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.

1 of 66
 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

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

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 .

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

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

2 of 66
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
2.2 = + =
x + 16 x + 16 x + 16
2.2 x + 35.2 = 3 x + 32
0.8 x = 3.2
x=4

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

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
P ⎡ H ∩ F ⎤⎦ 108 625 108
c

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

3 of 66
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

4 of 66
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

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

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 .

5 of 66
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

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

6 of 66
14. Solution: A
1 11 1 1 1 ⎛1⎞
k

pk = pk −1 = pk − 2 = ⋅ ⋅ pk −3 = ... = ⎜ ⎟ p0 k≥0
5 55 5 5 5 ⎝5⎠
⎛1⎞ 5
∞ ∞ k
p0
1= ∑ p k = ∑ ⎜ ⎟ 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 .

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

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

7 of 66
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

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

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

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

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 ⎥⎦

8 of 66
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)
--------------------------------------------------------------------------------------------------------

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 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 )

9 of 66
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[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)

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

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

10 of 66
 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)

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

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

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

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)

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

11 of 66
 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 λ . Now we are
given that
50

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

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

80

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

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

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 .

12 of 66
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:

x Pr [ X = x ] Pr [ X ≤ x ]
( 0.98) = 0.668
20
0 0.668
20 ( 0.02 )( 0.98 ) = 0.272
19
1 0.940
190 ( 0.02 ) ( 0.98 ) = 0.053
2 18
2 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 )
4!
= ( 0.20 ) + 4 ( 0.50 )( 0.20 ) + 4 ( 0.30 )( 0.20 ) + ( 0.30 ) ( 0.20 )
4 3 3 2 2

2!2!
= 0.0488

13 of 66
33. Solution: B
Note that
20 ⎛ 1 ⎞
Pr [ X > x ] = ∫0.005 ( 20 − t ) dt = 0.005 ⎜ 20t − t 2 ⎟ 20
2 ⎠
x
x
⎝
⎛ 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] 1
200 − 20 ( 8 ) + ( 8 )
2
72 9
2

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

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

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

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).

14 of 66
 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

It now follows that P[V > 40,000⏐V > 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) = ½ e–t/2, 0 ≤ t ≤ ∞
Note that
1
1
P[T ≤ 1] = ∫ e −t / 2 dt = e − t / 2 1 = 1 – e–1/2 = 0.393
0
2 0

2
1 2
∫ 2e = e –1/2 − e –1 = 0.239
−t / 2
P[1 ≤ T ≤ 2] = dt = e − t / 2 1
1
Next, denote refunds for the 100 printers sold by independent and identically distributed
random variables Y1, . . . , Y100 where
⎧ 200 with probability 0.393
⎪
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
100
Therefore, Expected Refunds = ∑ E [Y ] = 100(102.56) = 10,256 .
i =1
i

15 of 66
 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⎠

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

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
⎧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 ) = ∫ = ( 0.5 + C )
2 2
2 x dx = x
0 0

Therefore, solving for C, we find C = ±0.8 − 0.5

Finally, since 0 < C < 1 , we conclude that C = 0.3

16 of 66
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] )

= 2 ⎡( 10
⎣ 9 ) ( )( ) ( 10 ) ( ) ⎦ ⎣ ( 9 ) ( )( ) ( 10 ) ( ) ⎦
0.2 0.8 + 10 0.8 ⎤ ⎡1 − 10 0.2 0.8 − 10 0.8 ⎤
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 σ = Var ( X B ) + Var ( X A ) = ( 2000 ) + ( 2000 )

2 2
= 2000 2
It follows that

17 of 66
 ⎡ 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

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

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
3+ k ⎛ 3 ⎞ ⎛ 2 ⎞
3 k

Pr [ k ≥ 4] = 1 − Pr [ k ≤ 3] = 1 − ∑ ( k ) ⎜ ⎟ ⎜ ⎟
k =0 ⎝5⎠ ⎝ 5⎠
⎛ 3⎞
4
⎡ 3 ⎛ 2 ⎞0 4 ⎛ 2 ⎞1 5 ⎛ 2 ⎞ 2 6 ⎛ 2 ⎞3 ⎤
= 1− ⎜ ⎟ ⎢( 0 ) ⎜ ⎟ + ( 1 ) ⎜ ⎟ + ( 2 ) ⎜ ⎟ + ( 3 ) ⎜ ⎟ ⎥
⎝ 5⎠ ⎢⎣ ⎝ 5 ⎠ ⎝5⎠ ⎝5⎠ ⎝ 5 ⎠ ⎥⎦
4
⎛ 3 ⎞ ⎡ 8 8 32 ⎤
= 1 − ⎜ ⎟ ⎢1 + + + ⎥
⎝ 5 ⎠ ⎣ 5 5 25 ⎦
= 0.2898
Alternatively the solution is
4 4 4 2 4 3
⎛ 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]

18 of 66
44. Solution: C
If k is the number of days of hospitalization, then the insurance payment g(k) is
g(k) =
100k
{ for k =1, 2, 3
300 + 50 (k − 3) for k = 4, 5.
5
Thus, the expected payment is ∑ g (k ) p
k =1
k = 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
0 4
x20 4 x
2
x3 x3 8 64 56 28
Note that E ( X ) = ∫ − dx + ∫ dx = − + =− + = =
− 2 10 0 10 30 −2 30 0 30 30 30 15

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

46. Solution: D
The density function of T is
1
f ( t ) = e−t / 3 , 0 < t < ∞
3
Therefore,
E [ X ] = E ⎡⎣ max ( T , 2 ) ⎤⎦
2 2 −t / 3 ∞ t
=∫ e dt + ∫ e− t / 3 dt
0 3 2 3
∞
= −2e − t / 3 | 02 −te− t / 3 | ∞2 + ∫ e− t / 3 dt
2
−2 / 3 −2 / 3
= −2e + 2 + 2e − 3e− t / 3 | ∞2
= 2 + 3e −2 / 3

19 of 66
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 λ = 10 since 10 = E[T] = λ . Next define the
payment
⎧x for 0 ≤ T ≤ 1
⎪x
⎪
P under the insurance contract by P = ⎨ for 1 < T ≤ 3
⎪ 2
⎪⎩0 for T > 3
We want to find x such that
1 3 1
x –t/10 x 1 –t/10 x
1000 = E[P] = ∫ ∫1 2 10 e dt = − xe
− t /10
e dt + − e −t /10 3

0
10 0 2 1

–1/10 –3/10 –1/10 –1/10

= −x e + x – (x/2) e + (x/2) e = x(1 – ½ e – ½ e–3/10) = 0.1772x .
We conclude that x = 5644 .

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

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
f ( x ) = ( 0.6 ) ( 0.4 ) , x = 1, 2,3...
x −1

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

= 2694

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

49. Solution: D
Define f ( X ) to be hospitalization payments made by the insurance policy. Then
⎧⎪100 X if X = 1, 2,3
f (X ) = ⎨
⎪⎩300 + 25 ( X − 3) if X = 4,5
and

20 of 66
 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

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

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
⎡ 2.5(0.6) 2.5 ⎤ ⎡ 2.5(0.6) 2.5 ⎤ 2.5(0.6) 2.5 2(0.6) 2.5
∫ ⎢ x3.5 ⎥⎦ ∫2 ⎢⎣ x3.5 ⎥⎦ 0.6∫ x 2.5
∞
and E[Y] = x dx + 2 dx = dx −
0.6 ⎣
x 2.5 2

2.5(0.6) 2.5 2 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 .
1.5 x1.5 0.6 (2) 2.5 1.5(2)1.5 1.5(0.6)1.5 2

21 of 66
 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

22 of 66
 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
15
E [Y ] = ( 0.94 )( 0 ) + ( 0.04 )( 0.5003) ∫ ( x − 1) e− x / 2 dx + ( 0.02 )(14 )
1

= ( 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=∫0 (1 + x)4 dx = − 3 (1 + x)3 0 =
3
k=3
∞
3x
It then follows that E[x] = ∫ (1 + x)
0
4
dx and substituting u = 1 + x, du = dx, we see

∞ ∞ ∞
3(u − 1) ⎡ u −2 u −3 ⎤ ⎡1 1⎤
E[x] = ∫ 4
du = 3 ∫ (u −3
− u −4
) du = 3 ⎢ − ⎥ = 3 ⎢ − ⎥ = 3/2 – 1 = ½ .
1
u 1 ⎣ −2 −3 ⎦1 ⎣ 2 3⎦

23 of 66
 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
1000
1 1 1 ( x − D) 2 1000 (1000 − D) 2
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) = 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 .

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

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

24 of 66
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 = zQ1
∞
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 .

25 of 66
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 ⎞
( )
2 2
E ( X ) = + ∫ x ( x − 1) dx = + ∫ x 2 − x dx = + ⎜ x3 − x 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 ⎞
( ) ( )
2 2
E X 2
= + ∫ 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
2
23 ⎛ 4 ⎞ 23 16 5
( )
2
Var ( X ) = E X 2
− ⎡⎣ E ( X ) ⎤⎦ = −⎜ ⎟ = − =
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 = 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
112 ⎛ 12 ⎞
Var [Y ] = E ⎡⎣Y 2 ⎤⎦ − ( E [Y ] ) =
2
− ⎜ ⎟ = 1.71
15 ⎝ 5 ⎠

26 of 66
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
1500 1 1 2 1500 1250
E [Y ] = ∫ ( x − 250 )dx = ( x − 250 ) 250 = = 521
250 1500 3000 3000
1500 1 1 12503
( x − 250 ) dx = ( x − 250 ) 1500
2 3
E ⎡⎣Y 2 ⎤⎦ = ∫ 250 = = 434, 028
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 ]
4
= ⎡⎣ F ( y ) ⎤⎦
1 3 5
(1 + sinπ y ) ,
4
= ≤ y≤
16 2 2
It then follows that the density function g of Y is given by

27 of 66
 g ( y ) = G '( y )
1
(1 + sinπ y ) (π cosπ y )
3
=
4
π 3 5
cosπ y (1 + sinπ y )
3
= , ≤ y≤
4 2 2
Finally,
5/ 2
E [Y ] = ∫ yg ( y ) dy
3/ 2
5/ 2 π
ycosπ y (1 + sinπ y ) dy
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, 2,3 and

k!
∞ 0.6
k
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

28 of 66
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

29 of 66
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
⎛ 1 −1 2 ⎞
g ( y ) = f ( t ( y ) ) dt dy = f ( y ) dtd ( y ) = 8 y −3 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

( )
10
⎡ ⎤ − (Y )
10 8

F ( y ) = Pr [Y ≤ y ] = Pr ⎡⎣10 X 0.8 ≤ y ⎤⎦ = Pr ⎢ X ≤ Y
8
⎥ = 1 − e 10

⎣ 10 ⎦
1
1 ⎛ Y ⎞ 4 − Y 10 5 4
Therefore, f ( y ) = F ′ ( y ) = ⎜ ⎟ e ( )
8 ⎝ 10 ⎠

30 of 66
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,

31 of 66
 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) ∪ (Y ≤ 1) ⎤⎦ = Pr ⎡⎣( X > 1) ∩ (Y > 1) ⎤⎦
c
} (De Morgan's Law)
2 1
2 1 21
= 1 − Pr ⎡⎣( X > 1) ∩ (Y > 1) ⎤⎦ ∫ 8 ( x + y ) dxdy ( x + y ) 12 dy
2
= 1− ∫ = 1− ∫
1 1 8 1 2
1 2⎡ 1 ⎡ 1
( y + 2 ) − ( y + 1) ⎤ dy ( y + 2 ) − ( y + 1) ⎤ = 1 − ( 64 − 27 − 27 + 8 )
2 2 3 3
∫
2
= 1− = 1−
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.

32 of 66
 Pr ⎡⎣( X < 1) ∪ (Y < 1) ⎤⎦
2 3
3 3 x+ y 3 x + 2 xy 1 3
= 1− ∫ ∫ dx dy = 1 − ∫ dy = 1 − ∫ ( 9 + 6 y − 1 − 2 y ) dy
1 1 27 1 54 1 54 1
3
1 3 1 1 32 11
= 1− ∫ ( 8 + 4 y ) dy = 1 − ( 8 y + 2 y 2 ) = 1 − ( 24 + 18 − 8 − 2 ) = 1 − = = 0.41
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 ⎞⎤ 1/ 2 1 1 1/ 2
Pr ⎢⎜ S ≤ ⎟ ∪ ⎜ T ≤ ⎟ ⎥ = ∫ ∫ f ( s, t ) dsdt + ∫ ∫ f ( s, t ) dsdt
⎣⎝ 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

33 of 66
--------------------------------------------------------------------------------------------------------
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 < 50
< 2⎥
⎣ 2500 2500 2500 ⎦ ⎣ ⎦
⎡ 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:

34 of 66
 40 − 3n
−2 ≥
n
To find such an n, let’s solve the corresponding equation for n:
40 − 3n
−2 =
n
−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.

35 of 66
--------------------------------------------------------------------------------------------------------
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 ≤
10, 000 ⎥ = 1 – P[Z ≤ 1] = 1
⎣ ⎦
– 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

36 of 66
--------------------------------------------------------------------------------------------------------
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

37 of 66
 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]
1 2 1 2
⎡ 2x + 2 − y ⎤ ⎡1 1 1 ⎤
= ∫∫⎢ ⎥dydx = ∫ ⎢ xy + y − y 2 ⎥ dx
0 1− x ⎣
4 ⎦ 0 ⎣
2 2 8 ⎦ 1− x
1 1
⎡ 1 1 1 1 2⎤ ⎡ 1 1 1 1 ⎤
∫0 ⎢⎣ x + 1 − 2 − 2 x(1 − x) − 2 (1 − x) + 8 (1 − x) ⎥⎦ dx = ∫ ⎢⎣ x + 2 x
2
= + − x + x 2 ⎥ dx
0
8 4 8 ⎦
1 1
⎡5 3 1⎤ ⎡5 3 1 ⎤ 5 3 1 17
∫ ⎢⎣ 8 x x + ⎥ dx = ⎢ x 3 + x 2 + x ⎥ =
2
= + + + =
0
4 8⎦ ⎣ 24 8 8 ⎦ 0 24 8 8 24

38 of 66
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:

1
(180 )
2
2002 − 2 ⋅
Shaded Region Area 2
Pr ⎡⎣ X − Y < 20 ⎤⎦ = =
( 2200 − 2000 )
2
2002
1802
= 1 − ( 0.9 ) = 0.19
2
= 1− 2
200
More formally (still using symmetry)
Pr ⎡⎣ X − Y < 20 ⎤⎦ = 1 − Pr ⎡⎣ X − Y ≥ 20 ⎤⎦ = 1 − 2 Pr [ X − Y ≥ 20]
2200 1
x − 20 2200 1
= 1 − 2∫ ∫ 2
dydx = 1 − 2 ∫ x − 20
y 2000 dx
2020 2000 200 2020 200 2

2 2200 1
2 ∫ 2020 (
x − 20 − 2000 ) dx = 1 − 2 (
x − 2020 )
2 2200
= 1− 2020
200 200
2
⎛ 180 ⎞
= 1− ⎜ ⎟ = 0.19
⎝ 200 ⎠

39 of 66
--------------------------------------------------------------------------------------------------------

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 ) = 12
+
5 12.5
+ = 0.295
100 100 100 100 100 100

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

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
A = 62 − ( 6 − 4 ) = 36 − 2 = 34
2

40 of 66
 ⎧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 60 ⎥ dt1 + ∫ t1 ⎢ 2 10 − t1
0 ⎥ dt1 ⎬
0 34 34
⎩ 0 4 0
⎭ ⎩ 0 ⎣ 34 ⎦ 4
⎣ 34 ⎦ ⎭
⎧ 4 3t1 6 1 ⎫ ⎧ 3t 2 1 ⎛ 2 1 3⎞ 6⎫
= 2 ⎨∫ dt1 + ∫ (10t1 − t12 ) dt1 ⎬ = 2 ⎨ 1 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 ( ) 2 ( ) ⎤⎦ = E ⎡⎣e( 1 2 ) e( 1 2 ) ⎤⎦
t X +Y + t Y − X t −t X t +t Y

1
( t1 −t2 )2
1
( t1 + t2 )2
1
(t2 2
1 − 2 t1t2 + t2 ) 12 (t
2 2
1 + 2 t1t2 + t2 )
= E ⎡⎣e( 1
t − t2 ) X
⎤ E ⎡ e( t1 +t2 )Y ⎤ = e 2
2 2

⎦ ⎣ ⎦ e2 = e2 e = 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
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 .

41 of 66
97. Solution: C
We are given f(t1, t2) = 2/L2, 0 ≤ t1 ≤ t2 ≤ L .
2 2
L t2
Therefore, E[T1 + T2 ] = ∫ ∫ (t1 + t2 ) 2 dt1dt2 =
2 2 2

0 0
L
⎪⎧ ⎡ t1 2 ⎤ ⎪⎫ 2 ⎪⎧ ⎛ t2 3⎞ ⎪⎫
3 t2 3
2
L L

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

42 of 66
 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

43 of 66
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
∞
1
Pr ( X ≤ x ) = 1 − Pr ( X ≥ x ) = 1 − ∫ e − t μ dt = 1 − ( −e − t μ ) ∞x = 1 − e− x μ
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
1 2 31 2
E [ X ] = ∫ ∫ 2 x 2 dydx = ∫ 2 x 2 dx = x |0=
0 0
0 3 3
1 1
1 1 2 1 1
E [Y ] = ∫ ∫ y 2 x dxdy = ∫ ydy = y |0=
0 0
0 2 2
1 1 1 2 3 1 12
E [ XY ] = ∫ ∫ 2x 2 ydxdy = ∫ x y | 0 dy = ∫ ydy
0 0 0 3 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 .

44 of 66
 105. Solution: A
The calculation requires integrating over the indicated region.

2x 1
8 2 14 4 4 4
dx = ∫ x 2 ( 4 x 2 − x 2 ) dx = ∫ 4 x 4 dx = x5 =
1 2x 1 1
E(X ) = ∫ ∫ x y dy dx = ∫ x 2 y 2
0 x 3 0 3
x
0 3 0 5 0 5
2x 1
8 2 18 8 1 56 56 5 56
dy dx = ∫ x ( 8 x3 − x3 ) dx = ∫
1 2x 1
E (Y ) = ∫ ∫ xy dy dx = ∫ xy 3 x 4 dx = x =
0 x 3 0 9
x
0 9 0 9 45 0 45
2x
8 2 2 18 8 2 1 56 56 28
x ( 8 x3 − x3 ) dx = ∫
1 2x 1
E ( XY ) = ∫ ∫ x y dy dx = ∫ x 2 y 3 dx = ∫ x5 dx = =
0 x 3 0 9
x
0 9 0 9 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
12 x 12 12
⎡ y2 ⎤
x
y x x 2 12 144
E[Y] = ∫ ∫ dydx = ∫ ⎢ dx = ∫ dx = = =3
0 0
12 x 0 ⎣
24 x ⎥⎦ 0 0
24 48 0 48
12 x 12 12 2
⎡ y2 ⎤
x
y x x3 12 (12)3
E[XY] = ∫0 ∫0 12 dydx = ∫0 ⎢⎣ 24 ⎥⎦ dx = ∫0 24 72 0
dx = =
72
= 24
0

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

45 of 66
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
Cov ( X , Y ) =
2
( Var ( X + Y ) − Var X − Var Y ) = ( 8 − 2.4 − 2.4 ) = 1.6
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 ]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

46 of 66
 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 ⎡ 1
( x − t2 ) ⎤
=∫ ∫ 2
e − t1 e −t2 dt1dt2 = ∫ e − t2 ⎢ −e − t1 2
⎥ dt2
0 0 0
⎢⎣ 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 1
− x − x
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 − 2 e 2
+ e −x
⎥ = e 2
− e− x , x > 0
dx ⎣ ⎦

47 of 66
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 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 ⎦0 2x + 1
2
Finally, f ( x ) = F ' ( x ) =
( 2 x + 1)
2

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

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

48 of 66
 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
∫ 1 2
y dy 3 1 8
Finally, Pr ⎡⎣1 < Y < 3 X = 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 ⎤⎦ = 2x2 + x2 = 3x2, 0 < x < 1
x

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
0.05
2 ⎡ 20 100 2 ⎤ 0.05 1 1 5
P[Y < 0.05|X = 0.10] = ∫ [10 + 100 y ] dy = ⎢ y + y ⎥ = + = = 0.4167 .
0
3 ⎣3 3 ⎦0 3 12 12

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

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 c | H ⎤⎦ = = = 0.0103
Pr [ H ] 0.97

49 of 66
 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( 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

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

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

50 of 66
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
1− x
0.2 1− x 0.2 ⎡ 1 2⎤
Pr [ X < 0.2] = ∫ ∫ 6 ⎡⎣1 − ( x + y ) ⎤⎦dydx = 6 ∫ ⎢⎣ y − xy − 2 y ⎥⎦ dx
0 0 0
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
(1 − x ) dx = − (1 − x ) | 0.2
0 = − ( 0.8 ) + 1 = 0.488
2 3 3
= 6∫
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

( )
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

51 of 66
 ⎪⎧15 y (1 − y ) , 0 < y < 1
32 12

or more precisely, g ( y ) = ⎨
⎪⎩0 otherwise

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

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 if 0 < x < 1 , x < y < x + 1
It follows that f ( x, y ) = f x ( x ) f y x ( y x ) = ⎨
⎩0 otherwise
Therefore,
1 1
Pr [Y > 0.5] = 1 − Pr [Y ≤ 0.5] = 1 − ∫ 2
∫
2
dydx
0 x

1 1 ⎛1 ⎞ 1
⎡1 1 ⎤ 1 1 1 7
= 1− ∫ 2
y 2
dx = 1 − ∫
⎜
2
− x ⎟ dx = 1 − ⎢ x − x 2 ⎥ 0 2 = 1 − + =
⎝2 ⎣2 2 ⎦ 4 8 8
x
0 0
⎠
[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.]

52 of 66
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 2 4 2 4 4
3 ⎡ 3 2⎤ ⎛ 12 3 2 ⎞ ⎡12 1 3 ⎤ 12 ⎛ 36 27 ⎞
∫3 t∫/ 2 8 xdxdt = ∫3 ⎢⎣16 ⎥⎦ t / 2 ∫3 ⎝⎜ 16 64 ⎠⎟ ⎣⎢16 64 ⎦⎥ 3 = 4 − 1 − ⎝⎜ 16 − 64 ⎠⎟
x dt = − t dt = − t

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

4
t=x
3
2
1
x
1 2

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

121. Solution: C
The marginal density of X is given by
1
1 1 ⎛ xy 3 ⎞ 1 ⎛ x⎞
( )
1
fx ( x) = ∫ 10 − xy 2
dy = ⎜ 10 y − ⎟ = ⎜10 − ⎟
0 64 64 ⎝ 3 ⎠ 0 64 ⎝ 3⎠
10
10 10 1 ⎛ x2 ⎞ 1 ⎛ 2 x3 ⎞
Then E ( X ) = ∫ x f x ( x)dx = ∫ ⎜10 x − ⎟ dx = ⎜ 5x − ⎟
2 2 64 ⎝ 3⎠ 64 ⎝ 9 ⎠2
1 ⎡⎛ 1000 ⎞ ⎛ 8 ⎞⎤
= ⎢ ⎜ 500 − ⎟ − ⎜ 20 − ⎟ ⎥ = 5.778
64 ⎣⎝ 9 ⎠ ⎝ 9 ⎠⎦

53 of 66
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 e–3y dy =
−2 y −3 y −2 y
Therefore, E(Y) = − 6 ye ) dy = 6 dy – 6
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 .

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

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
1 1
b
− −

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

54 of 66
124. Solution: A
First note that f( X ,Y ) ( x, y) e x (2e 2 y ) f X ( x) fY ( y) and that the support
of f( X ,Y ) is a cross product. Therefore X and Y are independent. Thus
Var(Y | X 3 and Y 3)
Var(Y | Y 3) Independence of X and Y
Var(Y 3) Memory-less property of exponential
Var(Y ) Var(3) Independence of Y and 3
Var(Y ) Var(3) = 0
E(Y ) 2 Exponential variance
(0.5) 2
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

1
we have X ~ U(y, 1) so that f ( x | y ) for y x 1.
1 y

By computation:

1 f X ,Y ( x, y) 2 1
f Y ( y) 2dx 2 2y f ( x | y) for y x 1
y f Y ( y) 2 2y 1 y

55 of 66
126. Solution: C
2
Using the notation of the problem, we know that p0 + p1 = 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.
⎧6 p0 − 15c = 1
2 ⎪
Also p0 + p1 = p0 + ( p0 − c ) = 2 p0 − c = . Solving simultaneously ⎨ 2
5 ⎪⎩2 p0 − c = 5
6
6 p0 − 3c =
5
1 2 1 25 25
⇒ −6 p0 + 15c = −1 . So c = and 2 p0 = + = . Thus 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

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

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
E[ X 2 ] = 0.25 * 0 + 0.75 * (7500 2 + ) = 56,250,000 , so the variance of one claim is
12
Var ( X ) = E[ X 2 ] − E[ X ]2 = 24,609,375 .

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.

56 of 66
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.

130
−
Therefore, G (115) = F (130) = 1 − e 100
= 0.727 .

130. Key: C

[
E 100(0.5)
X
] = 100E[(0.5) ] = 100E[e (
X ln 0.5 ) X
] = 100M X (ln 0.5) = 100 1
1 − 2 ln 0.5
= 41.9

57 of 66
131. Solution: E

p(n1 , n2 )
First, find the conditional probability function of N 2 given N 1 = n1 : p 2|1 (n 2 | n1 ) = ,
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
n1 −1 ∞ n1 −1
3⎛1⎞
( ) 3⎛1⎞
∞
p1 (n1 ) = ∑ p(n1 , n2 ) = ∑ e −n1 1 − e −n1
n2 −1
⎜ ⎟ = ⎜ ⎟ ,
n2 =1 4⎝4⎠ n2 =1 4⎝4⎠

∑ e (1 − e )
∞
− n1 − n1 n2 −1
since = 1 as the sum of the probabilities of a geometric random variable. The
n2 =1

conditional probability function is

p (n1 , n 2 )
p 2|1 (n 2 | n1 ) =
p1 (n1 )
(
= e − n1 1 − e − 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)
1−1.140 1−1.150
(1.140 −1.150 )
e 1000
−e 1000
= 1−1.140
= 1− e 1000

1000
e
= 0.0696
Expected Benefit = 5000 Pr(man dies before age 50) = (5000) (0.0696) = 347.96

58 of 66
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.

59 of 66
135. Key: E

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

136. Key: D

1
X follows a geometric distribution with p = . 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%).

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

1
E [X | X ≥ 3] =
p

137. 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.

60 of 66
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−r ⎛ n − 1⎞ n−2 n−2

P[ X = n] = ⎜ ⎟ p (1 − p) = ⎜ ⎟ (0.4) (1 − 0.4) = (n − 1)(0.4) (0.6) , for n ≥ 2.
2 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
= n−2
= (0.6) .
P[ X = n] (n − 1)(0.4) (0.6)
2
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.

61 of 66
141. Key: C

There are 10 (5 choose 3) ways to select the three columns in which the three items will
appear. The row of the rightmost selected item can be chosen in any of six ways, the row
of the leftmost selected item can then be chosen in any of five ways, and the row of the
middle selected item can then be chosen in any of four ways. The answer is thus
(10)(6)(5)(4) = 1200. Alternatively, there are 30 ways to select the first item. Because
there are 10 squares in the row or column of the first selected item, there are 30 − 10 = 20
ways to select the second item. Because there are 18 squares in the rows or columns of
the first and second selected items, there are 30 − 18 = 12 ways to select the third item.
The number of permutations of three qualifying items is (30)(20)(12). The number of
combinations is thus (30)(20)(12)/3! = 1200.

142. Key: B

The expected bonus for a high-risk driver is 0.8 ⋅12 (months) ⋅ 5.00 = 48 .
The expected bonus for a low-risk driver is 0.9 ⋅12 (months) ⋅ 5.00 = 54 .
The expected bonus payment from the insurer is 600 ⋅ 48 + 400 ⋅ 54 = 50,400 .

62 of 66
143. Key: E

P(Pr ∪ Li) = P(Pr) + P(Li ∩ Pr') = 0.10 + 0.01. Subtract from 1 to get the answer.

144. Key: E

The total time is less than 60 minutes, so if x minutes are spent in the waiting room, less
than 60 − x minutes are spent in the meeting itself.

145. Key: C

f (0.75, y ) f (0.75, y )
f ( y | x = 0.75) = 1
= .
1.125
∫ f (0.75, y)dy
0

Thus,
⎧4 / 3 for 0 < y < 0.5
f ( y | x = 0.75) = ⎨ ,
⎩2 / 3 for 0.5 < y < 1

which leads to Var (Y | X = 0.75) = 11/144 = 0.076.

146. Key: B

C = the set of TV watchers who watched CBS over the last year
N = the set of TV watchers who watched NBC over the last year
A = the set of TV watchers who watched ABC over the last year
H = the set of TV watchers who watched HGTV over the last year

The number of TV watchers in the set C ∪ N ∪ A is 34 + 15 + 10 − 7 − 6 − 5 + 4 = 45 .

Because C ∪ N ∪ A and H are mutually exclusive, the number of TV watchers in the set
C ∪ N ∪ A ∪ H is 45 + 18 = 63 .

The number of TV watchers in the complement of C ∪ N ∪ A ∪ H is thus 100 − 63 = 37 .

63 of 66
147. Key: A

Let X denote the amount of a claim before application of the deductible. Let Y
denote the amount of a claim payment after application of the deductible. Let
 be the mean of X, which because X is exponential, implies that  2 is the
variance of X and E X    2 .
2 2

By the memoryless property of the exponential distribution, the conditional

distribution of the portion of a claim above the deductible given that the claim
exceeds the deductible is an exponential distribution with mean  . Given that
EY   0.9 , this implies that the probability of a claim exceeding the
deductible is 0.9 and thus E Y    0.9  2
2 2
 1.82 . Then,
Var Y   1.82  0.9 2  0.992 .

148. Key: C

Let N denote the number of hurricanes, which is Poisson distributed with mean
and variance 4.

Let X i denote the loss due to the ith hurricane, which is exponentially
distributed with mean 1,000 and therefore variance (1,000)2 = 1,000,000.

Let X denote the total loss due to the N hurricanes.

This problem can be solved using the conditional variance formula. Note that
independence is used to write the variance of a sum as the sum of the variances.

Var  X   Var  E  X | N    E  Var  X | N  

 Var  E  X 1  ...  X N    E  Var  X 1  ...  X N  
 Var  NE  X 1    E  NVar  X 1  
 Var 1, 000 N   E 1, 000, 000 N 
 1, 0002 Var  N   1, 000, 000E  N 
 1, 000, 000(4)  1, 000, 000(4)  8, 000, 000

64 of 66
149. Key: B

1
Let N denote the number of accidents, which is binomial with parameters and
4
1 3  1  3  9
3 and thus has mean 3    and variance 3      .
4 4  4   4  16

Let X i denote the unreimbursed loss due to the ith accident, which is 0.3 times
an exponentially distributed random variable with mean 0.8 and therefore
variance (0.8)2 = 0.64. Thus, X i has mean 0.8(0.3) = 0.24 and variance
0.64(0.3)2  0.0576 .

Let X denote the total unreimbursed loss due to the N accidents.

This problem can be solved using the conditional variance formula. Note that
independence is used to write the variance of a sum as the sum of the variances.

Var  X   Var  E  X | N    E  Var  X | N  

 Var  E  X 1  ...  X N    E  Var  X 1  ...  X N  
 Var  NE  X 1    E  NVar  X 1 
 Var  0.24 N   E  0.0576 N 
  0.24  Var  N   0.0576E  N 
2

9 3
 0.0576    0.0576    0.0756.
 16  4

65 of 66
150. Key: B

The 95th percentile is in the range when an accident occurs. It is the 75th percentile of the
payout, given that an accident occurs, because (0.95 0.80)/(1 0.80) = 0.75. Letting x
x
be the 75th percentile of the given exponential distribution, F ( x) 1 e 3000 0.75 , so
x 4159 . Subtracting the deductible of 500 gives 3659 as the (unconditional) 95th
percentile of the insurance company payout.

151. Key: C

The ratio of the probability that one of the damaged pieces is insured to the probability
r 27 r
1 3
27
4 4r
that none of the damaged pieces are insured is , where r is the total
r 27 r 24 r
0 4
27
4
number of pieces insured. Setting this ratio equal to 2 and solving yields r = 8.

The probability that two of the damaged pieces are insured is

r 27 r 8 19
2 2 2 2 (8)(7)(19)(18)(4)(3)(2)(1) 266
0.27 .
27 27 (27)(26)(25)(24)(2)(1)(2)(1) 975
4 4

152. Key: A

The probability that Rahul examines exactly n policies is 0.1 0.9n 1 . The probability that
Toby examines more than n policies is 0.8n . The required probability is thus
1 0.72
0.1 0.9n 1 0.8n 0.72n 0.2857 .
n 1 9n 1 9 1 0.72

An alternative solution begins by imagining Rahul and Toby examine policies

simultaneously until at least one of the finds a claim. At each examination there are four
possible outcomes:
1. Both find a claim. The probability is 0.02.
2. Rahul finds a claim and Toby does not. The probability is 0.08.
3. Toby finds a claim and Rahul does not. The probability is 0.18
4. Neither finds a claim. The probability is 0.72.
Conditioning on the examination at which the process ends, the probability that it ends
with Rahul being the first to find a claim (and hence needing to examine fewer policies)
is 0.08/(0.02 + 0.08 + 0.18) = 8/28 = 0.2857.
66 of 66