 137 ⎠ ⎣137 ( 4 ) ⎦ ⎣137 ( 5 ) ⎦

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

53. Solution: D
⎧y for 1 < y ≤ 10
Let W denote claim payments. Then W = ⎨
⎩10 for y ≥ 10
10 ∞
2 2 2 10 10 ∞
It follows that E[W] = ∫ y 3 dy + ∫ 10 3 dy = − − 2 = 2 – 2/10 + 1/10 = 1.9 .
1
y 10
y y1 y 10

Page 22 of 55
 54. Solution: B
Let Y denote the claim payment made by the insurance company.
Then
⎧0 with probability 0.94
⎪
Y = ⎨Max ( 0, x − 1) with probability 0.04
⎪14
⎩ with probability 0.02
and
E [Y ] = ( 0.94 )( 0 ) + ( 0.04 )( 0.5003) ∫ ( x − 1) e− x / 2 dx + ( 0.02 )(14 )
15

= ( 0.020012 ) ⎡ ∫ xe − x / 2 dx − ∫ e − x / 2 dx ⎤ + 0.28
15 15

⎣⎢ 1 1 ⎦⎥
= 0.28 + ( 0.020012 ) ⎡ −2 xe − x / 2 | 15 +2∫ e − x / 2 dx − ∫ e − x / 2 dx ⎤
15 15

⎣⎢ 1
1 1 ⎦⎥
= 0.28 + ( 0.020012 ) ⎡ −30e −7.5 + 2e −0.5 + ∫ e − x / 2 dx ⎤
15

⎢⎣ 1 ⎥⎦
= 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 − 2e−7.5 + 2e−0.5 )
= 0.28 + ( 0.020012 ) ( −32e −7.5 + 4e −0.5 )
= 0.28 + ( 0.020012 )( 2.408 )
= 0.328 (in thousands)
It follows that the expected claim payment is 328 .

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

55. Solution: C
k
The pdf of x is given by f(x) = , 0 < x < ∞ . To find k, note
(1 + x) 4
∞
k k 1 ∞ k
1= ∫ dx = − =
0
(1 + x) 4
3 (1 + x) 3 0
3
k=3
∞
3x
It then follows that E[x] = ∫ dx and substituting u = 1 + x, du = dx, we see
0
(1 + x) 4
∞ ∞ ∞
3(u − 1) ⎡ u −2 u −3 ⎤ ⎡1 1⎤
E[x] = ∫ du = 3 ∫ (u − u )du = 3 ⎢
−3 −4
− ⎥ = 3 ⎢ − ⎥ = 3/2 – 1 = ½ .
⎣ −2 −3 ⎦1 ⎣ 2 3⎦
4
1
u 1

Page 23 of 55
 56. Solution: C
Let Y represent the payment made to the policyholder for a loss subject to a deductible D.
⎧0 for 0 ≤ X ≤ D
That is Y = ⎨
⎩ x − D for D < X ≤ 1
Then since E[X] = 500, we want to choose D so that
1 ( x − D) 2 1000 (1000 − D) 2
1000
1 1
500 = ∫ ( x − D)dx = =
4 D
1000 1000 2 D 2000
(1000 – D)2 = 2000/4 ⋅ 500 = 5002
1000 – D = ± 500
D = 500 (or D = 1500 which is extraneous).

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

57. Solution: B
1
We are given that Mx(t) = for the claim size X in a certain class of accidents.
(1 − 2500t )4
(−4)(−2500) 10, 000
First, compute Mx′(t) = =
(1 − 2500t ) 5
(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 .

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

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
M(t) = E ⎡⎣ e xt ⎤⎦ = E ⎣⎡e( J K L ) ⎦⎤ = E ⎣⎡e xJ t ⎦⎤ E ⎡⎣e xK t ⎤⎦ E ⎡⎣e xLt ⎤⎦
x +x +x t

= 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 55
59. Solution: B
The distribution function of X is given by
2.5 x
2.5 ( 200 ) − ( 200 ) ( 200 )
2.5 2.5

F ( x) = ∫
x
dt = = 1− , x > 200
200 t 3.5 t 2.5 x 2.5
200
th
Therefore, the p percentile x p of X is given by
( 200 )
2.5

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

1 − 0.01 p = 2.5
xp
200
(1 − 0.01 p ) =
25

xp
200
xp =
(1 − 0.01 p )
25

200 200
It follows that x 70 − x 30 = − = 93.06
( 0.30 ) ( 0.70 )
25 25

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

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 ¾ = z∞
Q1
f(x) dx . That is, ¾ = (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 55
62. Solution: C
First note that the density function of X is given by
⎧1
⎪2 if x =1
⎪⎪
f ( x ) = ⎨ x − 1 if 1< x < 2
⎪
⎪
⎪⎩0 otherwise
Then
2
1 ⎛1 1 ⎞
1 1
( )
E ( X ) = + ∫ x ( x − 1) dx = + ∫ x 2 − x dx = + ⎜ x3 − x 2 ⎟
2 2

2 1 2 1 2 ⎝3 2 ⎠1
1 8 4 1 1 7 4
= + − − + = −1 =
2 3 2 3 2 3 3
2
1 ⎛1 1 ⎞
( ) 1 1
( )
= + ∫ x 2 ( x − 1) dx = + ∫ x3 − x 2 dx = + ⎜ x 4 − x3 ⎟
2 2
2
E X
2 1 2 1 2 ⎝4 3 ⎠1
1 16 8 1 1 17 7 23
= + − − + = − =
2 4 3 4 3 4 3 12
2
23 ⎛ 4 ⎞
Var ( X ) = E X( ) − ⎡⎣ E ( X ) ⎤⎦ =
23 16 5
2
2
−⎜ ⎟ = − =
12 ⎝ 3 ⎠ 12 9 36

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

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 = x3 | 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
112 ⎛ 12 ⎞
Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − ( E [Y ] ) =
2
− ⎜ ⎟ = 1.71
15 ⎝ 5 ⎠

Page 26 of 55
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
⎧0 if x ≤ 250
Y =⎨
⎩ x − 250 if x > 250
and
2
1 1 2 1500 1250
E [Y ] = ∫ ( ) ( ) 250
1500
x − 250 dx = x − 250 = = 521
250 1500 3000 3000
1 1 12503
( x − 250 ) dx = ( x − 250 ) 1500
1500
E ⎡⎣Y 2 ⎤⎦ = ∫ = = 434, 028
2 3
250
250 1500 4500 4500
Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − { E [Y ]} = 434, 028 − ( 521)
2 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 ) ⎤⎦
4

1 3 5
= (1 + sinπ y ) , ≤ y≤
4

16 2 2
It then follows that the density function g of Y is given by

Page 27 of 55
 g ( y ) = G '( y )
1
= (1 + sinπ y ) (π cosπ y )
3

4
π 3 5
= cosπ y (1 + sinπ y ) ≤ y≤
3
,
4 2 2
Finally,
E [Y ] = ∫ yg ( y ) dy
5/ 2

3/ 2

π
ycosπ y (1 + sinπ y ) dy
5/ 2
=∫
3
3/ 2 4

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

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 =⎨
⎩2000 if x ≥ 2
where x is a Poisson random variable with mean 0.6 . The probability function for X is
e−0.6 ( 0.6 )
k

p ( x) = k = 0,1, 2,3L and

k!
k
∞ 0.6
E [Y ] = 0 + 1000 ( 0.6 ) e + 2000e ∑ k = 2
−0.6 −0.6

k!
⎛ ∞ 0.6
k
⎞
= 1000 ( 0.6 ) e−0.6 + 2000 ⎜ e −0.6 ∑ k =0 − e−0.6 − ( 0.6 ) e−0.6 ⎟
⎝ k! ⎠
( 0.6 )
k
∞
= 2000e −0.6
∑
k =0 k!
− 2000e−0.6 − 1000 ( 0.6 )e−0.6 = 2000 − 2000e −0.6 − 600e−0.6

= 573
0.6k
E ⎡⎣Y 2 ⎤⎦ = (1000 ) ( 0.6 ) e −0.6 + ( 2000 ) e −0.6 ∑ k = 2
2 2 ∞

k!
0.6k
= ( 2000 ) e −0.6 ∑ k =0 − ( 2000 ) e −0.6 − ⎡( 2000 ) − (1000 ) ⎤ ( 0.6 ) e −0.6
2 ∞ 2 2 2

k! ⎣ ⎦
= ( 2000 ) − ( 2000 ) e −0.6 − ⎡( 2000 ) − (1000 ) ⎤ ( 0.6 ) e −0.6
2 2 2 2
⎣ ⎦
= 816,893
Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − { E [Y ]} = 816,893 − ( 573) = 488,564
2 2

Var [Y ] = 699

Page 28 of 55
68. Solution: C
Note that X has an exponential distribution. Therefore, c = 0.004 . Now let Y denote the
⎧x for x < 250
claim benefits paid. Then Y = ⎨ and we want to find m such that 0.50
⎩250 for x ≥ 250
m
= ∫ 0.004e −0.004 x dx = −e −0.004 x
m
0 = 1 – e–0.004m
0

This condition implies e–0.004m = 0.5 ⇒ m = 250 ln 2 = 173.29 .

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

69. Solution: D
The distribution function of an exponential random variable
T with parameter θ is given by F ( t ) = 1 − e−t θ , t > 0
Since we are told that T has a median of four hours, we may determine θ as follows:
1
= F ( 4 ) = 1 − e −4 θ
2
1
= e −4 θ
2
4
− ln ( 2 ) = −
θ
4
θ=
ln ( 2 )
5ln ( 2 )
−
Therefore, Pr (T ≥ 5) = 1 − F ( 5 ) = e −5 θ = e 4
= 2−5 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 – e–x/300 .
1 − e− p95 / 300 − (1 − e −100/ 300 ) e −1/ 3 − e− p95 / 300
Therefore, 0.95 = = = 1 − e1/ 3e− p95 / 300
1 − (1 − e−100 / 300 ) e−1/ 3
e − p95 / 300 = 0.05 e –1/3
p95 = −300 ln(0.05 e–1/3) = 999

Page 29 of 55
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 = y and

g ( y ) = f ( t ( y ) ) dt dy = f ( y ) dtd ( y ) = 8 y −3 2 ⎛ 1 −1 2 ⎞
⎜ y ⎟ = 4y
⎝2 ⎠
−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 ) ⎤⎦
ln ( v ) − ln (10,000 )
1 ln ( v )−ln (10,000) 1
= ∫ dr = r = 25ln ( v ) − 25ln (10, 000 ) − 1
0.04 0.04 0.04 0.04

⎡ ⎛ v ⎞ ⎤
= 25 ⎢ ln ⎜ ⎟ − 0.04 ⎥
⎣ ⎝ 10, 000 ⎠ ⎦

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

73. Solution: E
⎡
( ) ⎤ −(Y )
10
10
F ( y ) = Pr [Y ≤ y ] = Pr ⎡⎣10 X
8

≤ y ⎤⎦ = Pr ⎢ X ≤ Y = −
0.8 8 10
⎥ 1 e
⎣ 10 ⎦
1
1 ⎛ Y ⎞ 4 − Y 10 5 4
Therefore, f ( y ) = F ′ ( y ) = ⎜ ⎟ e ( )
8 ⎝ 10 ⎠

Page 30 of 55
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
⎣T ⎦ ⎣ r ⎦ ⎝ r ⎠
⎛ ⎛ 10 ⎞ ⎞ ⎛d ⎞⎛ −10 ⎞
r fR(r) = F′R(r) = d/dr ⎜1 − FT ⎜ ⎟ ⎟ = − ⎜ FT ( t ) ⎟⎜ 2 ⎟
⎝ ⎝ r ⎠⎠ ⎝ dt ⎠⎝ r ⎠
d 1
FT (t ) = fT (t ) = since T is uniformly distributed on [8, 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) = ½ F′(y/2) = ½ 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 ⎞
= ⎜1 − 3 ⎟ , y>1
⎝ y ⎠
while the density function of Y is given by
2 2
⎛ 1 ⎞ ⎛ 3 ⎞ ⎛ 9 ⎞⎛ 1 ⎞
g ( y ) = G ' ( y ) = 3 ⎜1 − 3 ⎟ ⎜ 4 ⎟ = ⎜ 4 ⎟ ⎜1 − 3 ⎟ , y>1
⎝ y ⎠ ⎝ y ⎠ ⎝ y ⎠⎝ y ⎠
Therefore,

Page 31 of 55
 2
∞ 9 ⎛ 1 ⎞ ∞ 9 ⎛ 2 1 ⎞
E [Y ] = ∫ 3 ⎜
1 − 3 ⎟ dy = ∫ 3 ⎜ 1 − 3 + 6 ⎟ dy
1 y ⎝ y ⎠ 1 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
2 2 1
Prob. = 1− ∫∫
1 1 8
( x + y ) dxdy = 0.625
Note
{
Pr ⎡⎣( X ≤ 1) U (Y ≤ 1) ⎤⎦ = Pr ⎡⎣( X > 1) I (Y > 1) ⎤⎦
c
} (De Morgan's Law)
1 1 21
= 1 − Pr ⎡⎣( X > 1) I (Y > 1) ⎤⎦ ∫ 8 ( x + y ) dxdy ( x + y ) 12 dy
2 2
= 1− ∫ = 1− ∫
2
1 1 8 1 2
1 2⎡ 1 ⎡ 1
= 1− ∫ ( y + 2 ) − ( y + 1) ⎤ dy = 1− ( y + 2 ) − ( y + 1) ⎤ = 1 − ( 64 − 27 − 27 + 8 )
2 2 3 3 2

16 1 ⎣ ⎦ 48 ⎣ ⎦ 1
48
18 30
= 1− = = 0.625
48 48

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

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 55
 Pr ⎡⎣( X < 1) ∪ (Y < 1) ⎤⎦
3
x+ y 3 x + 2 xy
2
1 3
dy = 1 − ∫ ( 9 + 6 y − 1 − 2 y ) dy
3 3
= 1− ∫ ∫ dx dy = 1 − ∫
1 1 27 1 54 1 54 1
3

(8 + 4 y ) dy = 1 − (8 y + 2 y 2 ) = 1 − ( 24 + 18 − 8 − 2 ) = 1 − = = 0.41
1 3 1 1 32 11
= 1−
54 ∫1 54 1 54 54 27

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

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⎞ ⎛ 1 ⎞⎤
Pr ⎢⎜ S ≤ ⎟ ∪ ⎜ T ≤ ⎟ ⎥ = ∫ ∫ f ( s, t ) dsdt + ∫ ∫ f ( s, t ) dsdt
1/ 2 1 1 1/ 2

⎣⎝ 2⎠ ⎝ 2 ⎠ ⎦ 0 1/ 2 0 0

(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 nμ = ( 2025 )( 3125 ) = 6,328,125 and standard deviation
σ 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 − nμ
= 1.282, and so p = nμ + 1.282 σ n = 6,328,125 + (1.282 )(11, 250 ) = 6,342,548 .
σ n

Page 33 of 55
--------------------------------------------------------------------------------------------------------
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⎢ > ⎥ = P⎢ > 0.6 ⎥ = 1 − Φ(0.6) = 1 – 0.7257
⎣ 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] =
⎡ 2450 − 2500 S − 2500 2600 − 2500 ⎤ ⎡ S − 2500 ⎤
P⎢ < < ⎥ = P ⎢ −1 < < 2⎥
⎣ 2500 2500 2500 ⎦ ⎣ 50 ⎦
⎡ S − 2500 ⎤ ⎡ S − 2500 ⎤
= P⎢ < 2⎥ − P ⎢ < −1⎥
⎣ 50 ⎦ ⎣ 50 ⎦
S − 2500
Then using the normal approximation with Z = , we have P[2450 < S < 2600]
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
μ = 3n
and standard deviation
σ= 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 55
 40 − 3n
−2 ≥
n
To find such an n, let’s solve the corresponding equation for n:
--------------------------------------------------------------------------------------------------------
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 ,
E ⎡⎣ X i ⎤⎦ = ( 0 ) ( 0.6 ) + (1) ( 0.1) + ( 2 ) ( 0.3) = 1.3 , and
2 2 2 2

Var [ X i ] = E ⎡⎣ X i ⎤⎦ − { E [ X i ]} = 1.3 − ( 0.7 ) = 0.81

2 2 2

Since X 1 ,..., X 100 are assumed by the consulting actuary to be independent, the Central
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 55
--------------------------------------------------------------------------------------------------------
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
μ x = E[X] = 0
2.5
x2 x3 2.5 2(2.5)3
σx2 = Var[X] = E[X2] = ∫ 5
−2.5
dx =
15
−2.5 =
15
=2.083

σx =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 1⎤ ⎡ −0.25 0.25 ⎤
P ⎢ − ≤ X 48 ≤ ⎥ = P ⎢ ≤Z≤ = P[−1.2 ≤ Z ≤ 1.2] = P[Z ≤ 1.2] – P[Z ≤ –
⎣ 4 4⎦ ⎣ 0.2083 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 − e −2 / 3 − e−1/ 2 + e −7 / 6

Page 37 of 55
 89. Solution: B
⎧ 6
⎪ (50 − x − y ) for 0 < x < 50 − y < 50
We are given that f ( x, y ) = ⎨125, 000
⎪0
⎩ 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)

x
50
30 50 − x
6
125, 000 20∫ ∫
We conclude that P[X > 20 ∩ Y > 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
∞ t1 ∞
1 −t / 2 −t / 3 ⎡ 1 − t / 2 − t / 3 ⎤ t1
P[T2 < T1] = ∫0 ∫0 6e 1 e 2 dt2 dt1 = ∫0 ⎢⎣− 2 e 1 e 2 ⎥⎦ 0 dt1
∞ ∞ ∞
⎡ 1 − t1 / 2 1 − t1 / 2 − t1 / 3 ⎤ ⎡ 1 − t1 / 2 1 −5t1 / 6 ⎤ ⎡ − t1 / 2 3 −5t1 / 6 ⎤ 3 2
= ∫⎢ e − e e ⎥ dt1 = ∫ ⎢ e − e ⎥ dt1 = ⎢ −e + e ⎥ = 1− =
0 ⎣
2 2 ⎦ 0 ⎣
2 2 ⎦ ⎣ 5 ⎦0 5 5
= 0.4 .

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

91. Solution: D
We want to find P[X + Y > 1] . To this end, note that P[X + Y > 1]
⎡ 2x + 2 − y ⎤
2
⎡1 1 ⎤
1 2 1
1
= ∫∫⎢ ⎥dydx = ∫ ⎢ xy + y − y 2 ⎥ dx
0 1− x ⎣ ⎦ 0 ⎣
4 2 2 8 ⎦ 1− x
⎡ ⎤ ⎡ 1 ⎤
1 1
1 1 1 1 1 1 1
= ∫ ⎢ x + 1 − − x (1 − x ) − (1 − x ) + (1 − x ) 2 ⎥ dx = ∫ ⎢ x + x 2 + − x + x 2 ⎥ dx
0 ⎣ ⎦ 0 ⎣
2 2 2 8 2 8 4 8 ⎦
1
⎡5 1⎤ ⎡5 1 ⎤
1
3 3 5 3 1 17
= ∫ ⎢ x 2 + x + ⎥ dx = ⎢ x 3 + x 2 + x ⎥ = + + =
0 ⎣
8 4 8⎦ ⎣ 24 8 8 ⎦ 0 24 8 8 24

Page 38 of 55
--------------------------------------------------------------------------------------------------------

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,
( )
( ) ( ) ( )
( )( ) ( )( )
 ⎧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)
⎧ 4 6 1 6 10 −t1 1 ⎫ ⎧ 4 ⎡t ⎤ 6 ⎡t ⎤ ⎫
= 2 ⎨ ∫ t1 ∫ dt2 dt1 + ∫ t1 ∫ dt2 dt1 ⎬ = 2 ⎨ ∫ t1 ⎢ 2 06 ⎥ dt1 + ∫ t1 ⎢ 2 10 −t1
0 ⎥ dt1 ⎬
⎩ 0 0 34 4 0 34 ⎭ ⎩ 0 ⎣ 34 ⎦ 4
⎣ 34 ⎦ ⎭
⎧ 4 3t1 ⎫ ⎧ 3t 2 1 ⎛ 2 1 3⎞ 6⎫
(10t1 − t12 ) dt1 ⎬ = 2 ⎨ 1
6 1
= 2 ⎨∫ dt1 + ∫ 4
0 + ⎜ 5t1 − t1 ⎟ 4 ⎬
⎩ 0 17 4 34
⎭ ⎩ 34 34 ⎝ 3 ⎠ ⎭
⎧ 24 1 ⎡ 64 ⎤ ⎫
= 2 ⎨ + ⎢180 − 72 − 80 + ⎥ ⎬ = 5.7
⎩ 17 34 ⎣ 3 ⎦⎭

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

95. Solution: E
M ( t1 , t2 ) = E ⎡⎣et1W +t2 Z ⎤⎦ = E ⎡⎣e 1 (
t X +Y ) + t2 ( Y − X )
⎤ = E ⎡e( t1 −t2 ) X e(t1 +t2 )Y ⎤
⎦ ⎣ ⎦
1
( t1 −t2 )2
1
( t1 +t2 )2
1
(t
1 − 2 t1t2 + t2
2 2
) 12 (t
1 + 2 t1t2 + t2
2 2
)
= E ⎡⎣e( 1
t − t2 ) X
⎤ E ⎡e( t1 +t2 )Y ⎤ = e 2 = et1 +t2
2 2

⎦ ⎣ ⎦ e2 = e2 e

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

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

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

Page 41 of 55
97. Solution: C
We are given f(t1, t2) = 2/L2, 0 ≤ t1 ≤ t2 ≤ L .
L t2
2 2
Therefore, E[T1 + T2 ] = ∫ ∫ (t1 + t2 ) 2 dt1dt2 =
2 2 2

0 0
L
2 ⎧⎪ L ⎡ t13 2 ⎤
t2
⎫⎪ 2 ⎪⎧ L ⎛ t23 3⎞ ⎪⎫
⎨ ∫ ⎢ + t2 t1 ⎥ dt1 ⎬ = 2 ⎨ ∫ ⎜ + t2 ⎟ dt2 ⎬
L2 ⎩⎪ 0 ⎣ 3 ⎦0 ⎪⎭ L ⎩⎪ 0 ⎝ 3 ⎠ ⎭⎪
2 ⎡t ⎤
L 4 L
2 4 3 2
= 2 ∫ t2 dt2 = 2 ⎢ 2 ⎥ = L2
L 03 L ⎣ 3 ⎦0 3
t2

(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
⎪ 27 for y = 0
⎪
⎪8
We conclude that g ( y ) = ⎨ for y = 1
⎪ 27
⎪0 otherwise
⎪
⎩
19 8 t
and M(t) = E ⎡⎣e yt ⎤⎦ = + e
27 27

Page 42 of 55
 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 β is β 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 55
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 ( −3
1.5
)(1 − e ) −3
2.4
*

= 1 − (1 − e−3 )(1 − e −2 ) (1 − e )
−5
4

= 0.414
* Uses that if X has an exponential distribution with mean μ
∞
e − t μ dt = 1 − ( −e − t μ ) ∞x = 1 − e − x μ
1
Pr ( X ≤ x ) = 1 − Pr ( X ≥ x ) = 1 − ∫
x
μ

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

104. Solution: B
Let us first determine k:
1 1 11 2 1 1k k
1= ∫ ∫ kxdxdy = ∫ kx | 0 dy = ∫ dy =
0 0 0 2 0 2 2
k =2
Then
1 1
2 31 2
E [ X ] = ∫ ∫ 2 x 2 dydx = ∫ 2 x 2 dx =
1
x |0=
0 0
0 3 3
1 1
1 2 1 1
E [Y ] = ∫ ∫ y 2 x dxdy = ∫ ydy =
1
y |0=
0 0
0 2 2
2 3 1 12
E [ XY ] = ∫
1 1 1

0 ∫ 0
2x 2 ydxdy = ∫
0 3
x y | 0 dy = ∫ ydy
0 3

2 2 1 2 1
= y |0 = =
6 6 3
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 55
 105. Solution: A
The calculation requires integrating over the indicated region.

2x 1

dx = ∫ x 2 ( 4 x 2 − x 2 ) dx = ∫ 4 x 4 dx = x 5 =
8 2 14 4 4 4
E(X ) = ∫
1 2x 1 1

0 ∫ x 3
x y dy dx = ∫ x 2 y 2
0 3
x
0 3 0 5 0 5
2x 1

dy dx = ∫ x ( 8 x 3 − x 3 ) dx = ∫
8 2 18 8 1 56 56 5 56
E (Y ) = ∫
1 2x 1

0 ∫x 3
xy dy dx = ∫ xy 3
0 9
x
0 9 0 9
x 4 dx = x =
45 0 45
2x

x ( 8 x 3 − x 3 ) dx = ∫
8 2 2 18 8 2 1 56 56 28
E ( XY ) = ∫
1 2x 1

0 ∫ x 3
x y dy dx = ∫ x 2 y 3
0 9
x
dx = ∫
0 9 0 9
x 5 dx = =
54 27
28 ⎛ 56 ⎞ ⎛ 4 ⎞
Cov ( X , Y ) = E ( XY ) − E ( X ) E (Y ) = − ⎜ ⎟ ⎜ ⎟ = 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 ⋅ dydx = ∫ dx = ∫ dx = =6
0 0
12 x 0
12 0 0
12 24 0
⎡ y2 ⎤
12 x 12 12x
y x x 2 12 144
E[Y] = ∫0 ∫0 12 x dydx = ∫0 ⎢⎣ 24 x ⎥⎦ dx = ∫0 24 48 0 = 48 = 3
dx =
0

⎡ y2 ⎤
12 x 12 12 2 x
y x x3 12 (12)3
E[XY] = ∫ ∫ dydx = ∫ ⎢ ⎥ dx = ∫ dx = = = 24
0 ⎣
0 0
12 24 ⎦ 0 0
24 72 0 72
Cov(X,Y) = E[XY] – E[X]E[Y] = 24 − (3)(6) = 24 – 18 = 6 .

Page 45 of 55
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 )

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

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

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 ] 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 55
 8 = Var [ X + Y ] = E ⎡( X + Y ) ⎤ − ( E [ X + Y ])
2 2

⎣ ⎦
= E ⎡⎣ X 2 + 2 XY + Y 2 ⎤⎦ − ( E [ X ] + E [Y ])
2

= E ⎡⎣ X 2 ⎤⎦ + 2 E [ XY ] + E ⎡⎣Y 2 ⎤⎦ − ( 5 + 7 )
2

= 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
1
( x − t2 ) x ⎡ − t1 12 ( x −t2 ) ⎤
=∫
0 ∫ ∫ 0 ⎢⎢−e 0 ⎥⎥ dt2
− t1 − t2 − t2
2
e e dt dt
1 2 = e
⎣ ⎦
0

x ⎡ − x + t2 ⎤
1 1
x⎛ − x − t2 ⎞
1 1
= ∫ e − t2 ⎢1 − e 2 2 ⎥ dt2 = ∫ ⎜ e − t2 − e 2 e 2 ⎟dt2
⎣ ⎦ ⎝ ⎠
0 0

⎡ − x − t2 ⎤
1 1 1
− x − x
1 1
− x
= ⎢ −e − t2 + 2e 2 e 2 ⎥ 0x = −e − x + 2e 2 e 2 + 1 − 2e 2
⎣ ⎦
1 1
− x − x
= 1 − e − x + 2e − x − 2e 2 = 1 − 2e 2 + e − x , x > 0
It follows that the density of X is given by
d ⎡ ⎤
1 1
− x − x
g ( x) = ⎢1 − 2e 2
+ e −x
⎥ = e 2
− e− x , x > 0
dx ⎣ ⎦

Page 47 of 55
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 ) = ( e−u ) ⎜ e− v / 2 ⎟ = e−u 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
= ∫ ∫ g ( u, v )dudv = ∫ ∫ e −u e− v / 2 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 2 0
⎝ 2 2 ⎠
∞⎛ 1 − v x +1/ 2) 1 − v / 2 ⎞
= ∫ ⎜− e ( + e ⎟ dv
0
⎝ 2 2 ⎠
∞
⎡ 1 ⎤ 1
e (
− v x +1/ 2 )
=⎢ − e− v / 2 ⎥ = − +1
⎣ 2x + 1 ⎦0 2x + 1
2
Finally, f ( x ) = F ' ( x ) =
( 2 x + 1)
2

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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
⎛1⎞ 23
16
f x ⎜ ⎟ = ∫ 24 (1 3) y dy = ∫ 8 y dy = 4 y 2 =
23 2 3

⎝ 3⎠ 0 0 0 9
⎛ 1⎞ 9 9 2
It follows that f ⎜ y x = ⎟ = f (1 3, y ) = y , 0 < y <
⎝ 3 ⎠ 16 2 3
13
139 9 1
Consequently, Pr ⎡⎣Y < X X = 1 3⎤⎦ = ∫ y dy = y 2 =
0 2 4 4
0

Page 48 of 55
 111. Solution: E
3 f ( 2, y )
Pr ⎡⎣1 < Y < 3 X = 2 ⎤⎦ = ∫ dy
1 f x ( 2)
2 1
f ( 2, y ) = y ( ) = y −3
− 4 −1 2 −1

4 ( 2 − 1) 2
∞ ∞
1 1 1
f x ( 2 ) = ∫ y −3 dy = − y −2 =
1
2 4 1 4
3 1 −3
∫ 2
y dy 3 1 8
Finally, Pr ⎡⎣1 < Y < 3 X = 2 ⎤⎦ = = − y −2 = 1 − =
1

1 1 9 9
4

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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 ⎤⎦
x
= 2x2 + x2 = 3x2, 0 < x < 1
0
0

f ( x, y ) 2( x + y ) 2 ⎛ 1 y ⎞
so f(y|x) = = = ⎜ + 2 ⎟, 0 < y < x
f x ( x) 3x 2 3⎝ x x ⎠
2⎡ 1 y ⎤ 2
f(y|x = 0.10) = ⎢ + = [10 + 100 y ] , 0 < y < 0.10
3 ⎣ 0.1 0.01 ⎥⎦ 3
⎡ 20 100 2 ⎤ 0.05 1 1
0.05
2 5
P[Y < 0.05|X = 0.10] = ∫ [10 + 100 y ] dy = ⎢ y + y ⎥ = + = = 0.4167 .
0
3 ⎣3 3 ⎦0 3 12 12

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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 ] 0.96
Pr [W | H ] = = = 0.9897
Pr [ H ] 0.97
Pr ⎡⎣ H ∩ W c ⎤⎦ 0.01
Pr ⎡⎣W | H ⎤⎦ =
c
= = 0.0103
Pr [ H ] 0.97

Page 49 of 55
 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

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114. Solution: C
Note that
P( X = 1, Y = 0) P( X = 1, Y = 0) 0.05
P(Y = 0⏐X = 1) = = =
P( X = 1) P( X = 1, Y = 0) + P( X = 1, Y = 1) 0.05 + 0.125
= 0.286
P(Y = 1⏐X=1) = 1 – P(Y = 0 ⏐ X = 1) = 1 – 0.286 = 0.714
Therefore, E(Y⏐X = 1) = (0) P(Y = 0⏐X = 1) + (1) P(Y = 1⏐X = 1) = (1)(0.714) = 0.714
E(Y2⏐X = 1) = (0)2 P(Y = 0⏐X = 1) + (1)2 P(Y = 1⏐X = 1) = 0.714
Var(Y⏐X = 1) = E(Y2⏐X = 1) – [E(Y⏐X = 1)]2 = 0.714 – (0.714)2 = 0.20

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115. Solution: A
Let f1(x) denote the marginal density function of X. Then
x +1
f1 ( x ) = ∫ 2 xdy = 2 xy | xx +1 = 2 x ( x + 1 − x ) = 2 x , 0< x<1
x
Consequently,
f ( x, y ) ⎧1 if: x < y < x + 1
f ( y| x ) = =⎨
f1 ( x ) ⎩0 otherwise
x +1 1 1 1 1 1 1 1
E [Y | X ] = ∫ ydy = y 2 | xx +1 = ( x + 1) − x 2 = x 2 + x + − x 2 = x +
2
x 2 2 2 2 2 2 2
x +1 1 1 1
E ⎡⎣Y 2 | X ⎤⎦ = ∫ y 2 dy = y 3 | xx +1 = ( x + 1) − x3
3
x 3 3 3
1 1 1 1
= x3 + x 2 + x + − x3 = x 2 + x +
3 3 3 3
2
1 ⎛ 1⎞
Var [Y | X ] = E ⎡⎣Y | X ⎤⎦ − { E [Y | X ]} = x + x + − ⎜ x + ⎟
2 2 2

3 ⎝ 2⎠
1 1 1
= x2 + x + − x2 − x − =
3 4 12

Page 50 of 55
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 .

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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
1− x
1− x ⎡ 1 2⎤
Pr [ X < 0.2] = ∫ 6 ⎡⎣1 − ( x + y ) ⎤⎦dydx = 6 ∫
0.2
∫
0.2

0 0 0 ⎢⎣ y − xy − 2 y ⎥⎦ dx
0

0.2 ⎡ 1 2⎤ 0.2 ⎡ 1 2⎤
= 6 ∫ ⎢1 − x − x (1 − x ) − (1 − x ) ⎥ dx = 6 ∫ ⎢(1 − x ) − (1 − x ) ⎥ dx
2
0
⎣ 2 ⎦ 0
⎣ 2 ⎦
0.2 1
= 6∫ (1 − x ) dx = − (1 − x ) | 0.2
0 = − ( 0.8 ) + 1 = 0.488
2 3 3
0 2

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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

( )
y

g ( y ) = ∫ 15 y dx = 15 xy y − y = 15 y 3 2 (1 − y1 2 ) , 0 < y < 1
y
= 15 y
y
y

Page 51 of 55
 ⎧⎪15 y 3 2 (1 − y )1 2 , 0 < y < 1
or more precisely, g ( y ) = ⎨
⎪⎩0 otherwise
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] =
⎡ 3 2⎤ ⎛ 12 3 2 ⎞ ⎡12 1 3 ⎤ ⎛ 36 27 ⎞
4 2 4 2 4 4
3 12
∫3 t∫/ 2 8 xdxdt = ∫3 ⎢⎣16 ⎥⎦ t / 2
x dt = ∫3 ⎝⎜ 16 64 ⎠⎟ ⎣⎢16 64 ⎦⎥ 3 = 4 − 1 − ⎝⎜ 16 − 64 ⎠⎟
− t dt = − t

= 11/64 = 0.17 .
t t = 2x

4
t=x
3
2
1
x
1 2

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121. Solution: C
The marginal density of X is given by
1
1 ⎛ xy 3 ⎞ 1 ⎛ x⎞
fx ( x) =
1
(10 − xy 2 ) dy = ⎜10 y −
1
⎟ = ⎜ 10 − ⎟
0 64 64 3 0 64 ⎝ 3⎠
122. Solution: D
y y

The marginal distribution of Y is given by f2(y) = ∫ 6 e e –x –2y

dx = 6 e –2y
∫e
−x
dx
0 0

= −6 e–2y e–y + 6e–2y = 6 e–2y – 6 e–3y, 0 < y < ∞

∞ ∞ ∞ ∞

∫y f2(y) dy = ∫ (6 ye ∫ ye ∫y
−2 y −3 y −2 y
Therefore, E(Y) = − 6 ye ) dy = 6 dy – 6 e–3y dy =
0 0 0 0
∞ ∞
6 6
20∫ 2 ye–2y dy − ∫ 3 y e–3y dy
30
∞ ∞
But ∫ 2 y e–2y dy and ∫ 3 y e–3y dy are equivalent to the means of exponential random
0 0
∞
variables with parameters 1/2 and 1/3, respectively. In other words, ∫ 2 y e–2y dy = 1/2
0
∞
and ∫ 3 y e–3y 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 .

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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]
1 −4
( −8
) (
1 −1
= e 5 − e 5 + e 2 − e −1 *
3 6 )
= 0.122
*Uses that if X has an exponential distribution with mean μ
∞ ∞ −
a −
b
1 1
Pr ( a ≤ X ≤ b ) = Pr ( X ≥ a ) − Pr ( X ≥ b ) = ∫ dt − ∫
μ
−t μ −t μ μ
e e dt = e −e
a
μ b
μ

Page 54 of 55
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.

Page 55 of 55