Australian School of Business

Probability and Statistics

Solutions Week 1
1. Urn 1: 1 Black (B), 1 Gold (G)
Urn 2: 1 White (W), 1 Gold (G)
Define B = black ball, G = gold ball, W = white ball
(a) = {BW, BG, GW, GG}

, {BW} , {BG} , {GW} , {GG} , {BW, BG} , {BW, GW} , {BW, GG} ,

{ BG, GW} , {BG, GG} , {GW, GG} , {BW, BG, GW} , {BW, BG, GG} ,
(b) F =

{BW,GW, GG} , {BG, GW, GG} , {BW, BG, GW, GG}

(c) Let E be the event of getting the same color for both balls. Then E = {GG} and Pr (E) =

Pr (Urn 1 = G Urn 2 = G) = Pr (Urn 1 = G)Pr (Urn 2 = G) = 12 12 = 41 , * using independence.

2. (a) Define R = red ball, G = gold ball, S = silver ball.

Draw without replacement: use combination.

49
possible combinations
  RRR
 (n=49, r=3) = 3 , total combinations (n=100, r=3) =
94
49
49 48 47
100
=
= 0.1139
Pr(RRR) =

=
100 99 98
825
3
3
(b) Pr(RGS) =

49
100

34
99

17
98

289
9900

100
3

= 0.0292, using multiplication rule.

(c) Let A = 3rd ball is silver and B = first 2 are red and gold. Thus,
Pr (A |B ) =

Pr (A B)
Pr (RGS GRS)
=
Pr (B)
Pr (RG. GR.)

where
Pr (RGS GRS) =
and
Pr (RG. GR.) =

34 17
49

100 99 98

49
34 98

100 99 98

2!

2!

Therefore, we have the required probability:

Pr (A |B ) =

17
= 0.1735.
98

(d) Let C = first 2 are red. Thus,

Pr (C |A ) =

Pr (RRS)
Pr (A C)
=
Pr (A)
Pr (A)

where

48 17
49

100 99 98
and note that for the event A, you either have 0, 1, or 2 silver in the first two so that

 



83
83
17
82 17
17 16
16 15
Pr (A) =
+
2! +
.

100 99 98
100 99 98
100 99 98
Pr (RRS) =

After simplifying, the required probability is:

Pr (C |A ) =

c Katja Ignatieva

49 48
= 0.2424.
(83 82) + 2 (83 16) + (16 15)

School of Risk and Actuarial Studies, ASB, UNSW

Page 1 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

3. Let A and B be two independent events so that Pr (A B) = Pr (A) Pr (B) , Pr (B|A) = Pr (B) , and
Pr (A|B) = Pr (A).
(a) To show A and B C are independent, we have:




= Pr B C |A Pr (A)
Pr A B C

= 1 Pr (B |A ) Pr (A)
| {z }
Pr(B)

= Pr B

thus independent.

Pr (A) ,

(b) To show AC and B are independent, we have:

Pr AC B
= Pr AC |B Pr (B)

1 Pr (A |B ) Pr (B)
| {z }
Pr(A)

Pr A

thus independent.

Pr (B) ,

(c) It then becomes straightforward to show AC and B C are independent. Given that A and B are
independent, we know from part (b) that AC and B are also independent. Applying (a), then AC
and B C must also be independent.
4. (a) Let A and B be mutually exclusive, i.e., A B = and Pr (A B) = 0. Suppose they are also
independent. Then
Pr (A B) = Pr (A) Pr (B) = 0.
Therefore, either Pr (A) = 0 or Pr (B) = 0. But, both Pr (A) > 0 or Pr (B) > 0 by assumption.
This is a contradiction so that A and B cannot be independent.
(b) Now suppose A and B are independent, i.e., Pr (A B) = Pr (A) Pr (B). Suppose they are
mutually exclusive. Then Pr (A B) = 0 which implies Pr (A) Pr (B) = 0 and following similar
argument above, this cannot be true. Therefore they cannot be mutually exclusive.

5. There are a total of 6 6 = 36 possible outcomes.

We have that: E1 = {(1, 1), (2, 2), (3, 3), (4, 4), (5, 5), (6, 6)},
E2 = {(1, 6), (2, 5), (3, 4), (4, 3), (5, 2), (6, 1), (2, 6), (3, 5), (4, 4), (5, 3), (6, 2), (3, 6), (4, 5), (5, 4), (6, 3), (4, 6), (5, 5), (6, 4
and
E3 = {(1, 1), (1, 6), (2, 5), (3, 4), (4, 3), (5, 2), (6, 1), (2, 6), (3, 5), (4, 4), (5, 3), (6, 2)}. Thus, by counting
from these possible outcomes, we see that:
Pr (E1 ) =

6
36

1
6

Pr (E2 ) =

18
36

1
2

Pr (E3 ) =

12
36

1
3

(a) Note that

Pr (E1 E2 E3 ) = Pr (double and sum is 8) = Pr ((4, 4)) =
and
Pr (E1 ) Pr (E2 ) Pr (E3 ) =

1
36

1 1 1
1
=
.
6 2 3
36

Thus, are independent.

(b) However,
Pr (E1 E2 ) = Pr (double and sum is 8 or 10) =
which is not equal to:
Pr (E1 ) Pr (E2 ) =

c Katja Ignatieva

1
,
18

1
1 1
=
.
6 2
12

School of Risk and Actuarial Studies, ASB, UNSW

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ACTL2002 & ACTL5101

Probability and Statistics

(c) Note that:

Pr (E2 E3 ) = Pr (sum is 7 or 8) =
which is not equal to:
Pr (E2 ) Pr (E3 ) =

Solutions Week 1

11
36

1
1 1
= .
2 3
6

(d) Consider:
Pr (E1 E3 ) = Pr (doubles and sum is 2 or 8) =
and note that
Pr (E1 ) Pr (E3 ) =

2
1
=
36
18

1 1
1
=
.
6 3
18

Therefore, they are independent.

6. Let A = student A is pardoned, B = student B is pardoned, C = student C is pardoned, and
Z = Lecturer says B is not pardoned.
Pr (Z)

Pr (Z A) + Pr (Z B) + Pr (Z C)

Pr (A) Pr (Z|A) + Pr (Z B) + Pr (C) Pr (Z|C)

1
1
1 1
+0+ 1 = .
3 2
3
2

* using law of total probability, ** using multiplication rule.

(a) Thus, using the lecturers reasoning,
Pr (A |Z ) =
=

Pr (lecturer says B is not pardoned and A is pardoned)

Pr (Z)
1
1/6
= .
1/2
3

Lecturers reasoning is clearly justified as the additional information provides no change in the
probability.
(b) However, A falsely interprets the event Z as equal to the event B C (event B is not pardoned) and
calculates:




Pr A B C
1/3
1
=
= .
Pr A B C =
Pr (B C )
2/3
2
Student As reasoning is not justified, i.e., the event Z has more information than the event B.
The lecturer does provide extra information on the probability that event C will happen, i.e.,
1/3
2
Pr (C |Z ) = Pr(CZ)
Pr(CZ) = 1/2 = 3 .
P
Using x pX (x) = 1, Pr (C |Z ) = 2/3 and Pr (B |Z ) = 0 we have that Pr (A |Z ) = 1/3

7. (a)
(b)

(c)

(d)

   
n
11
Use combinations. We have n = 11, r = 4:
=
= 330 ways to eliminate 4 flights.
r
4
   
n
5
Use combinations. We have n = 5, r = 2:
=
= 10 ways to eliminate 2 flights for the
r
2
first airline.
   
n
6
Use combinations. We have n = 6, r = 2:
=
= 15 ways to eliminate 2 flights for the
r
2
second airline.
 
5
Use multiplication rule. S1 = number of ways first airline can eliminate 2 flights, with n1 =
,
2
 
6
S2 = number of ways second airline can eliminate 2 flights, with n2 =
.There are n1 n2 =
2
   
5
6

= 150 ways to eliminate 2 flights for each airline.

2
2

c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 3 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

8. Define D = 2 marbles have different colors, B1 = Box 1 is selected, B2 = Box 2 is selected,B3 =

Box 3 is selected. Let p be the probability that box 1 is selected. Then p + 2p + 3p = 1. Thus p = 16 .
The required probability is:
Pr (D) = Pr (D|B1 ) Pr (B1 ) + Pr (D|B2 ) Pr (B2 ) + Pr (D|B3 ) Pr (B3 )
=

14

(52)

1
6

23

(52)
=

2
6

32

(52)

3
6

17
30

P
9. We know: Pr(i) 0 for i = 0, 1, 2, . . . and i Pr(i) = 1.
Rewriting the p.d.f. gives: Pr(0) = Pr(1) = Pr(2);
Pr(3) = 21 Pr(2) = 12 Pr(0);
Pr(4) =
1
1
Pr(3)
=
Pr(0)
3
3!
1
1
Hence, we have: Pr(k) = k1
Pr(k 1) = (k1)!
Pr(0).



P
P
P
P
1
1
Pr(0)
=
1
+
Pr(i) = Pr(0) +
Pr(i) = Pr(0) +
Then we rewrite:
(i1)!
(i1)! Pr(0) = 1.
i=1

i=1

i=0

Using the series expansion for ex at x = 1, we have Pr(0) =

i=1

1
1+e .

10. X is a continuous random variable with density function:

fX (x) = cex ,

x > 1,

and zero otherwise.

R
(a) To prove X is a random variable the following two conditions must be satisfied: 1) fX (x)dx =
1 and 2) fX (x) 0, for all x .
R x
R

f
(x)dx
=
ce dx = [cex ]1 = ce1 = 1. Thus for c = e the first conditional holds.
X

For c = e we have: fX (x) = ex+1 e = 0 for x > 1 and zero otherwise, hence also the second
condition is satisfied. Thus c = e.

(b) Pr (X < 3|X > 2) =

Pr(X<3X>2)
Pr(X>2)

R3 x
ce dx
R2
cex dx
2

R3 x
e dx
R2
ex dx
2

e1
e .

R
c 23 ex dx
R x
2

dx

e2 e3
e2

= 1 e1 =

11. (a)
pX (x) =

1
3
2
3

if x = 1
if x = 2/3
otherwise.

(b) graph of pX :
c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 4 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

graph of FX :
12. We are given a normal distributed random variable.
1

2 2

(a) MX (t) = et+ 2 t (shown in lecture week 2 notes)

(b) Since S (t) = log [MX (t)], we have


d
1
d
1

S (t) =
MX
(t)
S (t)
=
MX
(0) = E (X)
dt
MX (t)
dt
M
(0)
X
t=0

* using MX (0) = 1 and MX

= E [X],
and (using the quotient rule for derivatives)

d2
S (t) =
dt2


d2

S
(t)
=

dt2
t=0

MX (t) MX
(t) [MX
(t)]2

[MX (t)]

MX (0) MX
(0) [MX
(0)]

[MX (0)]

 

** using MX (0) = 1, MX = E [X], and MX

= E X2

2
= E X 2 [E (X)] = V ar (X) .

(c) Thus, S (t) = log (MX (t)) = log exp + 1/2 2 t2 = t + 12 2 t2 implies S (t) = + 2 t and
S (t) = 2 so that
S (0) = and S (0) = 2
and the result E [X] = and V (X) = 2 immediately follows.
(d) This function is called the cumulant generating function of X.
13. (a) By the theorem explained in the lecture notes we know that every m.g.f. corresponds to only one
distribution.
(b) First, we determine the first five derivatives of MX (t) with respect to t:
(1)

MX (t) = + 2t + 3t3 + 4t3

(2)

MX (t) =2 + 6t + 12t2
(3)

MX (t) =6t + 24t

(4)

MX (t) =24
(5)

MX (t) =0
c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 5 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

Next, we can easily derive the non-central moments:

(1)

E [X ] =MX (t) =
 
(2)
E X 2 =MX (t) = 2
 
(3)
E X 3 =MX (t) = 6
 
(4)
E X 4 =MX (t) = 24
 5
(5)
E X =MX (t) = 0
(c) The central moments can easily be determined using the non-central moments:
E [X ] = = = 0
h
i

2 
E (X ) =E X 2 2X + 2
 
=E X 2 2E [X] + 2

=2 2
i
h

3 
E (X ) =E X 3 3X 2 + 3X2 3
 
 
=E X 3 3E X 2 + 3E [X] 2 3

=6 6 + 23
i
h

4 
E (X ) =E X 4 4X 3 + 6X 2 2 4X3 + 4
 
 
 
=E X 4 4E X 3 + 6E X 2 2 4E [X] 3 + 4

=24 24 + 122 34
h
i

5 
E (X ) =E X 5 5X 4 + 10X 32 10X 2 3 + 5X3 5
 
 
 
 
=E X 5 5E X 4 + 10E X 3 2 10E X 2 3 + 5E [X] 4 5
= 120 + 602 203 + 44
n

* using the Binomial expansion: (a + b) = an +

b = , and n=2,3,4, or 5.

n1
a
b+

n
1

n2 2
a
b + . . . + bn with a = X,

n
2

(d) Given the central moments we have:

- Mean: = E [X] = ;
i
h
- Variance: 2 = E (X )2 = 2 2 ;
- Skewness: =

E[(X)3 ]

E[(X)2 ]

- (Excess) Kurtosis: =

3/2

66+23
;
(22 )3/2

E[(X)4 ]
E[(X)2 ]

2424+122 34
(22 )2

3.

(e) First, we calculate the mean, variance, skewness, and kurtosis for those four set of parameters.
We have that:
-

for
for
for
for

A we have: Mean=1, Variance=3, skewness=-0.7698, and (Excess) Kurtosis=-2/3;

B1 we have: Mean=1, Variance=1, skewness=-0.7698, and (Excess) Kurtosis=-2/3;
B2 we have: Mean=1, Variance=3, skewness= 0.3849, and (Excess) Kurtosis=-2/3;
B3 we have: Mean=1, Variance=3, skewness=-0.7698, and (Excess) Kurtosis=1;

Comparing the distributions we have:

i) We have a smaller variance for insurer B1 than A, and the same mean, skewness, and kurtosis.
This implies that a large claim for insurer A is more likely than for insurer B (i.e., more
variability in the claim size for insurer A), hence the price for reinsuring this risk is larger for
insurer A than insurer B.
ii) We have a smaller skewness for insurer B2 than A, and the same mean, variance, and kurtosis.
The positive skewness of insurer B2 indicate that the probability of a claim large than the
mean is more than 50%. This implies that a large claim for insurer B2 is more likely than for
insurer A, hence the price for reinsuring this risk is larger for insurer B2 than insurer A.

c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 6 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

iii) We have a smaller kurtosis for insurer A than B3 , and the same mean, variance, and skewness.
Hence, the distribution of the claims of insurer A are more flat than of insurer B. This implies
that a large claim for insurer B3 is more likely than for insurer A, hence the price for reinsuring
this risk is larger for insurer B3 than insurer A.
14. The probability density function for a continuous random variable X is given by:
 2
for x 1;
x3 ,
fX (x) =
0,
otherwise.
(a) FX (x) = Pr(X x) =

Rx

fX (z)dz =

Rx
1

x 1 and zero otherwise.

2
z 3 dz

Rx
1


x
2 z 3 dz = z 2 1 =

(b) Pr(X 4) = 1 Pr(X < 4) = 1 Pr(X 4) = 1 FX (4) =

* using Pr(X = x) = 0 for continuous random variables.

1
x2

(1) = 1

1
x2

for

1
16 .

(c) graph of fX :

FX
~
1
0.8
0.6
0.4
0.2
graph of FX :

15. (a) To show fX () is a density, we have to show that: 1)

c Katja Ignatieva

4
R

x
5
fX (x) dx = 1 and 2) fX (x) 0 for all

School of Risk and Actuarial Studies, ASB, UNSW

Page 7 of 10

ACTL2002 & ACTL5101

Probability and Statistics

x. For 1) we have:
Z

Z
1 x
1 x
e dx +
e
dx
2
0
2
0



1 x
1 x
e
e
2
2
0
1
1
if 0;
2 + 2 = 1,
0,
if = 0;
1
1
2 ( 2 ) = , if < 0,
Z

fX (x) dx

Solutions Week 1

and for 2) we have that fX (x) 0 for all x if 0.

Thus, combining 1) and 2) we have fX is a p.d.f. if > 0.
(b) For x < 0 we have,
x

Z x
Z x
1 u
1
1 u
fx (z)dz =
F (x) =
e du =
e
= ex
2
2
2

and for x 0,
Z

1 u
e du +
2

x

1
1 u
1
1 u
e
du = e
= 1 ex .
2
2
2
2
0

Thus,
FX (x) =
(c) To find the m.g.f.,
MX (t) =
=
=
=

E e

Xt

1 21 ex , if x 0;

1 x
2e ,

xt

fX (x)dx =

if x < 0.

xt 1

e dx +

ext

1
ex dx
2

1
1

ex(t+) dx +
ex(t) dx
2
2

0

0


1
1

exp (x (t + ))
exp (x (t ))
+
2
t+
2
t

0
1

2
,

+
= 2
2 +t 2 t
t2

provided t + > 0 and t < 0 (because e to the power is infinity). This is equivalent to
< t < . Therefore, blindly applying the formula, the p.g.f. would be:
PX (t) = MX (ln t) =

2,

2 (ln t)

but this is not a p.g.f. as this is not a discrete distribution (trick question!). Hence, the p.g.f.
does not exist for this/a continuous random variable.
(d) Suppose = 1, then
1 x
2 e , if x 0;
fX (x) =
1 x
if x < 0.
2e ,
and



3
Pr |X| <
=
4
=
Or, alternatively:


3
Pr |X| <
=
4


 Z 0
Z 3/4
3
1 x
3
1 x
Pr < X <
=
e dx +
e dx
4
4
2
3/4 2
0
 1

1
1 e3/4 +
1 e3/4 = 1 e3/4 .
2
2







3
3
3
3
Pr < X <
= Pr X <
Pr X
4
4
4
4




3
3
Pr X
= F (3/4) F (3/4) = 1 e3/4
Pr X
4
4

* using Pr(X = x) = 0 for continuous r.v.

c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 8 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

16. We define the force of mortality as:

(x) = lim

h0

FX (x + h) FX (x)
.
h (1 FX (x))

The force of mortality is thus a conditional instantaneous rate of death at age xconditional on
surviving to age x. (The corresponding conditional instantaneous probability of death at age x is thus
x dx.)
(a) First, note that we can express this as:
(x) =

1
FX
(x)
FX (x + h) FX (x)
fX (x)
=
lim
=
.
1 FX (x) h0
h
1

F
(x)
1

FX (x)
X
|
{z
}
(x)
FX

Now, integrate both sides from 0 to x and we get:

Z x
Z x
(z) dz =
0

fX (z)
dz.
1 FX (z)

Applying a change of variable u = 1 FX (z), du = fX (z)dz then

Z x
Z 1FX (x)
1
X (x)
du = [ln(u)]1F
= ln (1 FX (x)) .
(z) dz =
1
u
0
1
Thus we have,
 Z
exp

(z) dz

= exp ( ( ln(1) FX (x))) = 1 FX (x) ,

which then gives the result.

R
(b) By definition of expectation, we know E [X] = 0 z fX (z) dz Now integrate the right-hand side
Rb
Rb
dv
dx = [u v]ba a v du
by applying integration by parts (see F&T page 3), i.e., a u dx
dx dx:

dv
= fX (z)
dx
so that du = dz and v = 1 FX (z). The choice of v is not black magicif you just use
FX (z) then the first term on the RHS below is not finite.1 The only choice FX (z) + C for an
antiderivative of fX (z) that might produce finite terms on the RHS is FX (z) 1.2 Therefore
Z
E [X] =
(z) (fX (z))dz =
0
Z

= [z (1 FX (z))]0 +
(1 FX (z)) dz
0
Z
Z
= 0 + 0 +
(1 FX (z)) dz =
(1 FX (z)) dz.
u = z and

Using this result, we have:

Z

(1 FX (z)) dz



Z 
1
1 FX (z)
.
fX (z) dz = E
fX (z)
(X)
0
|
{z
}

E [X] =

1
(z)

1 Using

v = FX (z) we would have:

E [X]

(z) (fX (z))dz =

Z
(1 FX (z)) dz
[z (FX (z))]
+
0
0
Z
(FX (z)) dz.
+ 0 +
0

=
=

Hence, the only way to get the first part ([z (FX (z) + C)]
0 ) to a value smaller than infinity (and larger than minis infinity)
is to set C = 1.
R
2 That the integrated term vanishes for x is proven as follows: since E[X] < , the integral xf (x)dx is convergent,
x
0
and hence the tails tend to zero, so
Z
Z
tfX (t)dt 0 for x .
fX (t)dt
x[1 FX (x)] = x
x

c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 9 of 10

ACTL2002 & ACTL5101

Probability and Statistics

Solutions Week 1

17. We are given the p.d.f.:

fX (x) = ax 1 bx2 , for 0 x 1.
R
R1
(a) We must have fX (x) dx = 0 fX (x) dx = 1 so that:
Z

ax 1 bx2 dx =

ax abx3 dx =

1 2 1
ax abx4
2
4

1

=a

2b
4

=1a=

4
.
2b

Since a > 0 (given), we must have b < 2. Also, fX (x) 0 for all x so that at x = 1, fX (1) =
a (1 b) 0 which implies b 1.


(b) If b = 1, then a = 4 and fX (x) = 4x 1 x2 . Therefore, mean is
E [X] =

and

8
4x2 1 x2 dx =
.
15
1

1
4x3 1 x2 dx = .
3
0


 2
2
8 2
11
.
= 225
Variance is V ar (X) = E X (E [X]) = 13 15


E X

-End of Week 1Tutorial Solutions-

c Katja Ignatieva

School of Risk and Actuarial Studies, ASB, UNSW

Page 10 of 10