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University of Waterloo
ACTSC 613
1. Your company is running an incentive program to promote workplace safety. Each month,
your unit will be given an incentive amount of 1/(X + 1), where X is the number of workplace
accidents your unit has had in that month. (Hence, if you have no accidents, you will get
the full incentive; if you have one accident, you will get half of the incentive; if you have
two accidents, you will only get one-third of the incentive; and so on.) However, the com-
pany is relying on a mysterious offshore connection to fund this program, and your unit will
most probably not receive the money immediately. Therefore, at the end of the month, the
discounted value of your incentive is equal to
1
e−rT ,
X +1
where T is the extra amount of time you have to wait for the money to arrive, and r is the
interest rate (assumed to be a fixed constant). Assume that
On average, how much do you expect the discounted value of your incentive to be, assuming
that the two random quantities X and T are independent? How reasonable is the indepen-
dence assumption? Note: If X and Y are independent, then E[g(X)h(Y )] = E[g(X)]E[h(Y )].
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