Tag Archives: Expected Value

Exam P Practice Problem 96 – Expected Insurance Payment

Problem 96-A

An insurance policy is purchased to cover a random loss subject to a deductible of 1. The cumulative distribution function of the loss amount X is:

    \displaystyle  F(x) = \left\{ \begin{array}{ll}           \displaystyle  0 &\ \ \ \ \ \ x<0 \\            \text{ } & \text{ } \\          \displaystyle  \frac{3}{25} \ x^2 - \frac{2}{125} \ x^3 &\ \ \ \ \ \ 0 \le x<5 \\           \text{ } & \text{ } \\           1 &\ \ \ \ \ \ 5<x           \end{array} \right.

Given a random loss X, determine the expected payment made under this insurance policy?

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ 0.50

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ 1.54

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ 1.72

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ 4.63

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ 6.26

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Problem 96-B

An insurance policy is purchased to cover a random loss subject to a deductible of 2. The density function of the loss amount X is:

    \displaystyle  f(x) = \left\{ \begin{array}{ll}                     \displaystyle  \frac{3}{8} \biggl(1- \frac{1}{4} \ x + \frac{1}{64} \ x^2 \biggr) &\ \ \ \ \ \ 0<x<8 \\           \text{ } & \text{ } \\           0 &\ \ \ \ \ \ \text{otherwise}           \end{array} \right.

Given a random loss X, what is the expected benefit paid by this insurance policy?

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ 0.51

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ 0.57

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ 0.63

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ 1.60

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ 2.00

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\copyright \ 2016 - \text{Dan Ma}

Exam P Practice Problem 88 – Expected Value of Insurance Payments

Problem 88-A

A random loss X has a uniform distribution over the interval 0<x<20. An insurance policy is purchased to reimburse the loss up to a maximum limit of m where 0<m<20.

The expected value of the benefit payment under this policy is 8.4. Calculate the value of m.

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \   8.7

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \   9.0

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \   12.0

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \   13.6

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \   18.3

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Problem 88-B

An individual purchases an insurance policy to cover a loss X whose density function is:

    \displaystyle f(x)=\frac{2}{25} \ (5-x) \ \ \ \ \ \ \ \ 0<x<5

The insurance policy reimburses the policy owner up to a benefit limit of 4 for each loss. What is the expected value of insurance payment made to the policy owner?

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ 1.35

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ 1.41

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ 1.49

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ 1.65

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ 1.67

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\copyright \ 2014 \ \ \text{ Dan Ma}

Exam P Practice Problem 86 – Finding Mean and Variance

The following is the cumulative distribution function of the random variable X.

    \displaystyle F(x)=\left\{\begin{matrix} \displaystyle 0&\ \ \ \ \ \ x < 0 \\{\text{ }}& \\{\displaystyle \frac{(x+2)^2}{100}}&\ \ \ \ \ \ 0 \le x <6 \\{\text{ }}& \\{\displaystyle 1}&\ \ \ \ \ \ 6 \le x <\infty  \end{matrix}\right.

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Problem 86-A

Calculate the expected value of X.

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \   2.16

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \   3.35

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \   4.32

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \   6.00

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \   6.67

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Problem 86-B

Calculate the variance of X.

      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ 3.240

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ 3.658

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ 3.957

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ 4.694

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ 5.556

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\copyright \ 2014 \ \ \text{ Dan Ma}

Exam P Practice Problem 77 – Estimating Random Claim Sizes

Problem 77-A

The probability distribution of the claim size from an auto insurance policy randomly selected from a large pool of policies is described by the following density function.

    \displaystyle f(x)=\frac{3}{1000} \ (50-5x+\frac{1}{8} \ x^2), \ \ \ \ \ \ \ \ \ \ 0<x<20

What is the probability that a randomly selected claim from this insurance policy is within 120% of the mean claim size?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.50

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.85

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.88

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.91

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.95

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Problem 77-B

The probability distribution of the claim size from an auto insurance policy randomly selected from a large pool of policies is described by the following density function.

    \displaystyle f(x)=\frac{3}{2500} \ (100x-20x^2+ x^3), \ \ \ \ \ \ \ \ \ \ 0<x<10

What is the probability that a randomly selected claim from this insurance policy is within one-half of a standard deviation of the mean claim size?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.34

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.37

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.60

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.62

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.64

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam P Practice Problem 76 – Quantifying Average Random Loss

Both Problem 76-A and Problem 76-B use the following information.

A property owner faces a series of independent random losses. Each loss is either 10 (with probability 0.4) or 50 (with probability 0.6).

Three such random losses are selected.

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Problem 76-A

What is the probability that the mean of the three losses is less than 30?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.06

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.29

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.32

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.35

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.43

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Problem 76-B

What is the expected value of the mean of the three losses?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 30

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 32

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 33

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 34

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 35

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam P Practice Problem 75 – Travel Time to Work By Train

Both Problem 75-A and Problem 75-B use the following information.

A worker travels to work by train 5 days a week (Monday to Friday). The length of a train ride (in minutes) to work follows a continuous uniform distribution from 10 to 40.

The lengths of the train ride across the days of the week are independent.

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Problem 75-A

What is the probability that the shortest train ride during a work week is between 15 and 20 minutes?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.025

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.039

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.045

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.053

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.064

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Problem 75-B

What is the expected value of the longest train ride during a work week?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 25.0

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 25.9

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 28.2

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 33.3

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 35.7

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\copyright \ 2013-2016 \ \ \text{Dan Ma}

Exam P Practice Problem 74 – Review of Auto Insurance Claims

Both Problem 74-A and Problem 74-B use the following information.

An insurer issued policies to cover a large number of automobiles. Claim amounts (in thousands) from these policies are independent and are modeled by a continuous uniform distribution on (0,10).

The insurer randomly selects five claims for review.

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Problem 74-A

What is the probability that the minimum claim amount is between 2 thousands and 6 thousands?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.31

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.32

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.33

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.34

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.75

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Problem 74-B

What is the expected value of the maximum claim amount?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5.0

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5.5

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7.6

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8.3

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8.5

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam P Practice Problem 73 – Wait Time at a Busy Restaurant

Both Problem 73-A and Problem 73-B use the following information.

A certain restaurant is very busy in the evening time during the weekend. When customers arrive, they typically have to wait for a table.

When a customer has to wait for a table, the wait time (in minutes) follows a distribution with the following density function.

    \displaystyle f(x)=\frac{1}{1800} \ x, \ \ \ \ \ \ \ \ \ 0<x<60

A customer plans to dine at this restaurant on five Saturday evenings during the next 3 months. Assume that the customer will have to wait for a table on each of these evenings.

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Problem 73-A

What is the probability that the minimum wait time for a table during the next 3 months for this customer will be more than half an hour?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.24

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.25

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.36

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.42

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.75

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Problem 73-B

What is the mean of the maximum wait time (in minutes) for a table during the next 3 months for this customer?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 40.0

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 50.5

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 51.4

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 54.5

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 55.4

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam P Practice Problem 70 – Real Estate Sales Contest

Problem 70-A

A commercial real estate property company has three sales agents who are actively selling commercial real estate properties. The times (in days) to the next successful sale for these three agents are exponentially distributed with means 10 days, 15 days and 20 days.

These three agents work independently. So the time to the next successful sale for one agent is independent of the time to the next successful sale for any of the other agents.

To spur sales, the company has a contest among the three agents. Each agent produces a sale. The award will go to the first agent producing the first sale.

What is the probability that the winning sale will take place within one week?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.14

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.22

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.50

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.78

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.86

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Problem 70-B

A commercial real estate property company has four sales agents who are actively selling commercial real estate properties. The times (in days) to the next successful sale for these four agents are exponentially distributed with means 10 days, 15 days and 20 days and 30 days.

These four agents work independently. So the time to the next successful sale for one agent is independent of the time to the next successful sale for any of the other agents.

To spur sales, the company has a contest among the four agents. Each agent produces a sale. The award will go to the first agent producing the first sale.

What is the expected waiting time (in days) from the beginning of the contest to the occurrence of the winning sale?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10

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Exam P Practice Problem 68 – Large Claim Studies

Problem 68-A

An insurance company has a large block of auto insurance policies such that the claim sizes (in thousands) from a policy in this block are modeled by the random variable X. The following is the probability density function of X.

      \displaystyle f(x)=\frac{3}{16000} \ (400-x^2) \ \ \ \ \ \ \ 0<x<20

An actuary is hired to study the large claims arising from these auto insurance policies. In this study, any claim size over ten thousands is considered a large claim.

What is the mean size of the claims studied by this actuary?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7,500

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 13,500

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 14,219

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 15,000

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 17,500

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Problem 68-B

An insurance company has a large block of auto insurance policies such that the claim sizes (in thousands) from a policy in this block are modeled by the random variable X. The following is the probability density function of X.

      \displaystyle f(x)=\frac{625}{312 \ x^3}  \ \ \ \ \ \ \ 1<x<25

An actuary is hired to study the large claims arising from these auto insurance policies. In this study, any claim size over five thousands is considered a large claim.

What is the mean size of the claims studied by this actuary?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,923

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6,923

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5,321

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8,333

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 15,000

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