A Story for Actuaries

Lucky Tom was on his way to work and picking up coins along the way when he ran into a very hungry tyrannosaur. Because Lucky Tom was not a scientist, he was safe from becoming the tyrannosaur's lunch. He continues on his way when he stumbled across an urn that contained six blue balls and four red balls.

While pondering the hypergeometric probabilities, Lucky Tom ran into a group of men. 30% of them had a circulation problem. They informed him that 2/3 of men who have a circulation problem are smokers while 1/14 of men without problems smoke. After using Bayes' Theorem to determine that 4/5 of smokers have a circulation problem, he wandered on.

Lucky Tom walked a little farther and ran into a bank employee who asked if he would be interested in buying an increasing annuity valued at spot rates derived from US Treasury bonds. After calculating the risk and IRR, Lucky Tom declined and continued looking for coins. The bank employee was persistent and followed Lucky Tom and said that he could take out a loan and repay it using the sinking fund method.

Lucky Tom considered this, since he could deposit the coins he was finding at Poisson rate of 1/2 per minute into the sinking fund. However, he declined. "What a strange day today!" thought Lucky Tom, "First a hungry tyrannosaur, then the urn, then the group of men with a circulation problem, what next?" Suddenly, Lucky Tom was distracted by a shiny quarter on the ground. As he bent down to pick it up, he was gobbled up by the hungry tyrannosaur who had now realized that Lucky Tom was indeed a scientist, an actuarial scientist.


(Note a: I didn't write this story. I found this story at the back of a t-shirt that I ordered from Drake Actuarial Student Society 2 or 3 years ago. I thought someone who served as the exec committee wrote this.)

(Note b : If you have not taken the Exam M, you may not understand why Lucky Tom, the scientist, the tyrannosaur are so significant in the story. These characters appeared a lot in the exam questions. The story is more or less an inside joke for the exam-takers. :))


simpleblob said...

I'll remember this as a cheat sheet for Exam M then. ;)