CS1-ACTUARIAL STATISTICS ACTUATORS EDUCATIONAL INSTITUTE

CHAPTER 1 & 2
CS1 DATA ANALYSIS &
PROBABILITY DISTRIBUTIONS
PRACTICE QUESTIONS

k2  1
1. Verify  2  that for the uniform distribution.
12

2. Calculate the probability that at least 9 out of a group of 10 people who have been in-
fected by a serious disease will survive, if the survival probability for the disease is
70%.

3. If the probability of having a male or female child is equal, calculate the probability that
a woman's fourth child is her first son.

4. The probability of having a male or female child is equal. A woman has two boys and a
girl.

Calculate the probability that her next two children are girls.

5. If the probability that a person will believe a rumour about a scandal in politics is 0.8,
calculate the probability that the ninth person to hear the rumour will be the fourth
person to believe it.

6. Among the 58 people applying for a job, only 30 have a particular qualification. If 5 of
the group are randomly selected for a survey about the job application procedure, de-
termine the probability that none of the group selected have the qualification.

Calculate the answer:

(i) exactly

(ii) using a binomial approximation.

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7. Using the probability function for the Poisson distribution, prove the formulae for the
mean and variance. Hint: for the variance, consider E[X(X -1)].

8. If goals are scored randomly in a game of football at a constant rate of three per
match, calculate the probability that more than 5 goals are scored in a match.

9. If each of the 55 million people in the UK independently has probability 1 x 10-8 of be-
ing killed by a falling meteorite in a given year, use an approximation to calculate the
probability of exactly 2 such deaths occurring in a given year.

10. The number of home insurance claims a company receives in a month is distributed as a
Poisson random variable with mean 2. Calculate the probability that the company rece-
ives exactly 30 claims in a year. Treat all months as if they are of equal length.

11. If Y ~ U(S0,150), calculate P(Y > 74) and P(S0 < Y < 126).

12. If X ~ Gamma(2,1.5), calculate P(X > 4).

13. Determine the median of the Exp    distribution. (The median is the value of m such

1
that P  X  m   .)
2

14. Claims to a general insurance company's 24-hour call centre occur according to a Poisson
process with a rate of 3 per hour. Calculate the probability that the next call arrives af-
ter more than ½ hour.

15. Prove that if X - Exp    , then P(X > x + n|X > n)= P(X > x) .

16. If the random variable X follows the 52 distribution, calculate:

(a) P(X > 6.5)

(b) P(X < 11.8).

17. If X ~ Gamma(2, 1.5), calculate P(X > 4), by using the chi square tables.

2
18. The random variable X has PDF fX  x   kx 3 1  x  , 0  x  1 , where k is a constant. De-

termine the value of k.

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19. If X – N(25, 36), calculate:

(i) P(X < 28)

(ii) P(X > 30)

(iii) P(X < 20)

(iv) P(|X – 25|< 4).

20. If W ~ log N(5, 6), calculate P(W > 3,000).

21. If the mean of the lognormal distribution is 9.97 and the variance is 635.61, calculate

the parameters  and  2 .

22. Use the t tables to calculate:

(i) P  t15  1.341 

(ii) the value of a such that P  t8  a   0.01

(iii) P  t24  0.5314  .

23. Use the F tables to calculate:

(i) 
P F5,12  3.106 
 
(ii) the value of a such that P F7,4  a  0.01 .

24. An insurer receives car claims at a rate of 8 per calendar week. Write down the distri-
bution of the number of claims received:

(i) per day

(ii) per year.

25. The number of deaths amongst retired members of a pension scheme occurs at a rate of
3 per calendar month. Calculate the probability of:

(i) 5 deaths in January to March inclusive

(ii) 12 deaths in June to October inclusive.

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26. Explain how motor insurance claims could be represented by a Poisson process.

27. If reported claims follow a Poisson process with rate 5 per day (and the insurer has a
24-hour hotline), calculate the probability that:

(i) there will be fewer than 2 claims reported on a given day

(ii) the time until the next reported claim is less than an hour.

28. Simulate three values from the Exp(0.1) distribution using the values 0.113, 0.608 and
0.003 from U(0,1) .

29. Generate three random values from the U(-1,4) distribution using the following random
values from U(0,1):

0.07 0.628 0.461

30. Simulate two random values from the Poi(2) distribution using the random values 0.721
and 0.128.

31. Generate three random values from the 8in(4,0.6} distribution using the following ran-
dom values from U(0,1) :

0.588 0.222 0.906

32. If X - N(14,20), calculate:

(i) P(X < 14)

(ii) P(X > 20)

(iii) P(X < 9)

(iv) r such that P(X > r) = 0.41294.

33. Determine the third non-central moment of the normal distribution with mean 10 and va-
riance 25.

34. Calculate P(X < 8) if:

(i) X ~ U(5,10)

(ii) X ~ N(l0,5)

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(iii) X ~ Exp(0.S)

(iv) X ~ 52

(v) X ~ Gamma(8, 2}

(vi) X ~ logN(2, 5}.

35. A random variable X follows the Poi(3.6) distribution.

(i) Calculate the mode of the probability distribution.

(ii) Calculate the standard deviation of the distribution.

(iii) State, with reasons, whether the distribution is positively or negatively skewed.

36. U denotes a continuous random variable that is uniformly distributed over the interval (-
1, 1) and V denotes a discrete random variable that is equally likely to take any of the
 1 1 
values 1,  , 0, ,1 .
 2 2 

(a) Calculate var(U) and var(V).

(b) Comment on your answers to part (a).

37. Calculate P(X < 8) in each of the following cases:

(i) X is the number of claims reported in a year by 20 policyholders. Claims reporting

from each policyholder occurs randomly at a rate of 0.2 per year independently of
the other policyholders.

(ii) X is the number of claims examined up to and including the fourth claim that ex-
ceeds £20,000. The probability that any claim received exceeds £20,000 is 0.3 in-
dependently of any other claim.

(iii) X is the number of deaths in the coming year amongst a group of 500 policyholders.
Each policyholder has a 0.01 probability of dying in the coming year independently
of any other policyholder.

(iv) X is the number of phone calls made before an agent makes the first sale. The
probability that any phone call leads to a sale is 0.01 independently of any other
call.

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38. A random variable follows the lognormal distribution with mean 10 and variance 4. Calcu-
late the probability that the variable will take a value between 7.5 and 12.5.

39. The random variable N has a Poisson distribution with parameter  and P(N = 1 | N  1) =
0.4.

Calculate the value of ..i to 2 decimal places.

40. Simulate two observations from the distribution with probability density function:

50
f x   , x 0
3
5  x 
using the random numbers 0.863 and 0.447 selected from the uniform distribution on
the interval (0,1).

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PAST EXAM QUESTIONS

1. Subject CT3 April 2012 Question 5

Claims on a group of policies arise randomly and independently of each other through
time at an average rate of 2 per month.

(i) Calculate the probability that no claims arise in a particular month. [2]

(ii) Calculate the probability that more than 30 claims arise in a period of one year. [2]

[Total 4]

2. Subject CT3 April 2012 Question 7

A coin has two sides, 'heads' and 'tails'. Such a coin with P(heads) = p is tossed repeat-
edly until it lands 'heads' for the first time. Let X be the number of tosses required.

Suppose the process is repeated independently a total of n times, producing values of

the variables X1, X2,.....Xn where each Xi has the same distribution as X.

Let Y = min  X1,X2,.....Xn  , so Y is the smallest number of tosses required to produce a

'heads' in the n repetitions of the experiment.

(i) Explain why, for each i =1,2,....n, P  Xi  x  is given by:

x-1
P  Xi  x  = 1-p  x =1,2,.... [2)

(ii) (a) Find an expression for P  Y  y  .

(b) Hence deduce the probability function of Y. [5]

[Total 7]

3. Subject CT3 September 2012 Question 3

Let X be a discrete random variable with the following probability distribution:

X: 0 1 2 3

P(X = x): 0.4 0.3 0.2 0.1

Calculate the variance of Y, where Y = 2X +10 [3]

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4. Subject CT3 September 2012 Question 5

A large portfolio consists of 20% class A policies, 50% class B policies and 30% class C

policies. Ten policies are selected at random from the portfolio.

(i) Calculate the probability that there are no policies of class A among the randomly se-

lected ten. [1]

(ii) (a) Calculate the expected number of class B policies among the randomly

selected ten.

(b) Calculate the probability that there are more than five class B policies among

the randomly selected ten. [2]

[Total 3]

5. Subject CT3 September 2012 Question 9

An analyst is interested in using a gamma distribution with parameters

1
1 - x
α =2 and λ = 1 , that is, with density function f  x  = xe 2 , 0 < x < ¥.
2 4

(i) (a) State the mean and standard deviation of this distribution.

(b) Hence comment briefly on its shape. [2]

(ii) Show that the cumulative distribution function is given by:

1
 1  - x
F  x  = 1 -  1 + x  e 2 , 0 < x < ¥. (zero otherwise). [3]
 2 

The analyst wishes to simulate values x from this gamma distribution and is able to

generate random numbers u from a uniform distribution on (0, 1).

(iii) (a) Specify an equation involving x and u, the solution of which will yield the simu-

lated value x.

(b) Comment briefly on how this equation might be solved.

(c) The graph below gives F(x) plotted against x. Use this graph to obtain the si-

mulated value of x corresponding to the random number u = 0.66.

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[3]

[Total 8]

6. Subject CT3 April 2013 Question 2

Consider a random variable U that has a uniform distribution on (0, 1) and let F be the
cumulative distribution function of the standard normal distribution.

Show that the random variable X = F –1 U  has a standard normal distribution. [3]

7. Subject CT3 April 2013 Question 3

A discrete random variable X has a cumulative distribution function (CDF) with the fol-
lowing values:

Observation 10 20 30 40 50

CDF 0.5 0.7 0.85 0.95 1

Calculate the probability that X takes a value:

(i) larger than 10 [1]

(ii) less than 30 [1]

(iii) exactly 40 [1]

(iv) larger than 20 but less than 50 [2]

(v) exactly 20 or exactly 40. [2]

[Total 7]

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8. Subject CT3 September 2014 Question 4

Consider six life policies, each on one of six independent lives. Each of four of the poli-
cies has a probability of 2/3 of giving rise to a claim within the next five years, and each
of the other two policies has a probability of 1/3 of giving rise to a claim within the next
five years. It is assumed that only one claim can arise from each policy.

(i) Calculate the expected number of claims which will arise from the six policies within
the next five years. [2]

(ii) Calculate the probability that exactly one claim will arise from the six policies with-
in the next five years. [2]

(iii) Calculate the probability that two policies chosen at random from the six policies
will both give rise to claims within the next five years. [4]

[Total 8]

9. Subject CT3 April 2015 Question 7

A continuous random variable X has the cumulative distribution function FX  x  given by:

0, x <0
1

FX  x  =  x3, 0  x  2
8
1, x>2

(i) Determine the probability density function of X. [2]

(ii) Calculate P(0.5 < X < 1). [2]

Let Y = X

(iii) Determine the cumulative distribution function and the probability density function
of Y. [4]

(iv) Calculate the expected values of X and Y. [4]

[Total 12]

10. Subject CT3 September 2015 Question 2

Consider the following measure of skewness for a unimodal distribution:

mean - mode
ξ=
standard deviation

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(i) Determine the value of ζ for a gamma distribution with parameters α =1.6 and
λ = 0.2 . [5]

(ii) Comment on why ζ is a suitable measure of skewness for distributions with one
mode. [3]

[Total 8]

11. Subject CT3 April 2016 Question 1

A university director of studies records the number of students failing the examina-
tions of several courses. The data are presented in the following stem-and-leaf plot
where the stems are with units 10 and the leaves with units 1:

0 224
0 59
1 03
1 57889
2
2
3 144
3 5

(i) Determine the range of the data. [1]

(ii) Determine the median number of students failing the examinations of these
courses. [1]

(iii) Determine the mean number of students failing the examinations of these courses.
[1]

[Total 3]

12. Subject CT3 April 2016 Question 3

A random variable Y has probability density function

θ
fy = θ+1
, y >1
y

where θ > 0 is a parameter.

(i) Show that the probability density function of Z = ln (Y) is given by θe-θz and de-
termine its range. [3]

(ii) State the distribution of Z identifying any parameters involved. [1]

[Total 4]

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13. Subject CT3 April 2017 Question 2

Consider the random variable X having a distribution with probability density function:

 
f  x  = νλx ν-1exp -λx ν , 0 < x < ¥

where   0 and   0 are the parameters of the distribution.

(i) Show that the cumulative distribution function of X is given by:


1 - exp -λxν
F x = 
 x>0
[2]
 0 x £0

You are given a value u = 0.671 from the U(0,1) distribution.

(ii) Determine by simulation a value of the random variable X when ν =1.1 and λ = 0.2 [2]

[Total 4]

14. Subject CT3 April 2018 Question 1

A scientist collects the following data sample on the number of plants grown on newly

fertilised plots of land.

Number of
Frequency
plants

1 2

2 6

3 3

4 8

5 1

(i) Calculate the mean, median and mode of the sample. [3]

(ii) Calculate the standard deviation of the sample. [2]

[Total 5]

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15. Subject CT3 April 2018 Question 2

Consider the following data, and the corresponding sums derived from the data:

xi :10.0 6.9 11.4 12.6 10.3 12.4 9.8

 xi = 73.4;  xi2 = 792.22  xi3 = 8,750.972

(i) Determine the third moment about the mean for these data. [2]

(ii) (a) Write down the mathematical definition of the coefficient of skewness of a
set of data. [1]

(b) Determine the coefficient of skewness for the data above. [2]

[Total 5]

16. Subject CT3 April 2018 Question 3

The number of minutes late that students arrive at a lecture is a random variable follow-
ing an exponential distribution with mean 5 minutes.

(i) Determine the probability that a student is more than 10 minutes late to the lec-
ture. [1]

Twenty students arrive at the lecture independently of each other.

(ii) Determine the exact probability that fewer than two of the students are more than
10 minutes late. [4]

[Total 5]

17. Subject CT3 September 2018 Question 1

A data set of 20 observations has mean 45 and standard deviation 25.4. The data set is
reviewed and one observation which was incorrectly recorded as 130 is now corrected to
30.

Determine the mean and standard deviation of the corrected data. [4]

18. Subject CT3 September 2018 Question 3

A sports scientist is building a statistical model to describe the number of attempts a

high jump athlete will have to make until she succeeds in clearing a certain height for
the first time during an indoor sports event. For this model the scientist considers a

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geometric distribution with probability of success p. The cumulative distribution func-

tion of the geometric distribution is given as:
x
FX  x  =1- 1-p  , x =1, 2, 3, ...

(i) (a) State the assumptions that the scientist needs to make for considering this
distribution.

(b) Comment on the validity of the assumptions in part (i)(a). [3]

The athlete has tried n jumps without success.

(ii) (a) Determine the probability that the athlete will require more than x additional
jumps to succeed in clearing the height.

(b) Comment on what the answer in part (ii)(a) means for the athlete. [3]

[Total 6]

19. Subject CT3 September 2018 Question 4

We consider three groups of policyholders: A, B and C. We denote by XA the random va-

riable for the number of claims that a randomly chosen policyholder in group A submits
during a calendar year. XB and XC denote the corresponding random variables for policy-

holders in groups B and C. We assume that XA, XB and XC have Poisson distributions with

parameters λA = 0.2, λB = 0.1 and λC = 0.05 depending on the group.

Each policyholder belongs to exactly one group and group membership does not change
during the lifetime of a policyholder. It is assumed that any individual policyholder sub-
mits claims during any year independently of claims submitted by other policyholders.

An insurance company has a portfolio of policies with 20% of policyholders belonging to

group A, 20% belonging to group B and the remaining policyholders belonging to group C.

The insurance company chooses a policyholder at random.

(i) Determine the probability that this policyholder will submit at least two claims dur-
ing a year given that he belongs to group A. [2]

The insurance company chooses another policyholder at random but does not know to
which group he belongs.

(ii) Show that the probability this policyholder will submit exactly one claim during a
year is approximately 0.0794. [3]

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(iii) Calculate the probability that this policyholder belongs to group A given that he
submitted exactly one claim in the previous year. [2]

[Total 7]

20. Subject CT6 April 2018 Question 10 (part)

Consider the following probability density function:

h  x  = λe-λx , x > 0 0

(i) Set out an algorithm for sampling from h(x) using the inverse transform method. [3]

21. Subject CT6 September 2018 Question 1

An actuary is simulating claim sizes, X, for a particular insurance policy. X follows an ex-
ponential distribution with varying parameter λ , where λ can take one of three possible
values.

The table shows the distribution function of this external factor, and its impact on λ .

Probability 0.3 0.3 0.4

λ 1 2 3

Set out an algorithm to generate samples from X, using the inverse transform method.
[5]

22. Subject CS1 April 2019 Question 1

The amount of money customers spend in a single trip to the supermarket is modelled
using an exponential distribution with mean €15.

(i) Calculate the probability that a randomly selected customer spends more than €20. [2]

(ii) Calculate the probability that a randomly selected customer spends more than €20,
given that it is known that she spends more than €15. [3]

[Total 5]

23. Subject CS1 April 2019 Question 4

Alice and Bob are playing a game of dice. Two fair six-sided dice are rolled. Consider the
following events:

A = 'sum of two dice equals 3'

B = 'sum of two dice equals 7'

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C = 'at least one of the dice shows a 1'.

(i) Show that P(C)= 11/36 [1]

(ii) Calculate P  A|C  . [2]

(iii) Calculate P B|C  . [2]

(iv) Determine whether A and C are independent. [1]

(v) Determine whether B and C are independent. [1]

[Total 7]

24. Subject CM1 September 2019 Question 2

List five key preparatory steps in a data analysis process prior to performing an explo-
ratory analysis of the data. [5]

25. Subject CM1 September 2019 Question 4

Describe the properties that can lead to data being classified as 'big data’. [5]

26. Subject CS1, September 2020, Question 3

The following data are available on three television factories that produce all the televi-
sions used in a country.

Probability of defect
Factory % of total production
(Def)
A 0.35 0.020
B 0.40 0.015
C 0.25 0.010

A television is selected at random and found to have a defect (Def).

(i) Identify which one of the following expressions gives the required expression to cor-
rectly calculate the probability that the selected television was made in factory 8.

A1 P B | Def  P Def 
P  A | Def  P Def   P B | Def  P Def   P C | Def  P Def 

A2 P Def | B  P B 
P Def | A  P A   P Def | B  P B   P Def | C  P C 

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A3 P Def | B   P B 
P Def | A  P A  P Def | B   P B   P Def | C   P C 
     

A4 P Def | B  [2]
P Def | A  P Def | B   P Def | C 

(ii) Calculate, by using your answer to part (i), the probability that the selected televi-
sion was produced by Manufacturer B. [2]

[Total 4]

27. Subject CS1, September 2021, Question 2

A statistician wants to simulate values from certain distributions and has available only a
random number generator that yields independent samples from a N(0,1) distribution.

(i) Describe an algorithm to simulate random numbers from a t distribution with 1 de-
gree of freedom. [3]

(ii) Describe an algorithm to simulate random numbers from a gamma distribution with
3 1
parameters and . [3]
2 2

(iii) Describe an algorithm to simulate random numbers from an F distribution with (1,1)
degrees of freedom. [2]

[Total 8]

Subject CS1, September 2021, Question 6 involves CDFs and simulation. However, it also
covers posterior distributions, so is included in a later booklet.

28. Subject CS1, April 2022, Question 2

The number of claims arriving at an insurance company is assumed to follow a Poisson


process N t  t 0 with rate m = 2 per year.
(i) State the distribution of the random variable N(1). |1]

(ii) Calculate the probability of more than two claims arriving in year 2 given that five
claims arrived in year 1. [2]

(iii) Calculate the probability of more than two claims arriving in year 2 given that no
claims arrived in year 1. (1]
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(iv) Compare the results in parts (ii) and (iii). (1]

(v) Identify the distribution of the time of the nth claim, justifying your answer. (2]

(vi) Calculate a random value from the exponential distribution with parameter m = 2
using a realised value of 0.201 from a 1/(0,1) distribution and the inverse transform
method. [2]

[Total 9]

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CHAPTER 3, 4 & 5
GENERATING FUNCTIONS,
CS1 JOINT DISTRIBUTIONS &
CONDITIONAL EXPECTATION
PRACTICE QUESTIONS

1. Write down the value of Mx  0  .

2. Derive the MGF of the random variable X with probability function:

3
P X  x   x  1,2,3,...
4x

3. Derive the MGF of the random variable X with probability density function:

f X   1 1  X  1  x  1
2

4. Calculate the mean and variance of a random variable, X, with MGF given by:

1
 t
MX  t    1   t 5
 5

5.    
Use a series expansion to derive E  X  , E X 2 and E X 3 , where the MGF of X is given

by:

1
 t
M X t    1   t 5
 5

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6. 
A random variable, X, has MGF given by MX  t   exp 5t  3t2 . 
Use the MGFs listed in the Tables and the 'uniqueness property' to identify the distri-

bution of X.

k!
7. Identify the continuous distribution for which E X k   where k = 1, 2, 3, ... , and
  !

  0.

8.  
Describe what happens if we try to evaluate E etx for the gamma distribution when

t  .

9. The MGF of the Bin(n,p) distribution is given by:

 
n
M t   q  pet

State the CGF of the Bin(n,p) distribution.

 
10. State the CGF of X where X ~ Gamma  ,   . Hence prove that E X    , var  X  
 2
2
and skew(X) = .
3

11. By using the CGF of the Poi    distribution, derive the 2nd, 3rd and 4th cumulants.

12. (i) Use MGFs to show that if X ~ Gamma  ,   and 2 is an integer, then 2X ~ 22 .

(ii) Estimate P(X > 75) when X ~ Gamma(20, 0.4).

13. If X follows the gamma distribution with parameters   2 and   0.4 , calculate P(X >

10) using direct integration.

14. lf Y =a + bX , derive and simplify an expression for CY  t  in terms of CX  t  .

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15. Derive from first principles the moment generating function of a random variable X,

 
where P X  x   (1   )x 1 x  1,2,3, ....

16. (i)  
Determine the cumulant generating function of the N ,  2 distribution.

(ii) Hence determine the mean, variance and coefficient of skewness of this distribution.

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17. The continuous random variables U and V have joint probability density function:

2u  v
,  u, v  
fUV , where 10  u  20 and  5  v  5
3, 000

Calculate P(10 < U < 15, V > O) .

18. Obtain the probability functions for the marginal distributions of M and N, where:

m
P  M  m, N  n   , for m  1, 2, 3, 4 and n  1, 2, 3
35  2n 2

19. Determine the marginal probability density functions for U and V, where:

2u  v
fU,V u,v   , for 10  u  20 and  5  v  5
3, 000

20. A bivariate distribution has the following probability function:

0 1 2

Y 1 0.1 0.1 0

2 0.1 0.1 0.2

3 0.2 0.1 0.1

Determine:

(i) the marginal distribution of X

(ii) the conditional distribution of X|Y = 2.

21. Let X and Y have joint density function:

1
f  x, y    x  3y  0  x  2, 0  y  2
16

Determine the conditional density function of X given Y = y.

22. Let X and Y have joint density function:


f  x, y   k x 2  xy  0y x 2

(i) Calculate the value of k.

(ii) Determine the PDFs of the marginal distributions for X and Y.

(iii) Determine the conditional density function of Y | X = x.

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23. Determine whether the variables X and Y given below are independent.

X
0 1 2

Y 1 0.1 0.1 0
2 0.1 0.1 0.2
3 0.2 0.1 0.1

24. The joint probability function of M and N is:

m
P  M  m, N  n   , where m  1,2,3, 4 and n  1, 2,3
35  2n 2

Determine whether the variables M and N are independent.

25. The joint PDF of U and V is:

2u  v
fU,V u,v   , where 10  u  20 and  5  v  5
3, 000

Determine whether the variables U and V are independent.

26. Consider the joint probability density function of X , Y and Z given by:

fX , Z  x , z   
 x  y  e z
 for 0  x  1, z  0

 0 otherwise

Verify that the random variables X, Y and Z are not independent, but that the two ran-
dom variables X and Z are pairwise independent, and also that the two random variables
Y and Z are pairwise independent.

N 1
27. Calculate the expected value of , where the joint distribution of M and N is:
M

M
1 2 3 4
2 4 6 8
1
35 35 35 35
1 2 3 4
N 2
35 35 35 35
1 1 3 2
3
70 35 70 35

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m
ie P  M  m, N  n   .
35  2n 2

28. U and V have joint density function:

2u  v
fU,V u,v   , where 10  u  20 and  5  v  5
3, 000

(i) Calculate f(U) and f(V) :

(a) sing fU ,V u, v 

(b) sing fU u  and fV v  .

(ii) Comment on your answers.

29. Verify that E X2  2Y  E X2   E 2Y , for the random variables X and Y given here:
   

0 1 2

Y 1 0.1 0.1 0

2 0.1 0.1 0.2

3 0.2 0.1 0.1

30. The joint probability function of M and N is given by:

m
P  M  m, N  n   , where m = 1, 2, 3, 4 and n = 1, 2, 3
35  2n 2

1 2 3 4

2 4 6 8
1
35 35 35 35

1 2 3 4
N 2
35 35 35 35

1 1 3 2
3
70 35 70 35

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N  1  1
Verify that E    E   E [N  1]
 M  M 

31. Show that the simplification cov[X, Y] = E[XY]-E[X]E[Y] is correct.

32. Calculate the covariance of the random variables X and Y whose joint distribution is as

follows:

0 1 2

1 0.1 0.1 0

Y 2 0.1 0.1 0.2

3 0.2 0.1 0.1

33. Write down the formula for cov[X + Y, W + Z].

34. Calculate the correlation coefficient of U and V, where:

2u  v
fU,V u,v   , where 10  u  20 and  5  v  5
3, 000

140 5
You are given that E U   and E V   .
9 18

35. A bivariate distribution has the following probability function:

–1 0 1

1 0.1 0.6 0.1

Q
2 0.1 0 0.1

Show that P and Q are uncorrelated but not independent.

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36. Set out an alternative proof of the above result starting from var(X + Y) = cov(X + Y, X +
Y).

37. Show from first principles that the random variables M , N, whose joint probability
function is given below, satisfy var[M + N] = var[M] + var[N] .

1 2 3 4

2 4 6 8
1
35 35 35 35

1 2 3 4
N 2
35 35 35 35

1 1 3 2
3
70 35 70 35

38. If X ~ Poi    and Y ~ Poi    are independent random variables, obtain the probability

function of Z = X + Y.

39. If X ~ Exp    and Y ~ Exp    are independent random variables, obtain the PDF of Z =

X + Y.

40. The random variables X, Y, and Z have means and variances X  4, Y  5, Z  6,

2
X  1, Y2  4, and  Z
2
 3, . The covariances are as follows:

cov(X, Y)  3 cov(X,Z)  2 cov(Y,Z)  1

Calculate the mean and variance of W = X - 2Y + 3Z.

41. If X1, X 2,...Xn are independent random variables with mean  and variance  2 , obtain

the mean and variance of S  X1  X 2  ...  Xn and T  nX 1 .

42. Show that if X ~ Bin(m,p) and Y ~ Bin(n,p) are independent random variables, then X + Y
also has a binomial distribution.

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43. A company has three telephone lines coming into its switchboard. The first line rings on
average 3.5 times per half-hour, the second rings on average 3.9 times per half-hour,
and the third line rings on average 2.1 times per half-hour. Assuming that the numbers
of calls are independent random variables having Poisson distributions, calculate the
probability that in half an hour the switchboard will receive:

(i) at least 5 calls

(ii) exactly 7 calls.

44. If the number of minutes it takes for a mechanic to check a tyre is a random variable
having an exponential distribution with mean 5, obtain the probability that the mechanic
will take:

(i) more than eight minutes to check two tyres

(ii) at least fifteen minutes to check three tyres.

2
45. Suppose that X1 and X2 are independent random variables such that X1 ~ m and

X2 ~ n2 and let X  X1  X2 . Use MGFs to prove that X ~ m

2
n .

46. If X and Y are independent standard normal variables, determine the distribution of 2X
- Y.

47. Let X and Y have joint density function given by:

f  x , y   c  x  3y  0  x  2, 0  y  2

(i) Calculate the value of c.

(ii) Hence, calculate P(X < 1, Y > 0.5).

48. The continuous random variables X and Y have joint PDF:

f  x, y  
6

1 2
x  xy  0y x 2

(i) Determine the PDF of the conditional distribution X | Y = y.

(ii) Calculate the conditional probability P(1 < X < 1.5 | Y = 1) .

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49. Show that, for the joint random variables M, N, where:

m
P  M  m, N  n   , for m  1,2,3, 4 and n  1,2,3
35  2n 2

the conditional probability functions for M given N = n and for N given M = m are equal

to the corresponding marginal distributions.

50. Calculate the correlation coefficient of X and Y, where X and Y have the joint distribu-

tion:

0 1 2

1 0.1 0.1 0

Y 2 0.1 0.1 0.2

3 0.2 0.1 0.1

51. Claim sizes on a home insurance policy are normally distributed about a mean of £800

and with a standard deviation of £100. Claims sizes on a car insurance policy are normal-

ly distributed about a mean of £1,200 and with a standard deviation of £300. All claim

sizes are assumed to be independent.

To date, there have already been home claims amounting to £800, but no car claims.

Calculate the probability that after the next 4 home claims and 3 car claims the total

size of car claims exceeds the total size of the home claims.

52. The random variables X and Y have joint density function given by:

kx  ey /  1  x  , 1  y  

where   1,   0 , and k is a constant.

Derive an expression for k in terms of  and  .

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53. Show using convolutions that if X and Y are independent random variables and X has a
2
m distribution and Y has a n2 distribution, then X + Y has a m
2
n distribution.

54. Show that if X has a negative binomial distribution with parameters k and p, and Y has a
negative binomial distribution with parameters m and p, and X and Y are independent,
then X + Y also has a negative binomial distribution, and specify its parameters.

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55. Write down the equivalent expression in the case when X and Y are continuous random
variables.

56. Two random variables X and Y have the following discrete joint distribution:

10 20 30

1 0.2 0.2 0.1

X
2 0.2 0.3 0

Calculate E(Y | X= 1).

57. Suppose X and Y have joint density function given by:

3
f  x, y   x  x  y  0  x  1, 0  y  2
5

Determine the conditional expectation E[Y | X = x].

58. Let X and Y have joint density function given by:

fX ,Y  x , y  
6

1 2
x  xy  0y x 2

Determine the conditional expectation E[Y | X = x].

59. (i) Calculate f[Y] from first principles given that the joint density function of X and Y
is:

3
f  x, y   x  x  y  0  x  1, 0  y  2
5

3x  4
(ii) Given that E Y | X  x   , calculate E[E(Y IX)].
3  x  1

(iii) Hence, confirm that E[Y] = E[E(Y IX)] for this distribution.

60. The random variable K has an Exp    distribution. For a given value of K, the random va-

riable X has a Poisson(K) distribution.

(i) Obtain an expression for E[X | K].

(ii) Hence, calculate E[X].

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61. Evaluate var[Y | X = 1] given the joint distribution:

10 20 30

1 0.2 0.2 0.1

X
2 0.2 0.3 0

62. The random variable K has an Exp    distribution. For a given value of K, the random va-

riable X has a Poisson(K) distribution.

63. Obtain an expression for var[X | K]. Hence derive an expression for var(X).

64. Calculate E{X | Y = 10) given the joint distribution:

10 20 30

1 0.2 0.2 0.1

X
2 0.2 0.3 0

65. The table below shows the bivariate probability distribution for two discrete random va-
riables X and Y :

X=0 X=1 X=2

Y=1 0.15 0.20 0.25

Y=2 0.05 0.15 0.20

Calculate the value of E(X | Y = 2).

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PAST EXAM QUESTIONS

1. Subject CT3 April 2012 Question 4

Claim amounts arising under a particular type of insurance policy are modelled as having a
normal distribution with standard deviation £35. They are also assumed to be indepen-
dent from each other.

Calculate the probability that two randomly selected claims differ by more than £100.
[4]

2. Subject CT3 September 2012 Question 4

Consider a random variable U that has a uniform distribution on (0, 1) and a random vari-
able X that has a standard normal distribution. Assume that U and X are independent.

Determine an expression for the probability density function of the random variable Z =
U+ X in terms of the cumulative distribution function of X. [4]

3. Subject CT3 April 2014 Question 4

Let X be a random variable with probability density function:

1 x
 2 e ; x0
fx = 
 1 e-x ; x>0
 2

(i) Show that the moment generating function of X is given by:

 
-1
MX  t  = 1- t2

for t < 1. [3]

(ii) Hence find the mean and the variance of X using the moment generating function in
part (i). [3]

[Total 6]

4. Subject CT3 April 2014 Question 7 (part)

Let X and Y be two continuous random variables.

Prove that E E  Y|X   = E  Y . [3]

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5. Subject CT3 September 2014 Question 5

Consider two random variables X and Y with E[X] = 2, V[X] = 4,

E[Y] = –3, V[Y] =1, and cov[X, Y] =1.6.

Calculate:

(a) the expected value of 5X + 20Y.

(b) the correlation coefficient between X and Y.

(c) the expected value of the product XY.

(d) the variance of X – Y. [4]

6. Subject CT3 April 2015 Question 8

The random variables X and Y have a joint probability distribution with density function:

3x, 0 < y < x < 1

fxy  x, y  = 
0, otherwise

(i) Determine the marginal densities of X and Y. [4]

(ii) State, with reasons, whether X and Y are independent. [2]

(iii) Determine E(X) and E(Y). [2]

[Total 8]

7. Subject CT3 September 2015 Question 7

X and Y are discrete random variables with joint distribution given below.

Y = -1 Y = 0 Y =1
1
X =1 0 0
4
1 1 1
X=0
4 4 4

(i) Determine the conditional expectation E  Y|X =1 . [1]

(ii) Determine the conditional expectation E X| Y = y  for each value of y. [3]

(iii) Determine the expected value of X based on your conditional expectation results
from part (ii). [2]

[Total 6]

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8. Subject CT3 April 2016 Question 2

Consider two random variables X and Y.

(i) Write down the precise mathematical definition for the correlation coefficient
ρ  X, Y  between X and Y. [1]

Assume now that Y = aX + b where a < 0 and - < b <  .

(ii) Determine the value of the correlation coefficient ρ  X, Y  . [3]

[Total 4]

9. Subject CT3 September 2016 Question 6

Let X and Y be random variables with joint probability distribution:

kx2 y2
 0 < x < y <1
fXY  x, y  = 
 0
 otherwise

where k is a constant.

(i) Show that k = 18. [4]

(ii) Determine fY  y  the marginal density function of Y. [2]

(iii) Determine P  X > 0.5| Y = 0.75  . [3]

[Total 9]

10. Subject CT3 April 2017 Question 3

Consider two random variables X and Y and assume that X and Y both follow a standard
normal distribution but are not independent. Define the random variables:

Z- = X- Y and Z+ = X + Y

(i) Determine the covariance between Z - and Z + . [2]

(ii) Determine whether Z - and Z + are uncorrelated based on your answer in part (i). [1]

[Total 3]

11. Subject CT3 April 2018 Question 9

The random variables X and Y have joint probability density function (pdf):

24x3 y
 0 < x < y <1
fXY  x, y  = 
 0
 otherwise

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(i) (a) Show that the marginal pdf of X is:

 
fX  x  = 12x3 1 - x2 , 0 < x < 1

(b) Show that the marginal pdf of Y is fy  y  = 6y5, 0 < y <1. [2]

(ii) Determine the covariance cov(X, Y). [5]

(iii) Determine the conditional pdf fX|Y  x| y  together with the range of X for which it is

defined. [2]

(iv) Determine the conditional probability P  X > 1 / 3| Y =1 / 2  . [2]

(v) Determine the conditional expectation E  X| Y =1 / 4  . [3]

(vi) Verify that E E  X| Y   = E  X  by evaluating each side of the equation, [3]

[Total 17]

12. Subject CS1 April 209 Question 6

Let X and Y be two continuous random variables.

(i) State the definition of independence of the random variables X and Y in terms of

their joint probability density function. [2]

The joint probability density function of X and Y is given by:

8xy 0 < x < y < 1

fXY  x, y  = 
 0 otherwise

(ii) (a) Determine the marginal density functions of X and Y. [2]

(b) State whether or not X and Y are independent based on your answer in part

(ii)(a). [1]

(iii) Derive the conditional expectation E X| Y = y  . [3]

[Total 8]

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Subject CS1 September 2019 Question 9 involves moment generating functions. Howev-
er, since it includes parts on confidence intervals, it is included in Booklet 4.

13. Subject CS1 September 2019 Question 4

X and Y are discrete random variables with joint distribution as follows:

X =0 X=1 X=3

Y = –1 0.08 0.03 0.00

Y=0 0.03 0.12 0.20

Y=3 0.11 0.11 0.06

Y = 4.5 0.04 0.20 0.02

(i) Calculate:

(a) E  Y|X =1  .

(b) var  X| Y = 3  . [5]

(ii) Calculate the probability functions of the marginal distributions for X and Y [2]

(iii) Determine whether X and Y are independent. [2]

[Total 9]

14. Subject CS1, September 2020, Question 2

A pair of fair six-sided dice is rolled once.

(i) Identify which one of the following options gives the probability that the sum of
the two dice is seven:

1
A1
36
1
A2
6
1
A3
12

1
A4 [2]
3

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(ii) Identify which one of the following options gives the probability that at least one
dice shows three:

25
A1
36
1
A2
36
11
A3
36

5
A4 [2]
36

(iii) Identify which one of the following options gives the probability that at least one
dice shows an odd number:

1
A1
4
3
A2
4
1
A3
2

1
A4 [2]
12

(iv) The random variables representing the numbers on the first and second dice are
denoted by X and Y respectively.

(v) (a) Identify which one of the following options gives the correct expression of
E[X + Y | X = 4]. that is the conditional expectation of the sum of the two dice
given that X = 4:

A1 E[Y]

A2 E[X] + E[Y]

A3 4E[X] + E[Y]

A4 4 + E[Y] [1]

(b) State a necessary assumption for deriving the answer in part (iv)(a). [1]

(c) Determine the value of E[X + Y | X = 4], using your answer to part (iv)(a). [2]

[Total 10]

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15. Subject CS1, September 2020, Question 4

A random variable Y has probability density function:

f y   ae 5y , y  b,

where a , b are positive constants.

The moment generating function of Y is denoted by My  f .

(i) Write down the bounds of the integration required to calculate My  f . [1]

(ii) Identify which one of the following options gives the correct expression for My  f .

 1 5t b
e
A1 a
1  5t
 1 5t b
ae
A2
b 1  5t
  5 t b
ae
A3
b 5t
  5 t b
e
A4 a [2]
5t

(iii) Write down the condition on t for My  f to be finite. [1]

(iv) Determine an expression giving the constant a in terms of b. using

(v) your answer for My  f from part (ii). [3]

[Total 7]

16. Subject CS1, April 2021, Question 2

Consider two random variables, X and Y. The conditional expectation and conditional va-
riance of Y given X are denoted by the two random variables U and V, respectively; that
is. U = E[Y | X] and V = var[Y|X].

Assume that Y is normally distributed with expectation 5 and variance 4.

Also assume that the expectation of V is 2.

(i) Calculate the expected value of U . [1]

(ii) Calculate the variance of U . [2]

[Total 3]

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17. Subject CS1, April 2021, Question 3

Consider two random variables, X and Y, with a uniform distribution on the interval (0.1];
that is. X - 1/(0.1) and Y 1/(0.1). Assume that X and Y are independent.

(i) Identify which one of the following options describes the moment generating func-
tion of X :

A.
t

1 t

e  1 for  0

B.
t

1 t

e  1 for  0

C.
1
t
 
1  e t for  0

D.
1
t
 
1  et for  0 [2]

(ii) Derive the value of the moment generating (unction MX  t  of X at t = 0. [1]

An analyst argues that the sum of X and Y must have a uniform distribution on the in-
terval [0.2] since both X and Y are uniformly distributed on [0.1].

(iii) Derive the moment generating function for the random variable Z with a L/(0,2)
distribution. [2]

(iv) Comment on the analyst s argument by determining if the random variable Z = X + Y

has a uniform distribution on [0.2] using moment generating functions. [3]

[Total 8]

18. Subject CS1, April 2021, Question 5

The joint probability density function of random variables X and Y is:

  x 2y , x  0, y  0

f  x , y   ke
0,
 otherwise

[Hint: You may find it helpful to define the functions gx  x   e x and gY y   e 2y , using

this notation in your answers.]

(i) Demonstrate that X and Y are independent. [1]

(ii) Verify that k = 2. [3]

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(iii) Demonstrate that fY y  . the marginal density function of Y, is:

2e2y for y  0 [1]

(iv) Demonstrate that the conditional density function f(y | Y > 3) is:

f y | Y  3  2e62y for y  3

[Hint: Consider P  Y  y | Y  3 .] [3]

(v) Identify which one of the following expressions is equal to the conditional expecta-
tion E[Y | Y > 3]:

 2t 
A. 0 te dt   3e 2t dy
0

 
B. 0 te 2t dt   6e 2t dy
0

 2t 
C. 0 2te dt   3e 2t dy
0

 2t 
D. 0 2te dt   6e 2t dy [1]
0

(vi) Determine the value of the conditional expectation E(Y | Y > 3]. [2]

(vii) Identify which one of the following options is the conditional expectation

E Y 2 | Y  3 :
 

A. 12.5

B. 13.5

C. 14.5

D. 15.5 [2]

(viii) Determine the conditional variance var(Y | Y > 3]. [1]

[Total 14]

19. Subject CS1, September 2021, Question 3

b
The random variable X follows a distribution with mean E  X   and variance
a 1

ab2
var X   where a = 4 and b = 6 are the parameters of the distribution.
2
a  1  a  2
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Y is a random variable such that:

E(Y | X = x) = 3x + 6

and:

var  Y | X  x   x2  4

Calculate the unconditional standard deviation of Y. [6]

20. Subject CS1, September 2021, Question 7

Let Xi , i  1,2,..., n be independent random variables, each following an exponential dis-

n
tribution with parameter b. We consider the random variable Y   i 1 Xi .

(i) Justify why MY t  , the moment generating function (MGF) of variable Y , is given

by:

n
 t
MY t    1   [2]
 b

Let Z be a random variable such that the MGF of Z is M Z t   MY t  .

(ii) Determine the value of b for which Z follows a chi-square distribution, specifying

the degrees of freedom of the chi-square distribution. [3]

[Total 5]

21. Subject CS1, April 2022, Question 1

The number of emails, X, to be replied to in a day by an employee of the customer ser-

vice centre of an insurance company is modelled as a Poisson random variable with mean

25. The time (in minutes), Y, that the employee takes to reply to x emails is modelled as

a random variable with conditional mean and variance given by:

E(Y|X = x) = 3x + 11, var(Y|X = x) = x + 9

Calculate the unconditional variance of the time, Y, that the employee takes to reply to

emails in a day. [3]

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22. Subject CS1, April 2022, Question 3

Let X and Y be two continuous random variables jointly distributed with probability den-
sity function:

 2x 3y 
fXY  x , y   6e x, y  0
 0 otherwise

(i) Identify which one of the following options gives the correct expression for the

marginal density function fX  x  :

 2x
A. fX  x   2e x 0
0 otherwise

 2x
B. fX  x   e x 0
0 otherwise

 x
C. fX  x   2e x 0
0 otherwise

 2x
D. fX  x   2e x 0
0 otherwise

(ii) Identify which one of the following options gives the correct expression for the

marginal density function fY  y  :

 3y
A. fY  x   3e y 0
0 otherwise

 3y
B. fY  x   e y 0
0 otherwise

 3y
C. fY  x   3e y 0
0 otherwise

 3y
D. fY  x   e y 0 [1]
0 otherwise

(iii) Comment on whether X and Y are independent, by using your results in parts (i) and
(ii). [1]

(iv) Calculate the conditional expectation E| Y|X > 2]. [2]

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(v) Identify which one of the following options gives the correct expression for
P(X>Y):

1
A.
5

3
B.
5

1
C.
3

1
D. [2]
2

[7]

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CS1 REVISION SHEET X1

1. A car insurer wishes to investigate whether young drivers (aged 17-25) are more likely
to have an accident in a given year than older drivers.

Describe the steps that would be followed in the analysis of data for this investigation.
[7]

2. (i) In the context of data analysis, define the terms 'replication' and 'reproducibility'.
[2]

(ii) Give three reasons why replication of a data analysis can be difficult to achieve in
practice. [3]

[Total 5]

3. An analyst is interested in using a gamma distribution with parameters  = 2 and   1 ,

2
1
1  x
that is, with density function f  x   xe 2 , 0  x   .
4

(i) (a) State the mean and standard deviation of this distribution.

(b) Hence comment briefly on its shape. [2]

(ii) Show that the cumulative distribution function is given by:

1
 1   x
F  x   1   1  x  e 2 , 0  x   (zero otherwise). [3]
 2 

The analyst wishes to simulate values x from this gamma distribution and is able to gen-
erate random numbers u from a uniform distribution on (0,1).

(iii) (a) Specify an equation involving x and u, the solution of which will yield the simulated
value x .

(b) Comment briefly on how this equation might be solved.

(c) The graph below gives f(x) plotted against x. Use this graph to determine the
simulated value of x corresponding to the random number u = 0.66 .

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[3]

[Total 8]

4. Claim amounts are modelled as an exponential random variable with mean £1,000.

(i) Calculate the probability that a randomly selected claim amount is greater than
£5,000. [1]

(ii) Calculate the probability that a randomly selected claim amount is greater than
£5,000 given that it is greater than £1,000. [2]

[Total 3]

5. The ratio of the standard deviation to the mean of a random variable is called the coef-
ficient of variation.

For each of the following distributions, decide whether increasing the mean of the ran-
dom variable increases, decreases, or has no effect on the value of the coefficient of
variation:

(a) Poisson with mean 

(b) exponential with mean 

(c) chi-square with n degrees of freedom. [6]

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6. Consider the following simple model for the number of claims, N, which occur in a year
on a policy:

n 0 1 2 3

P(N = n) 0.55 0.25 0.15 0.05

(a) Explain how you would simulate an observation of N using a number r, an observation
of a random variable that is uniformly distributed on (0, 1).

(b) Illustrate your method described in (a) by simulating three observations of N using
the following random numbers between 0 and 1:

0.6221, 0.1472, 0.9862 [4]

7. It is assumed that claims arising on an industrial policy can be modelled as a Poisson

process at a rate of 0.5 per year.

(i) Determine the probability that no claims arise in a single year. [1]

(ii) Determine the probability that, in three consecutive years, there is one or more
claims in one of the years and no claims in each of the other two years. [2]

Suppose a claim has just occurred.

(iii) Determine the probability that more than two years will elapse before the next
claim occurs. [2]

[Total 5]

8. Consider the following three probability statements concerning an F variable with 6 and
12 degrees of freedom.

(a) P(F6,12  0.250)  0.95


(b) P F6,12  4.821  0.99
 
(c) P F6,12  0.13  0.01

State, with reasons, whether each of these statements is true. [3]

9. (i) Determine the moment generating function of the two-parameter exponential ran-
dom variable X, defined by the probability density function:

  x  
f  x   e , x  where ,   0 . [3]

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(ii) Hence, or otherwise, determine the mean and variance of the random variable X. [4]

[Total 7]

10. Suppose that the moment generating function of X is MX (t) .

(i) Derive an expression for the moment generating function of 2X + 3 in terms of

MX (t) . [2]

Now suppose that X is normally distributed with mean  and variance  2 .

(ii) Derive the distribution of 2X + 3. [2]

[Total 4]

11. The moment generating function, MY (t) , of a random variable, Y, is given by:

2
MY (t)  1  4t  t  0.25

Calculate:

(i) E(Y) [1]

(ii) the standard deviation of Y [2]

 
(iii) E Y 6 [2]

[Total 5]

12. The random variable U has a geometric distribution with probability function:

P U  u  pqu1 u  1,2,3, ... where p  q  1

(i) Derive the moment generating function of U. [2]

(ii) Write down the CG F of U, and hence show that E(U) = 1/p. [3]

[Total 5]

13. A random variable X has probability density function:

f  x   ke 2x x R

where R and k are positive constants.

(i) (a) Derive a formula for the moment generating function of X.

(b) State the values of t for which the formula in part (i)(a) is valid. [4]

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(ii) Hence determine the value of the constant k in terms of R. [1]

[Total 5]

14. (i) Derive, from first principles, the moment generating function of a Gamma  ,  

random variable. [3]

(ii) Show, using the moment generating function, that the mean and variance of a
Gamma  ,   random variable are  /  and  /  2 , respectively. [2]

[Total 5]

15. X is normally distributed with mean  and variance  2 .

Determine the fourth central moment of X. [3]

16. The claim amount X in units of £1,000 for a certain type of industrial policy is modelled as a
gamma variable with parameters   3 and   1 / 4 .

1
(i) Use moment generating functions to show that X ~  62 . [3]
2

(ii) Calculate the probability that a randomly chosen claim amount exceeds £20,000. [2]

[Total 5]

17. The continuous random variables X, Y have the bivariate PDF:

f  x, y   2 x  y  1, x  0, y  0

(i) Derive the marginal PDF of Y. [2]

(ii) Derive the conditional PDF of X given Y = y using the result from part (i). [1]

[Total 3]

18. Let X and Y have joint density function:

fX ,Y  x , y  
4
5
 
3x 2  xy 0  x  1, 0  y  1

Determine:

(i) the marginal density function of X [2]

(ii) the conditional density function of Y given X = x [1]

(iii) the covariance of X and Y. [5]

[Total 8]
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19. Two discrete random variables, X and Y, have the following joint probability function:

1 2 3

1 0.2 0 0.2

Y 2 0 0.2 0

3 0.2 0 0.2

Determine:

(i) E(X) [1]

(ii) the probability distribution of Y | X = 1 [1]

(iii) whether X and Y are correlated or not [2]

(iv) whether X and Y are independent or not. [1]

[Total 5]

20. Let X be a random variable with mean 3 and standard deviation 2, and let Y be a random va-
riable with mean 4 and standard deviation 1. X and Y have a correlation coefficient of – 0.3.
Let Z=X+Y.

Calculate:

(i) cov(X, Z) [2]

(ii) var(Z) . [2]

[Total 4]

21. X has a Poisson distribution with mean 5 and Y has a Poisson distribution with mean 10. If
cov(X, Y) = -12, calculate the variance of Z where z = X - 2Y + 3. [2]

22. For a certain company, claim sizes on car policies are normally distributed about a mean of
£1,800 and with standard deviation £300, whereas claim sizes on home policies are normal-
ly distributed about a mean of £1,200 and with standard deviation £500. Claim sizes are
assumed to be independent.

Calculate the probability that a car claim is at least twice the size of a home claim. [4]

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23. The random variable V follows the Poisson distribution with mean 5. For a given value of V,
the random variable U is distributed as follows:

U | (V = v) ~ U(0,v)

Determine the unconditional mean and variance of U. [4]

24. Suppose that X and Y are continuous random variables.

(i) Prove from first principles that:

E(Y) = E[ E(Y | X)] [3]

The random variable X follows the gamma distribution with parameters  = 3 and  = 2. Y
is a related variable with conditional mean and variance of:

E Y | X  x   3x  1 var Y | X   2x 2  5

(ii) Calculate the unconditional mean and standard deviation of Y. [5]

[Total 8]

25. Suppose that X is a standard normal random variable, and the conditional distribution of a
Poisson random variable Y, given the value of X = x, has expectation x 2  1 .

Determine E(Y) and var(Y). [5]

26. Two discrete random variables, X and Y, have the following joint probability function:

1 2 3 4

1 0.2 0 0.05 0.15

Y
2 0 0.3 0.1 0.2

(i) Determine var(X | Y = 2). [3]

Let U and V have joint density function:


fU,V u,v   6 2uv  u 2  0 u v 1

(ii) Determine E(U | V= v). [3]

[Total 6]
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CS1 REVISION SHEET X2

1. Decide whether the following are TRUE or FALSE:

(a) the chi square distribution with 2 degrees of freedom is equivalent to the exponen-
tial distribution with mean ½

(b) the exponential distribution with mean ½ is equivalent to the gamma distribution
with  = 1 and  = ½

(c) the gamma distribution with  = 1 and  = ½ is equivalent to the chi square distri-
bution with 2 degrees of freedom. [2]

2. The number of telephone calls per hour on a working day received at an insurance office
follows a Poisson distribution with mean 2.5.

(i) Calculate to 3 significant figures the probability that more than 7 telephone calls
are received on any given working day between 9am and 11am. [1]

(ii) Calculate to 3 significant figures the probability that, if the office opens at 8am,
there are no telephone calls received until after 9am. [2]

[Total 3]

3. Identify which one of the following data types is being collected in each of parts (a) to
(c):

A cross-sectional data

B longitudinal data

C censored data

D truncated data

(a) A life company records the age at which its policyholders die. However, some poli-
cyholders surrender their policies before their death.

(b) A government department records the annual earnings of individuals over their en-
tire working lives.

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(c) The claims department of a general insurance company records information about
policies that make claims but has no information about policies that do not claim. [3]

4. A large life office has 1,000 policyholders, each of whom has a probability of 0.01 of dy-
ing during the next year (independently of all other policyholders).

(i) Calculate to 4 significant figures the probability that there will be more than one
death during the next year. [2]

(ii) Calculate to 4 significant figures the probability that there will be exactly twenty
deaths during the next year. [1]

[Total 3]

5. A random variable X has probability density function:

2  52
f x   , x 0
3
5  x 
(i) Identify which one of the following options gives the correct expression for the
distribution function, f(x) :

2
 5 
A.  
5  x 

2
 5 
B. 1 
5 x 

12.5
C.
4
5  x 
12.5
D. 0.02 
4
5  x 
(ii) Calculate to 3 significant figures two simulated observations from the distribution
using the following random numbers generated from the U(0,1) distribution:

(a) 0.656

(b) 0.285 [3]

[Total 4]
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6. The time to complete a tricky pension review is normally distributed with mean 8 hours

and standard deviation 2 hours.

Calculate to 3 significant figures the probability that the times taken for two randomly

selected tricky reviews differ by less than 3 hours. [4]

7. The random variable X follows the beta distribution with parameters  = 1 and  = 4 .

(i) State in decimal form the value of E(X). [1]

(ii) Identify which one of the following options gives the median of X :

A. 0.1591

B. 0.5

C. 0.8409

D. 0.9375 [3]

(iii) Consider both Statement 1 and Statement 2 and decide, for each statement,

whether it is true or false.

If, and only if, you consider both statements to be true, you must decide whether

Statement 2 is a valid explanation as to why Statement 1 is true.

Statement 1 (Assertion) Statement 2 (Reason)

The distribution is positively skewed BECAUSE The mean of the distribution is

greater than the median.

A. 1 true, 2 true, 2 is a valid explanation to support 1

B. 1 true, 2 true, 2 is NOT a valid explanation to support 1

C. 1 true, 2 false

D. 1 false, 2 true

E. 1 false, 2 false [1]

[Total 5]

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8. On a portfolio of insurance policies, the claim size, Y, is assumed to depend on the age of
the policyholder, X. Suppose that the conditional mean and variance of Y are:

E Y | X  x   2x  400

x2
var Y | X  x  
2

The distribution of X over the portfolio is assumed to be normal with mean 50 and stan-
dard deviation 14.

(i) Calculate to 3 significant figures the unconditional mean of Y. [2]

(ii) Calculate to 3 significant figures the standard deviation of Y . [3]

[Total 5]

9. (i) Derive the following result for a pair of jointly distributed random variables, X and Y :

var(X + Y) = var(X)+ var(Y) +2cov(X, Y) [2]

The random variables X and Y are jointly distributed with standard deviations of 5 and 7
respectively and corr(X, Y) = -3/ 7.

(ii) Calculate to 3 significant figures the standard deviation of 3X -2Y + 5. [3]

[Total 5]

10. Claim amounts for a particular type of medical negligence are lognormally distributed
with mean £15,000 and standard deviation £8,000.

An actuary is examining the number of large claims received for this type of medical
negligence. To do this, the actuary counts the number of claims arriving until one is re-
ceived that exceeds £20,000.

(i) Identify which one of the following gives the correct value for μ, the mean of the
underlying normal distribution.

A. 9.16581

B. 9.49064

C. 9.58447

D. 9.61579 [3]

(ii) Calculate to 3 significant figures the probability that the next claim exceeds
£20,000, making sure not to round any values within the intermediate calculations.
[2]

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(iii) Calculate to 2 significant figures the mean number of claims that the actuary will
count (not including the £20,000 claim). [2]

[Total 7]

11. The random variables X and Y have a discrete joint distribution with joint probability
function:

P  X  x ,Y  y    
c x  2y  x  0,1,2 and y  0,1,2
0 otherwise

where c is an appropriate constant.

(i) Identify which one of the following options gives the conditional probability func-
tion of X given Y = y.

x  2y
A. P X  x |Y  y  
3  x  2

3  x  2
B. P X  x |Y  y  
x  2y

x  2y
C. P X  x |Y  y  
3 1x  2 

3 1x  2 
D. P X  x |Y  y   [3]
x  2y

It is subsequently discovered that the random variables, X and Y, are in fact continuous
over the intervals 0 < x < 2 and 0 < y < 2. Their joint probability density function has the
same structure as the joint probability function above, ie:

f  x, y    
k x  2y  0  x  2 and 0  y  2
0 otherwise

where k is an appropriate constant.

(ii) (a) Identify which one of the following options gives the value of k:

A. 1/6

B. 1/8

C. 1/10

D. 1/12 [2]

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(b) Identify which one of the following options gives the conditional PDF of X given Y =
y.

2x  4
A. fX|Y y  X ,Y   0x 2
x  2y

x  2y
B. fX|Y y  X ,Y   0x 2
2x  4

2 1  2y 
C. fX|Y y  X ,Y   0x 2
x  2y

x  2y
D. fX|Y y  X ,Y   0x 2 [2]
2 1  2y 

[Total 7]

12. A discrete random variable, N, used to model the number of claims received on a home
insurance policy, has the following probability function:

3
P N  n    4 n n  0,1,2,3,...
4

(i) Identify which one of the following options gives the correct expression for the
cumulant generating function of N.

A. 
In3  In 4  et 
 3 
 
B. In  4 
 1 et  1 
 
4 

C. In
3
4

 In et  1 
 3 
 
D. In  16  [3]
 1  1 et 
 
 4 

A random variable, 5, used to model the aggregate claims on a portfolio of motor insur-
ance policies, has the follow cumulant generating function:

 25 
CS t   50 1  4t   1
 

CA PRAVEEN PATWARI 56 JAI SHREE SHYAM

CS1-ACTUARIAL STATISTICS ACTUATORS EDUCATIONAL INSTITUTE

(ii) Determine to 3 significant figures the coefficient of skewness. [4]

[Total 7]

13. A random variable X has MGF MX  t  .

(i) State the value of the moment generating function MX  t  at t = 0. [1]

Let X be a random variable with probability density function:

1 x
 e ; x0
f  x   2
 1 e x ; x 0
2

(ii) (a) Identify which one of the following options gives the correct expression for
the moment generating function of X :
1
A. MX t   1  t 

1
B. MX t   t  1

 
1
C. M X t   1  t 2

 
1
D. M X t   t 2  1 [3]

(b) State the range of values of t for which the moment generating function of X
is valid, in the form of A, B where A and B are the limits of t. [1]

14. Calculate using an appropriate moment generating function:

(a) the mean of X [1]

(b) the variance of X. [2]

[Total 8]

15. X and Y are discrete random variables. The only possible combinations of these two va-
riables have the following probabilities:

0 1 2

Y 1 1 0 1
2 16

CA PRAVEEN PATWARI 57 JAI SHREE SHYAM

CS1-ACTUARIAL STATISTICS ACTUATORS EDUCATIONAL INSTITUTE

2 0 1 0
8

3 1 1 0
4 16

(i) Show that X and Y are:

(a) not independent

(b) not uncorrelated. [4]

(ii) State the circumstances under which the result f(X) = E[E(X | Y)] holds. [1]

(iii) Calculate to 3 significant figures:

(a) E(X + Y | X = 1)

(b) E(X | Y = 2)

(c) var(X | Y = 2). [7]

 
(iv) Determine the values of the random variable E Y 2 | X and hence calculate

  
E E Y 2 | X  (rounding to 4 significant figures where appropriate [3]

(v)  
(a) Calculate to 4 significant figures E Y 2 using the marginal distribution of Y. [1]

(b) Comment on your answer to part (v)(a). [1]

[Total 7]

CA PRAVEEN PATWARI 58 JAI SHREE SHYAM