MAY 2013 Iob Solutions
MAY 2013 Iob Solutions
MAY 2013 Iob Solutions
SECTION A
Q1. b Q11. a
Q2. d. Q12. b
Q3. b Q13. c
Q4. a Q14. c
Q5. c Q15. c
Q6. c Q16. a
Q7. a Q17. b
Q8. B Q18 d
Q9. a Q19. a
Q10. b Q20. b
SECTION B
Q1. (a) (i) Payback is the time in which the initial cash outflow of an
investment is expected to be recovered from the cash inflows
generated by the investment. A1
0 (50) (50)
1 10 (40)
1
2 13 (27)
3 16 (11)
4 19 8
5 22 30
M1 M1
So
11
=3 3.579 (or approx 4 yrs), M1, A1
19
(b) (i) The Central Limit Theorem let us use the normal distribution for
large samples. A1
This enables us calculate confidence intervals and use the
normal distribution as a test statistic in significance tests. A1
32 2.05 6 32 2.05 6 , M1
50 50
30.26 33.74 , M1, A1
Width of the interval: 33.74 – 30.26 =3.48, A1
= 1 8C0 0.2 0 1 0.2
80
8C1 0.21 1 0.2
81
, M1
= 0.496, A1
2
(TOTAL: 20 Marks)
(Also total area under the curve is 1; the normal curve approaches
but never touches the horizontal axis as it extends farther and
farther away from the mean)
O 40000
(I) Now P(O 40000) P , M1
40000 36000
= P z , z ~ N (0,1) , M1
10000
O 41000
(II) P(O 41000) P , M1
41000 36000
= P z , z ~ N (0,1) , M1
10000
(III)
30000 36000 40000 36000
P(30000 O 40000) P z ,
10000 10000
z ~ N (0,1) , M1
3
= P 0.6 z 0.4 , M1
(b)
Project A Project B
Probability Profit (K million) p x Probability Profit (K million) p x
(p) (p)
0.4 35 14 0.2 20 4
0.5 60 30 0.3 25 7.5
0.3 40 12 0.3 40 12
0.1 25 2.5 0.1 80 8
0 0.1 120 12
Total 58.5 43.5
M1, M1 M1, M1
The bank should opt for Project A on account of a higher expected value, A1
(TOTAL: 20 Marks)
(ii) Steps:
4
Light crude 0.3 0.2 0.3 K31500
Heavy crude 0.3 0.4 0.2 K27000
Min required 0.9 0.8 0.5
Then:
M2
Hence buy no barrel of light crude and buy 3 million barrels of heavy
crude oil to minimize cost. A1
5
(b) Let L, M and H denote low risk, medium risk and high risk respectively.
Let F and F’ denote a policy holder files a claim and does not file a claim
respectively, M1
F
0.01
0.99 F'
L
0.6 F
0.1
0.3 M
0.1 0.9
F'
H 0.5
F
0.5 F'
M2
P H F
Need to find P(H|F) = , M1
P F
0.1 0.5
= = 0.58, M1, A1
0.1 0.5 0.3 0.1 0.6 0.01
(TOTAL: 20 Marks)
e 53 5
3
0
e
5
3
3
5
1
= 1
0 ! 1! , M1
1 0.189 0.504 1 0.693 0.307 , M1,A1
(ii) 30 queries every 45 minutes means
X ~ Poisson ( 30 45) , M1
6
Then P( X 3) =
e
30
45
30 45
3
0.025 , M1, A1
3!
O E 2
Test statistic:
2
E
,
M2
O E 2
120 143.3 2
230 214.9 2
70 69.2 2
Then
2
E
=
143.3
214.9
.....
69.2
= 10.059, M2
7
12
Q5. (a) Now FV K 75,000 2 K150,000 , PV K 75,000 and r 0.12 , M1
100
So 150, ,000 75,0001 0.12 , M1
n
2 1.12
n
(b) (i) The Consumer Price Index measures the annual cost of living
of a typical urban family for a particular country. A1
7125
Hence the CPI is: 100 142.5 , M1, A1
5000
(c) Hypotheses: H 0 : 35
H1 : 35 , M1
8
x
Test statistic: Since n = 64 is large, then z , M1
n
37 35
= 2.67 , M1
6
64