Assignment 5 Solution
Assignment 5 Solution
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)
(b)
1|2 q[70]+2
(c)
3.8 q[70]+0.2
=1
=1
3.8 p[70]+0.2
=1
4 p[70]
0.2 p[70]
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)
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 )
(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.