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Expected Refunds for Printers Analysis

The lifetime of printers costing $200 each is modeled by an exponential distribution with a mean of 2 years. The manufacturer agrees to provide refunds if a printer fails within 2 years as follows: full refund within the first year, half refund in the second year, no refund after 2 years. The problem asks to calculate the expected total amount of refunds from the sale of 100 printers. The solution provides the probability density function and cumulative distribution function of the exponential distribution as prerequisites. It then calculates the probability of a printer failing within the first year, second year, and after the second year using these functions. The expected refund is calculated by taking the probabilities times the corresponding refund amounts and summing them.

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72 views3 pages

Expected Refunds for Printers Analysis

The lifetime of printers costing $200 each is modeled by an exponential distribution with a mean of 2 years. The manufacturer agrees to provide refunds if a printer fails within 2 years as follows: full refund within the first year, half refund in the second year, no refund after 2 years. The problem asks to calculate the expected total amount of refunds from the sale of 100 printers. The solution provides the probability density function and cumulative distribution function of the exponential distribution as prerequisites. It then calculates the probability of a printer failing within the first year, second year, and after the second year using these functions. The expected refund is calculated by taking the probabilities times the corresponding refund amounts and summing them.

Uploaded by

Chuluunzagd Batbayar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Actuarial exam: detailed solution

Problem 37

The lifetime of a printer costing 200 is exponentially distributed with mean 2 years. The manufacturer
agrees to pay a full refund to a buyer if the printer fails during the first year following its purchase, a
one-half refund if it fails during the second year, and no refund for failure after the second year.

Calculate the expected total amount of refunds from the sale of 100 printers.

(A) 6,321 (B) 7,358 (C) 7,869 (D) 10,256 (E) 12,642

Solution

1.1 Prerequisite

We should already know about:

1. Exponential distribution

1. Exponential distribution’s the probability density function


Formulae
The random variable for the exponential distribution is An alternative form of the exponential distribution formula
continuous and often measures a passage of time, although it recognizes what is often called the decay factor. The decay
can be used in other applications. Typical questions may be, factor simply measures how rapidly the probability of an event
“what is the probability that some event will occur within the declines as the random variable X increases. When the
next x hours or days, or what is the probability that some event notation using the decay parameter m is used, the probability
will occur between x1 hours and x2 hours, or what is the density function is presented as:
probability that the event will take more than x1 hours to
perform?” In short, the random variable X equals (a) the time
between events or (b) the passage of time to complete an
action, e.g. wait on a customer.

The probability density function is given by:


where m=1/μ

In order to calculate probabilities for specific probability density


functions, the cumulative density function is used. The
cumulative density function (cdf) is simply the integral of the
pdf and is:
Where μ is the historical average waiting time. and has a
mean and standard deviation of 1/μ.
1.2 Estimates

1. Probability density function

2. Cumlative distribution function

1 – exp^-1/2 - exp^-2/2 = 0.23685


Reference

https://openstax.org/books/introductory-business-statistics/pages/5-3-the-exponential-distribution

Кумулятивная функция распределения (CDF) также обеспечивает простой способ определения


вероятности того, что результат измерения попадет в определенный диапазон. Если диапазон
определяется двумя значениями z1 и z2, всё, что нам нужно сделать, это вычесть значение
функции распределения в z2 из значения функции распределения в z1 (а затем при
необходимости взять модуль полученного значения).

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