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A. 1.5
B. 2
C. 2.25
D. 2.5
E. 3.25
2. Let X1, X2, and X3 be independent identically distributed normal variables with mean and standard
deviation .
What is the probability that the second largest of these variables is between - and + ?
A. 0.483
B. 0.683
C. 0.717
D. 0.779
E. 0.865
3. The chief security officer of a large business is having two meetings, one after the other, with lengths
of time modeled by random variables X and Y. The joint density function fX,Y(x, y) is uniform over the
region
0.5|x - 10| + 0.2|y - 12| 1.
What is the expected length of time from the beginning of the first meeting to the end of the second
meeting?
A. 11
B. 21
C. 22
D. 23
E. 80
4. An urn contains 10 balls: 4 red and 6 blue. A number n is chosen randomly and uniformly between 1
and 10 inclusive, then n balls are drawn from the urn without replacement.
What is the probability that all red balls are drawn?
A. 0.19
B. 0.22
C. 0.35
D. 0.50
E. 0.60
5. In the next 50 years, the probability that a certain house experiences damage from an earthquake is
0.6, given the house experiences damage from a landslide. The probability that the house experiences
damage from a landslide is 0.5, given the house experiences damage from an earthquake.
What is the probability that the house experiences damage from just a landslide given the house
experiences damage from either an earthquake or a landslide in the next 50 years?
A. 0.20
B. 0.25
C. 0.30
D. 0.38
E. 0.62
A. 0.54
B. 0.64
C. 0.74
D. 0.84
E. 0.94
7. Suppose the amount of a surgical claim is uniformly distributed on the interval [30, 90]. Given the
surgical claim amount a, the size of the actual payout by the insurance company is uniformly distributed
on the interval [0, a]. Finally, the actual payout is reduced by ten percent for fees and given to the
policyholder as benefit.
What is the variance of the final benefit?
A. 97
B. 128
C. 155
D. 324
E. 400
A. -2
B. -1
C. 0
D. 1
E. 2
9. Assuming the claim for a certain type of umbrella policy is greater than the deductible, an actuary
determines the proportion of the claim that exceeds the deductible as payout follows the distribution
fX(x) = cx-1/3, 0 < x < 1,
fX(x) = 0 elsewhere,
where c is an appropriate constant. Suppose three such claims are made.
Assuming these claims are independent, what is the probability that the payout of the maximum of
these claims is greater than its deductible?
A. 0.125
B. 0.25
C. 0.5
D. 0.75
E. 0.875
10. The sum of two independent identically distributed random variables X and Y has moment
generating function
MX+Y(t) = 0.25(4 - 4t + t2)/(1 - 2t + t2).
What is P(X < 1)?
A. 1 - 0.5e-1
B. 0.5 - e-1
C. 0.5e-1
D. 1 - e-0.5
E. e-0.5
11. The joint cumulative distribution function for two random variables X and Y is
FX,Y(x, y) = 3xy/(1 + 2y) , 0 < x < 1, 0 < y < 1.
What is P(X > 0.5 | X + Y = 1)?
A. 0.25
B. 0.50
C. 0.60
D. 0.75
E. 0.91
12. Let X1, X2, , X75 be 75 independent identically distributed Poisson variables with mean 3.
What is the probability that the average of these variables exceeds 3 given that each of these variables
is at least 1?
A. 0.80
B. 0.90
C. 0.94
D. 0.97
E. 0.99
13. Let X1, X2, X3, X4, and X5 be five random variables such that the variance of the sum of any three of
them is 300,000 and the variance of the sum of all five of them is 400,000.
What is the sum of the variances of all Xi?
A. 100,000
B. 400,000
C. 500,000
D. 600,000
E. 900,000
14. An insurance company decides to use a rating system to describe the intensity of a thunderstorm.
The rating of a thunderstorm is modeled by a random variable X supported over all positive integers. An
actuary determines the following:
1) P(X = a)*P(X = a + 2) = P(X = a + 1)2 for all positive integers a.
2) P(X = 1) = 0.75.
3) The expected damage for a given rating a is equal to 90a2.
What is the expected damage from a single thunderstorm?
A. 160
B. 200
C. 320
D. 720
E. 2520
15. Suppose A, B, and C are pairwise independent events such that P(A B C) = 0 and P(A) = P(B) =
P(C). What is the maximum value of P(A B C)?
A. 0
B. 1/2
C. 2/3
D. 3/4
E. 1
16. A bivariate normal variable in X and Y satisfies P(X > Y + 50) = 0.9 and P(X > Y + 72) = 0.8. What is
the difference between E(X) and E(Y)?
A. 28
B. 50
C. 108
D. 114
E. 138
A. 0.10
B. 0.20
C. 0.30
D. 0.40
E. 0.50
18. Let X and Y be two independent continuous variables with means 500 and 200 and standard
deviations 8 and 6 respectively.
What is the smallest possible value for P(275 < X - Y < 325)?
A. 0.00
B. 0.04
C. 0.16
D. 0.69
E. 0.84
19. The perks given to various policyholders depend on their level of membership. A membership level
can be any integer between 1 and 10 inclusive. A policyholder with a given level of membership also
has all lower levels of membership, and all policyholders have a membership level. The probability that
a policyholder has a level of membership given he/she has the next lower membership is constant over
all such levels, and the probability that a randomly chosen policyholder has a level 10 membership is
0.001.
What is the probability that a randomly chosen policyholder has a level 3 membership?
A. 0.100
B. 0.126
C. 0.215
D. 0.250
E. 0.933
A. 0.426
B. 0.488
C. 0.512
D. 0.574
E. 0.831
21. Within a given month, n claims fell below the deductible. If 2n claims are chosen at random from all
claims made during the month, it is expected that 4 of those claims fall below the deductible. If n + 6
claims are chosen at random from all claims made during the month, it is expected that 3 of those
claims fall below the deductible.
How many claims were made during the month?
A. 12
B. 18
C. 72
D. 162
E. 288
22. The number n of the first customer to make a purchase at grocery store A follows a geometric
distribution with mean , supported only on all positive integers n. The number m of the first customer
to make a purchase at grocery store B follows an independent identical distribution.
What is the probability that m and n are the same on any given day?
A. (2 - 1)-1
B. -1
C. (2 - 1)-2
D. (2 - 1)-2
E. (2 - 1)-2
23. The joint probability distribution function for random variables X and Y is
fX,Y(x, y) = k + xy/2, 1 < x, y < 2,
fX,Y(x, y) = 0 elsewhere,
where k is an appropriate constant.
What is the conditional distribution of X given Y = y over the region 1 < x < 2, 1 < y < 2?
A. (6x + 1)/8
B. (6y + 1)/8
C. (1 + 4xy)/8
D. (4xy - 1)/(6x - 1)
E. (4xy - 1)/(6y - 1)
24. Suppose X and Y are two random variables such that Var(X) = Var(Y) = 100 and Cov(X, Y) = 10.
Let W = 2X - Y and Z = X + 2Y.
What is Cov(W, Z)?
A. 0
B. 30
C. 50
D. 430
E. 450
25. The joint probability density function fX,Y(x, y) for random variables X and Y is uniform over the
region 0 < x < 1, 0 < y < 2 - x. Let Z = Y / X.
What is the cumulative distribution function FZ(z) for Z when z > 1?
A. z/3
B. z/(z + 2)
C. 1/(2z + 1)
D. (3z - 1)/(3z + 3)
E. 1/3 + (2z - 2)/(3z - 1)
26. Let A, B, and C be mutually independent events such that P(C) > 0. You are given the following:
1) P(A B C) = 0.4P((A B) | C)
2) P((A C) (B C)) = 0.5P(C | A)
What is P((A B) | C)?
A. 0.2
B. 0.3
C. 0.4
D. 0.5
E. 0.8
27. Let W, X, Y, and Z be independent identically distributed variables with a uniform distribution among
the integers 1 through 20 inclusive.
What is P(W = 9 | W + X + Y + Z = 17)?
A. 1/70
B. 2/105
C. 7/360
D. 1/40
E. 3/80
28. A couple receives a 5-year life insurance policy with a one-time premium of 5,000. The death
benefit is 50,000 received if the husband or wife does not survive at least 5 years. The expected excess
of premiums over claims is 1,000. Assume the survival probabilities of the husband and wife are
independent and the probability that the husband does not survive at least 5 years is twice the
probability that the wife does not survive at least 5 years.
What is the probability that the husband survives at least 5 years?
A. 0.027
B. 0.054
C. 0.892
D. 0.948
E. 0.973
29. A device has three components, A, B, and C. The device fails if any component fails. The lifetimes
of A, B, and C are independent exponential variables with means 1.4, 1.6, and 2 years.
What is the probability that the lifetime of the device is less than one year?
A. 0.16
B. 0.48
C. 0.52
D. 0.84
E. 0.99
30. The value of the damage done to a particular structure due to a fire is determined to be a random
variable X which is exponentially distributed such that E(X | X > 120) = 140. The claim for damages is
subject to a deductible of 20 and a payout limit of 60. Let the final payout be modeled by a random
variable Y.
What is the moment generating function MY(t) for Y?
A. 1 + 20t(e60t - 4 - e-1)/(20t - 1)
B. 1/(1 - 20t) + e60t - 4 - e-4
C. (e-1 - e-4)/(1 - 20t) + 1 + e-4 - e-1
D. (20te60t - 3 - 1)/(20t - 1)
E. 20(te60t - 4 - 1)/(20t - 1)
Solutions
1. C
2. E
3. C
4. B
5. B
6. A
7. D
8. C
9. D
10. A
11. D
12. A
13. D
14. B
15. D
16. D
17. A
18. E
19. C
20. A
21. C
22. A
23. E
24. B
25. D
26. D
27. E
28. D
29. D
30. A
The solutions are given difficulties roughly based on the following measures:
Difficulty 1 requires basic understanding or key formulae. The math is never messy. They are among
the easiest questions on a real exam. ~2 minutes for a proficient exam taker.
Difficulty 2 requires intermediate understanding and some work. They are among the easier questions
on a real exam. ~4 minutes for a proficient exam taker.
Difficulty 3 requires advanced understanding, a moderate level of work, and/or some small
mathematical insight. They can be linear but long, or short but insightful. These are average questions
on a real exam. ~6 minutes for a proficient exam taker.
Difficulty 4 requires thorough understanding, lots of work, and/or insight. They can be linear but ugly, or
short but greatly insightful. These questions are among the harder questions on a real exam. ~8
minutes for a proficient exam taker.
Difficulty 5 requires mastery, tons of work, and/or great insight (usually all three). They are never linear
or short, and sometimes combine multiple syllabus sections. These questions are equal to the hardest
questions expected on a real exam. ~10 minutes for a proficient exam taker.
Solution to 1. (Difficulty 3)
We begin this question by writing down the formulae for the probability mass function at 1, the variance,
and the expected value for a binomial distribution with parameters n and p:
P(X = 1) = nC1 * p1 * (1 - p)n - 1 = np(1 - p)n - 1
Var(X) = np(1 - p)
E(X) = np
Substitute the formulae into what we are given in the problem statement:
4*Var(X) = E(X)
16*P(X = 1) = E(X)
4np(1 - p) = np
4(1 - p) = 1
16np(1 - p)n - 1 = np
p = 3/4
16(1/4)n - 1 = 1
n=3
Solution to 2. (Difficulty 4)
The probability that a normal variable is within one standard deviation from the mean is around 68
percent. This means that the probability that a normal variable is above or below one standard
deviation above or below the mean respectively is around 1/2*(100 - 68) = 16 percent. Separate the
standard normal into three regions: 1) the left tail, 2) the middle region within one standard deviation
from the mean, and 3) the right tail.
Randomly choose standard normal variable A from these three regions, then normal variable B , then
normal variable C. There are four possibilities where the middle variable is in region 2:
The second and third choices can happen three different ways depending on which of A, B, or C are in
the tail region. The fourth choice can happen six different ways, or 3! ways. Therefore:
P(all three variables in region 2) = 0.683 = 0.314
P(smallest variable in 1, other two in 2) = 3 * 0.16 * 0.682 = 0.222
P(largest variable in 3, other two in 2) = 3 * 0.16 * 0.682 = 0.222
P(smallest variable in 1, middle in 2, largest in 3) = 6 * 0.162 * 0.68 = 0.104
Adding these up, we get 0.862, which is roughly 0.865.
Solution to 3. (Difficulty 3)
This is a quick problem which requires insight. In short, the region is symmetric in the x and y directions
about the point (10, 12), so the line x + y = c is just as much in the region as the same line reflected
about x + y = 22. Therefore, the marginal distribution of x + y is symmetric about 22, so E(X + Y) is 22.
Remarks: To see that the region is symmetric, substitute (20 - x) for x or (24 - y) for y. Notice these
transformations reflect the region about x = 10 and y = 12 respectively and the inequality remains the
same. Then, assume y is greater than or equal to 12 and x is greater than or equal to 12 to eliminate
the absolute value signs. The boundary to the inequality will end up being a line, and the line reflected
about x = 10, y = 12, and both x = 10 and y = 12 will yield a diamond-shaped region.
Unfortunately, if you solve this problem by integrating the piecewise analytic marginal distribution of x
and y, it could take a while.
Solution to 4. (Difficulty 4)
Draw all ten balls and line up the ten balls in the order they are drawn. Uniformly choose n from among
1 through 10 and put a partition after the nth ball. Assuming four of the balls to the left of the partition
are red, then there are n choose 4 ways this can happen. Without the assumption, there were 10
choose 4 ways to draw the ten balls. Therefore, given that the integer n was chosen, the probability that
all four red balls are drawn is nC4 / 10C4. The probability that a particular n was chosen is ten percent
because the distribution is uniform. Therefore, the probability that all four red balls are drawn is:
(sum from b = 1 to 10) [0.1 * nC4 / 10C4] = 0.1 / 10C4 * (sum from b = 1 to 10)[bC4]
= 0.1 / 210 * (0 + 0 + 0 + 1 + 5 + 15 + 35 + 70 + 126 + 210)
= 0.22
Remarks: Those who have studied the free SOA sample problems may recognize the first sentence of
this question, question number 4, as being identical to the first sentence of question number 4 in the
free SOA sample problems.
Solution to 5. (Difficulty 3)
Let E and L represent the event that the house experiences damage from an earthquake and landslide
respectively. Then we want to find P(L \ E | E L). We can rewrite this as:
P(L \ E | E L) = P((L \ E) (E L))/ P(E L)
Because L \ E is a subset of E L, (L \ E) (E L) = (L \ E):
P(L \ E | E L) = P(L \ E) / P(E L)
From the addition rule, P(L \ E) = P(L) - P(E L). Also, from the inclusion-exclusion principle, P(E L) =
P(E) + P(L) - P(E L). Therefore:
P(L \ E | E L) = (P(L) - P(E L))/(P(E) + P(L) - P(E L))
From the problem statement:
P(E | L) = 0.6 = P(E L) / P(L), which implies that P(L) = P(E L) / 0.6.
P(L | E) = 0.5 = P(E L) / P(E), which implies that P(E) = P(E L) / 0.5.
We can now substitute P(E L) / 0.6 for P(L) and P(E L) / 0.5 for P(E) and get P(E L) in the
numerator and denominator, which will cancel out:
P(L \ E | E L) = (P(L) - P(E L)) / (P(E) + P(L) - P(E L))
= (P(E L) / 0.6 - P(E L)) / (P(E L) / 0.5 + P(E L) / 0.6 - P(E L))
= (1 / 0.6 - 1) / (1 / 0.5 + 1 / 0.6 - 1)
= 0.25
Remarks: My favorite way to solve problems like this is to use the partition method. Draw the Venn
Diagram and label the outside region (E L) a, the E but not in L region (E L) b, the E and L region
(E L) c, and the L but not in E region (E L) d. Then we have the equations:
c / (c + d) = 0.5
c / (c + b) = 0.6
and we want to solve for d / (b + c + d). Solve the above two equations for d and b, substitute into what
we want to solve, and the cs will cancel.
Solution to 6. (Difficulty 4)
Let A and B be the damage to policyholders A and B respectively. There are four cases: 1) A and B are
below deductible, 2) A is above and B is below deductible, 3) A is below and B is above deductible, and
4) A and B are above deductible. We are interested in 2 and 4 since the payout to policyholder A can be
greater than the payout to policyholder B only in these two cases.
Note that A and B are distributed as f(x) = e-x / 400 / 400.
Case 2) The probability that A is above deductible is e-100 / 400. This is a result of integrating f(x) from 100
to infinity.
The probability that B is below deductible is 1 - e-200 / 400. This is a result of integrating f(x) from 0 to 200.
The probability that A is above and B is below deductible is e-100 / 400 * (1 - e-200 / 400) = 0.3064
Case 4) The probability that A is above deductible is e-100 / 400.
The probability that B is above deductible is e-200 / 400.
Here is the key insight: Assuming A and B are above deductible, the distribution of their payouts are
identical. This is due to the memoryless exponential distribution along with the idea that the payout after
a deductible is a shift to the left by the amount of the deductible. Because their distributions are
identical exponential distributions, the probability that the payout of A is greater than the payout of B
given that both exceed the deductible is 0.5. Therefore, the probability that A and B are above
deductible and payout A is greater than payout B is:
e-100 / 400 * e-200 / 400 * 0.5 = 0.2362
Adding Case 2 and Case 4 probabilities, we get:
P(A pays more than B) = 0.3064 + 0.2362 = 0.54
Remarks: Without the key insight, solving this problem using convolutions is hell.
Solution to 7. (Difficulty 2)
This is a direct application of the law of total variance. Let A be the surgical claim amount random
variable a, and let B be the actual payout random variable. Then:
Var(B) = E(Var(B | A)) + Var(E(B | A))
= E(A2 / 12) + Var(A / 2)
= E(A2) / 12 + Var(A) / 4
= (Var(A) + E(A)2) / 12 + Var(A) / 4
= ((90 - 30)2 / 12 + (60)2) / 12 + (90 - 30)2 / 48
= 400
If B is reduced by ten percent, then B is multiplied by 0.9. Therefore, the variance of the final benefit is:
Var(0.9B) = 0.81 * Var(B) = 324
Solution to 8. (Difficulty 1)
We can rearrange the denominator of the joint moment generating function:
2t1t2 - 2t1 - t2 + 1 = 2t1 * (t2 - 1) - (t2 - 1) = (2t1 - 1) * (t2 - 1)
Therefore, the joint moment generating function is the product of a function of the moment generating
variable of X and a function of the moment generating variable of Y. Whenever this is the case, the
underlying variables are independent. Therefore, the correlation coefficient is 0.
Remarks: In fact, X is an exponential distribution with mean 1/2 and Y is an exponential distribution with
mean 1.
Solution to 9. (Difficulty 4)
Integrating f(x) from 0 to 1 and setting it equal to 1:
(integral from x = 0 to 1) [c * x-1/3] = 3/2 * c * (1)2/3 - 3/2 * c * (0)2/3 = 3/2 * c = 1
We get that the normalizing constant c equals 2/3.
If we want the payout to be greater than the deductible, then the proportion of the claim that exceeds
the deductible has to be greater than one half. However, because we want the probability that any of
the three claims exceeds the deductible, this direct route will be infeasible. Instead, we compute the
complement, the probability that all three claims are below the deductible.
The probability that the payout is less than the deductible is:
(integral from x = 0 to 1/2) [2/3 * x-1/3] dx = 2/3 * (integral from x = 0 to 1/2) [x-1/3] dx
= 2/3 * (3/2 * (1/2)2/3 - 3/2 * (0)2/3) = (1/2)2/3
The probability that all three claims have payouts less than the deductible is therefore ((1/2)2/3)3 = 1/4.
Finally, the probability that the maximum of these claims exceeds the deductible is 1 - 1/4 = 0.75.
= 114
Remarks: In general, a direct substitution does not work if the function given is the probability density
function or if the mapping is not one-to-one. Neither of these cases occur here, so we can directly
substitute into the cumulative distribution function and the boundaries. Nevertheless, we can still use
the general formula to check our answer. We first find the probability density function:
fX(x) = d(k * ln(x))/dx = k/x
Then we find the inverse mapping between Y and X:
g(x) = ln(x)
g-1(x) = ex
Using the general formula for a univariate transformation:
fY(y) = |d(g-1(y))/dy| * fX(g-1(y))
= |d(ey)/dy| * fX(ey)
= |ey| * k/ey
=k
To find the probability for this region, perform a double integral in the y-direction and then in the xdirection. The integral setup should be:
(integral from x = 0 to 1/2) (integral from y = (x / 2)1/2 to 1 - x) [4/3 + x + y] dydx
= (integral from x = 0 to 1.2) [11/6 - 19x/12 - x2/2 - 4x1/2/(3*21/2) - x3/2/(21/2)] dx
= 0.426
n = 12
Therefore:
4 = 2(12)(12/N) = 288/N
N = 72
This region is confined to the interior of the trapezoid and is to the right of the line y = zx. Because z >
1, this region is somewhat complicated to compute its volume. Instead, we know that the volume of the
entire joint probability density function is 1, so we just need to find 1 minus the volume of the region to
the left of the line y = zx. This region is a triangular prism with height 2/3 and with base vertices (0, 0),
(0, 2), and a point along y = 2 - x such that y = zx.
Setting 2 - x = zx, we see that x = 2/(1 + z) is the x-coorinate of the intersection point. Therefore, the
area of the triangular base is:
1/2 * b * h = 1/2 * 2 * (2/(1 + z))
= 2/(1 + z)
The volume of the triangular prism is just the height times the area of the triangular base, which is:
2/3 * 2/(1 + z) = 4/(3 + 3z)
Finally, because we found the complement of the region we wanted to find, the cumulative distribution
function of Z is:
1 - 4/(3 + 3z) = (3z - 1)/(3z + 3)
Remarks: The first equation in the problem does not need to be used, but it does show that P(C) = 0.4.
The number of ways this can happen is the number of ways 13 identical balls and 3 identical partitions
can be ordered, which is 16C3 = 560.
If W = 9, then the number of ways the remaining three positive integers x, y, and z can add up to 17 - 9
= 8 is equal to the number of ways three nonnegative integers (x - 1), (y - 1), and (z - 1) can add up to 8
- 3 = 5. We use 2 partitions in this case, so the number of ways 5 identical balls and 2 identical
partitions can be ordered is 7C2 = 21.
Therefore:
P(W = 9 | W + X + Y + Z = 17) = P(W = 9 W + X + Y + Z = 17) / P(W + X + Y + Z = 17)
= 21/560
= 3/80
Remarks: Admittedly, this problem lies more in the realm of combinatorics than exam P, but hopefully
the idea of marking balls and using partitions can clarify how to solve simpler combinatorics problems
which might appear on exam P.
P(H W) = 0.08
By the quadratic formula, P(H) = 0.052 or 2.95. Probabilities are between 0 and 1, so P(H) = 0.052.
Finally, we find the complement by subtracting the result from 1:
P(husband survives 5 years) = 1 - 0.052 = 0.948
Remarks: At this point I must have decided to throw the most complicated problem I could think of at
you just to test your mastery of exam P. Hopefully it worked, but if not, we know that:
P(Question 30 appearing on the real exam) < r, where r is any positive real number.