Final Exam – April 13th, 2010 Stat 287, Concordia University

Exercise # 1 A) 0.1 B) 0.3 C) 0.4 D) 0.6 E) 0.8

A pair of loss random variables X and Y has joint density function
Exercise # 5
6 xy 3 x 2 for 0 x y 1 In the 2006 World Cup of soccer, according to an online ranking service, Brazil,
f x, y
0 otherwise Spain and Argentina are the three most highly ranked teams to win the tournament.
A survey of soccer fans asks the fans to rank from most likely to least likely the
Find the probability that the loss Y is no more than 0.5.
chance of each those country's teams winning the world cup. The survey found the
following: 2/3 of those who ranked Argentina first ranked Brazil second; 1/7 of
A) 0.015625 B) 0.03125 C) 0.0625 D) 0.125 E) 0.25
those who didn't rank Argentina first ranked Brazil second; 30% of those surveyed
ranked Brazil second. Of those surveyed who ranked Brazil second, find the
proportion that ranked Argentina third.
Exercise # 2
A) 1/3 B) 2/3 C) ¾ D) 2/5 E) 1/7

Exercise # 6

Exercise # 3
The marginal distributions of X and Y are both normal with mean 0, but X has
variance of 1 and Y has a variance of 4. X and Y have bivariate normal distribution Exercise # 7
with the following joint pdf:
0 . 3125 0 . 78125 x 2 0 . 6 xy 0 . 25 y 2
f x, y e
Find the coefficient of correlation between X + Y and X - Y.

A) -0.134 B) -3.756 C) 0.247 D) -1.141 E) -0.684

Exercise # 4
An insurance policy pays for a random loss X subject to a deductible of C, where
0< C < 1. The loss amount is modeled as a continuous random variable with Exercise # 8
density function: Bob and Doug are both 100-metre sprinters. Bob’s sprint time is normally
distributed with a mean of 10 seconds and Doug’s sprint time is also normally
2x 0 x 1 distributed, but with a mean of 9.9 seconds. Both have the same standard deviation
f ( x)
0 otherwise in sprint time of . Assuming that both have independent sprint times and given
that there is 0.95 chance that Doug beats Bob in any given race, find .
Given a random loss X, the probability that the insurance payment is less than 0.5 is
equal to 0.64. Calculate C. A) 0.040 B) 0.041 C) 0.042 D) 0.043 E) 0.044
1
Final Exam – April 13th, 2010 Stat 287, Concordia University
Exercise # 9 What percentage of the claims is within one standard deviation of the mean claim
An insurer has a portfolio of 1000 independent one-year term insurance policies. size?
For any one policy, there is a probability of 0.01 that there will be a claim. Find the A) 45% B) 55% C) 68% D) 85% E) 100%
probability that the insurer will experience at least 15 claims.
Exercise # 13
A) 0.08 B) 0.10 C) 0.12 D) 0.14 E) 0.16
X has a uniform distribution on the interval (0, 1). The random variable Y is defined
by Y X k , where k > 0. Find the mean of Y, if it is finite.
Exercise # 10
3 e1 1
A) B) C) D) 1 k E) k 1
1 2k 1 k 1 k

Exercise # 14
In a block of car insurance business you are considering, there is a 50% chance that
a claim will be made during the upcoming year. Once a claim is submitted, the
claim size has the Pareto distribution with parameters a = 3 and = 1000. Only one
claim will happen during the year. Determine the expected value of the
unconditional distribution of the claim size.

A) 100 B) 250 C) 500 D) 750 E) 1000

Exercise # 15

A) 1,320 B) 2,082 C) 5,760 D) 8,000 E) 10,560

Exercise # 11
A marketing survey indicates that 50% of the population owns an automobile, 35%
owns a house, and 15% owns both an automobile and a house. Calculate the
probability that a person chosen at random owns an automobile or a house but not
both.

A) 0.50 B) 0.55 C) 0.60 D) 0.65 E) 0.70 A) 0.115 B) 0.173 C) 0.224 D) 0.327 E) 0.514

Exercise # 12
A probability distribution of the claim sizes for an auto insurance policy is given in Exercise # 16
the table below: X and Y are independent continuous random variables. They have the same
Claim Size 20 30 40 50 60 70 80 1 1
distribution functions, FX t 1 for t > 1 and FY t 1 for t > 1.
Probability 0.15 0.10 0.05 0.20 0.10 0.10 0.30 t t
2
Final Exam – April 13th, 2010 Stat 287, Concordia University
We define two new random variables W and Z as follows: Exercise #21
W = min{X, Y} and Z = max{X, Y}. Find the mean of W and the mean of Z. X is a continuous random variable with pdf f X x cx 4
on the interval a, ,
A) 2 and 8 B) 1 and 8 C) 8 and 8 D) 8 and 2 E) 8 and 1 1
where a > 0. Y is a random variable defined by Y . Find E X EY .
X
Exercise # 17 A) 9/8 B) 5/8 C) 7/4 D) 11/8 E) 3/2

Exercise # 22
An insurer has 10 independent one-year term life insurance policies. The face
amount of each policy is 1000. The probability of a claim occurring in the year
under consideration is 0.1. Find the probability that the insurer will pay more than
expected claim for the year.
Exercise # 18
Urn I contains 7 red and 3 black balls, and Urn II contains 4 red and 5 black balls. A) 0.01 B) 0.10 C) 0.16 D) 0.26 E) 0.31
After a randomly selected ball is transferred from Urn I to Urn II, 2 balls are
randomly drawn from Urn II without replacement. Find the probability that both
Exercise # 23
balls drawn from Urn II are red.
An urn contains 100 lottery tickets. There is one ticket that wins $50, three tickets
that win $25, six tickets that win $10 and 15 tickets that win $3. The remaining
A) 13/115 B) 44/225 C) 23/125 D) 36/205 E) 3/7
tickets win nothing. Two tickets are chosen at random, with each ticket having the
same probability of being chosen. Let X be the minimum amount won by one of the
Exercise # 19
two tickets. Find the expected value of X.
A piece of equipment is being insured against early failure. The time from purchase
until failure of the equipment is exponentially distributed with mean 10 years. The
A) 0.1348 B) 0.0414 C) 0.2636 D) 0.7922 E) Does not exist
insurance will pay an amount x if the equipment fails during year and it will pay
0.5x if failure occurs during the second or third year. If failure occurs after the first
Exercise # 24
three years, no payment will be made. At what level must x be set if the expected
payment made under this insurance is to be 1000? Every member of an insured group has an annual claim amount distribution that is
exponentially distributed. The expected claim amount of a randomly chosen
A) 3858 B) 4449 C) 5382 D) 5644 E) 7235 member of the group is 1/c, where c is uniformly distributed between 1 and 2. Find
the probability that a randomly chosen member of the group has annual claim less
Exercise #20 than 1.
A health insurance policy for a family of three covers up to two claims per person
A) 0.77 B) 0.81 C) 0.85 D) 0.89 E) 0.93
during a year. The joint probability function for the number of claims by the three
family members is f x, y, z 6 x y z , where x, y, z can each be 0, 1 or 2, and
81 Exercise # 25
X, Y and Z are the number of claims for person 1, 2 and 3 in the family. Find the
probability that the total number of claims for the family in the year is 2 given that An insurer is considering insuring two independent risks. The loss for each risk has
person X has no claims for the year. an exponential distribution with a mean of 1. The insurer is considering issuing two
separate insurance policies, one for each risk, each of which has a policy limit
A) ½ B) 1/3 C) 1/6 D) 1/9 E) 1/12 (maximum payment) of 2. The insurer is also considering issuing a single policy
covering the combined loss on both risks, with a policy limit of 4. We denote by A

3
Final Exam – April 13th, 2010 Stat 287, Concordia University
the expected insurance payment for each of the two separate policies, and we 0 x 0
denote by B the expected insurance payment for the single policy covering the x / 2000 0 x 1000
combined loss. Find B / A.
F ( x) 0.75 x 1000
A) 2.015 B) 1.093 C) 1.547 D) 2.875 E) 0.874 ( x 11000) / 16000 1000 x 5000
1 x 5000

Exercise # 26
An insurance company estimates that 40% of policyholders who have only an auto What is E B Var (B) ?
policy will renew next year and 60% of policyholders who have only a homeowner
policy will renew next year. The company estimates that 80% of policyholders who A) 2400 B) 2450 C) 2500 D) 2550 E) 2600
have both an auto and a homeowner policy will renew at least one of those policies
next year. Company records show that 65% of policyholders have an auto policy,
50% of policyholders have a homeowner policy and 15% of policyholders have Exercise # 30
both an auto and a homeowner policy. Using the company’s estimates, calculate An insurer finds that the time until occurrence of a claim from its property
the percentage of policyholders that will renew at least one policy next year. insurance division is exponentially distributed with a mean of 1 unit of time, and
the time until occurrence of a claim from its insurance division is exponentially
A) 20 B) 29 C) 41 D) 53 E) 70 distributed with a mean of 2 units of time. Claims occur independently in the two
divisions. Find the expected time until the first claim occurrence, property or life.

Exercise # 27 A) 1/6 B) 1/3 C) ½ D) 2/3 E) 5/6

A family buys two policies from the same insurance company. Losses under the
two policies are independent and have continuous uniform distribution on the
interval from 0 to 10. One policy has a deductible of 1 and the other has a
deductible of 2. The family experiences exactly one loss under each policy.
Calculate the probability that the total benefit paid to the family does not exceed 5.

A) 0.13 B) 0.25 C) 0.30 D) 0.32 E) 0.42

Exercise # 28
An insurer has a portfolio of 1000 independent one-year insurance policies. For any
particular policy there is a probability of 0.01 of a loss occurring within the year.
For any particular policy, if a loss occurs, the expected loss is $2000 with a
standard deviation of $1000. Find the standard deviation of the insurer’s aggregate
payout for the year (nearest 1000).

A) 6000 B) 7000 C) 8000 D) 9000 E) 10000

Exercise # 29
The claim amount random variable B has the following distribution function: