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Assignment 5 Solution

This document contains an assignment for an actuarial theory course. It includes 5 questions: 1) Calculating probabilities using the life table and exercises from the textbook. 2) More probability calculations using the life table. 3) Another probability calculation exercise. 4) Calculating expected present value and second moment of different life insurance benefits using De Moivre's law. 5) Revisiting a previous exercise to construct a life table and calculate annuity values for different ages.

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conan1233
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52 views

Assignment 5 Solution

This document contains an assignment for an actuarial theory course. It includes 5 questions: 1) Calculating probabilities using the life table and exercises from the textbook. 2) More probability calculations using the life table. 3) Another probability calculation exercise. 4) Calculating expected present value and second moment of different life insurance benefits using De Moivre's law. 5) Revisiting a previous exercise to construct a life table and calculate annuity values for different ages.

Uploaded by

conan1233
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Math 471 - Actuarial Theory I Section G1

Assignment 5
Assignment 5 is due on Wednesday, October 7, 3:00pm.
1. (3 marks) Exercise 3.3.
Solution:
(a)
10 p[75]

l85
= 0.66177
l[75]

(b)
9|2 q[75]+1

l85 l87
= 0.09433
l[75]+1

4|2 q[77]+1

l82 l84
= 0.08993
l[77]+1

(c)

2. (3 marks) Exercise 3.5. Solution:


(a)
7 p[70]

= p[70] p[70]+1 p[70]+2 p[70]+3 p[70]+4 p75 p76


= (1 q[70] )(1 q[70]+1 )(1 q[70]+2 )(1 q[70]+3 )(1 q[70]+4 )(1 q75 )(1 q76 ) = 0.821929

(b)
1|2 q[70]+2

= p[70]+2 2 q[70]+3 = (1 q[70]+2 ){q[70]+3 + (1 q[70]+3 )q[70]+4 } = 0.05508

(c)
3.8 q[70]+0.2

=1
=1

3.8 p[70]+0.2

=1

4 p[70]
0.2 p[70]

(1 q[70] )(1 q[70]+1 )(1 q[70]+2 )(1 q[70]+3 )


= 0.065276
1 0.2q[70]

3. (2 marks) Exercise 3.7.


Solution:
The required probability is
A
10 p[30]
A
5 p[30]

A
A
5 p[30] 5 p35 ,

A
A
A
= pA
[30] p[30]+1 p[30]+2 p[30]+3 p[30]+4

= (1 6q30 )(1 5q31 )(1 4q32 )(1 3q33 )(1 2q34 ) = 0.98599,
and
A
5 p35

= e

R5
0

A
35+y dy

= e

R5

A
10 p[30]

1.535+y dy

= ( 5 p35 )1.5 = (

Hence,
A
A
5 p[30] 5 p35

= 0.977497.

l40 1.5
) = 0.99139.
l35

4. (3 marks) You are given that mortality follows De Moivres Law with the limiting age = 110
and assume that the annual discount rate d = 5%. Calculate both the EPV and the second
moment of the following benefits:
(a) Whole life insurance that pays the sum insured $b immediately on the death of (30).
Solution:
Let Z to be the present value random variable of this whole life insurance. Under the
De Moivres Law assumption, we have
t px

t
1
, and x+t =
.
x
xt

=1

Thus,
Ax =

et t px x+t dt =

and
2

1
1 e(x)
a
x =
,
x
( x)

1 e2(x)
.
Ax =
2( x)

Hence, using = ln(1 d) = 0.05129,


E(Z) = bA30 = 0.239672b,
and
E(Z 2 ) = b2 2 A30 = 0.121815b2 .
(b) Whole life insurance that pays the sum insured $b at the end of the month of death of
(30).
Solution:
Let Z to be the present value random variable of this whole life insurance. Under the
De Moivres Law assumption, we have
u|t px

u px

u+t px

t
x

Thus,
(x)m1

A(m)
x

k+1
m

k=0

k 1
|
m m

and
2

A(m)
=
x

px =

1
v 1/m (1 v x )
(m)
a x =
,
x
m( x)(1 v 1/m )

v 2/m (1 v 2(x) )
,.
m( x)(1 v 2/m )

Hence, using v = 1 d = 0.95,


E(Z) = bA(m)
= 0.239160b,
x
and
E(Z 2 ) = b2 2 A(m)
= 0.121295b2 .
x
5. (4 marks) Lets revisit Question 4 in Assignment 3 (i.e., Exercise 2.12). Assume that the
limiting age is 130 and the annual effective rate of interest is i = 4%.
2

(a) How can you construct a table for Ax for integer ages x?
Solution:
We can calculate the values of Ax using backwards recursion. To do so, we start from
1
the limiting age in the table , and we know A1 = v(= 1+i
). Then recursively, we
can use
Ax = vqx + vpx Ax+1
for x = 128, 127, . . . , 1, 0 (see the spreadsheet).
P
Note that if we use the original summation formula for Ax = x1
v k+1 k| qx , it will
0
take much more effort to get the result (see the calculation for A0 in the spreadsheet).
(b) Write down the values for A0 and A60 based on your calculation.
A0 = 0.0972143 and A60 = 0.57499676.

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