Original practice · fully worked
Original variant: uncertainty in a remaining outage bill
A server recovery time T is exponentially distributed with mean 2.5 hours. The server is still offline after four hours. Let R be the additional recovery time beyond hour four. The remaining service bill is B=100+300R dollars. Calculate the conditional standard deviation of B.
- A
2.5 - B
100 - C
300 - D
750 - E
562500
Answer and calculation
Given survival to hour four, R remains exponential with standard deviation 2.5. The fixed fee does not affect spread and the multiplier 300 scales standard deviation to 300(2.5)=750, choice D.
Setup
Setup
Condition on the observed survival and define the remaining duration.
R=T−4∣T>4 Model
Model
Exponential memorylessness gives the residual the original distribution, and an affine transformation scales standard deviation by the absolute slope.
R∼Exponential(mean 2.5) SD(100+300R)=300SD(R) Compute
Compute
Use equality of exponential mean and standard deviation, then apply the billing rate.
SD(R)=2.5 SD(B)=300(2.5)=750 Answer
Answer
The remaining bill's conditional standard deviation is 750 dollars.
750(D)