SOA Exam FAM Sample Question 2
Study guide: Exam FAM
You are given:
(i) Losses follow a single-parameter Pareto distribution with density function:
f(x) = \frac{\alpha}{x^{\alpha+1}}, \quad x > 1, \quad 0 < \alpha < \infty
(ii) A random sample of size five produced three losses with values 3, 6 and 14, and two losses exceeding 25.
Calculate the maximum likelihood estimate of \alpha.
- A) 0.25
- B) 0.30
- C) 0.34
- D) 0.38
- E) 0.42
Answer this question and see the worked solution