Project A Project B

Year Y/E cashflow Y/E cashflow

1- 500,000 - 1,000,000
2- 150,000 125,000
3- 25,000 125,000
4- 25,000 125,000
5- 25,000 125,000
6 127,500 125,000
7 130,050 125,000
8 132,651 125,000
9 135,304 125,000
10 - 111,990 - 125,000
11 140,770 125,000
12 143,586 125,000
13 146,457 125,000
14 149,387 125,000
15 - 97,626 125,000
16 155,422 125,000
17 158,530 125,000
18 161,701 125,000
19 164,935 125,000
20 - 81,766 125,000
21 171,598 125,000
22 175,030 125,000
23 178,531 -
24 182,101 -
25 185,743 -
IRR 9% v 0.9158818353 Given IRR 4.50% v1
Project A

Year Y/E cashflow DF PV

1- 500,000 0.91588184 -457,940.92
2- 150,000 0.83883954 -125,825.93
3- 25,000 0.76827789 -19,206.95
4- 25,000 0.70365177 -17,591.29
5- 25,000 0.64446187 -16,111.55
6 127,500 0.59025092 75,256.99
7 130,050 0.5406001 70,305.04
8 132,651 0.49512581 65,678.93
9 135,304 0.45347674 61,357.23
10 - 111,990 0.4153311 -46,512.89
11 140,770 0.38039421 53,548.21
12 143,586 0.34839615 50,024.71
13 146,457 0.31908971 46,733.06
14 149,387 0.29224847 43,658.00
15 - 97,626 0.26766506 -26,130.99
16 155,422 0.24514957 38,101.58
17 158,530 0.22452804 35,594.48
18 161,701 0.20564115 33,252.34
19 164,935 0.18834299 31,064.32
20 - 81,766 0.17249993 -14,104.71
21 171,598 0.15798955 27,110.72
22 175,030 0.14469976 25,326.82
23 178,531 0.13252788 23,660.31
24 182,101 0.12137988 22,103.45
25 185,743 0.11116963 20,649.03
NPV 0.00
 0.956937799
Project B

Y/E cashflow
- 1,000,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
- 125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
-
-
-
 Project A Project B
(i) IRR

(ii) NPV

(iii) DPP

(iv)
mux 0.03

Year (t) px+t-1 p

t x qx+t-1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
mux 0.03 Interest 5% p.a. effective

Year (t) px+t-1 p

t x qx+t-1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
(i)

(ii)

(iii)
Loan
Interest payable by policyholder on the loan 5.5% p.a. effective

Term Assurance
Interest rate for pricing the decreasing term assurance 3.5% p.a. effective
Expenses None
Surrenders None

Adjustment to mortality +5 years

The company sets the level annual premium for the decreasing term assurance by equating the expected
present value of premiums and the expected present value of benefits.

Base Mortality Table

Age lx dx
20 100000 47.2
21 99952.8 46.9
22 99905.9 47.4
23 99858.5 49.9
24 99808.6 51.7
25 99756.9 57.3
26 99699.6 52.9
27 99646.7 55.1
28 99591.6 62.3
29 99529.3 61.1
30 99468.2 65.2
31 99403 69.6
32 99333.4 83.3
33 99250.1 81.9
34 99168.2 88.6
35 99079.6 94.3
36 98985.3 108.4
37 98876.9 107.8
38 98769.1 114.1
39 98655 126.1
40 98528.9 138.3
41 98390.6 156.6
42 98234 164.5
43 98069.5 182.9
44 97886.6 194.3
45 97692.3 203
46 97489.3 217.1
47 97272.2 253.3
48 97018.9 258
49 96760.9 287.1
50 96473.8 316.6
51 96157.2 322.2
52 95835 348.8
 53 95486.2 368.3
54 95117.9 400.8
55 94717.1 451.2
56 94265.9 496
57 93769.9 534.7
58 93235.2 576.9
59 92658.3 628.1
60 92030.2 712.4
61 91317.8 761.5
62 90556.3 822
63 89734.3 917.1
64 88817.2 990.7
65 87826.5 1052
66 86774.5 1132.7
67 85641.8 1206.5
68 84435.3 1284.1
69 83151.2 1378.1
70 81773.1 1493.7
71 80279.4 1664.1
72 78615.3 1792.7
73 76822.6 1937.9
74 74884.7 2148
75 72736.7 2331.3
76 70405.4 2508.1
77 67897.3 2641.8
78 65255.5 2822
79 62433.5 2990.2
80 59443.3 3217.5
81 56225.8 3386.5
82 52839.3 3607.1
83 49232.2 3807.2
84 45425 3932.4
85 41492.6 4017.1
86 37475.5 4054.2
87 33421.3 4045.2
88 29376.1 3977.3
89 25398.8 3806.4
90 21592.4 3618.7
91 17973.7 3308.3
92 14665.4 2930.8
93 11734.6 2580.7
94 9153.9 2205.5
95 6948.4 1853.3
96 5095.1 1458.9
97 3636.2 1105.3
98 2530.9 784.5
99 1746.4 597.7
100 1148.7 1148.7
ting the expected
i 5.50% Installment 13761.0779

Loan OS at Beg Int Installment Cap Repaid Loan Os at end

1 200000.00 11000.00 13761.08 2761.08 197238.92
2 197238.92 10848.14 13761.08 2912.94 194325.98
3 194325.98 10687.93 13761.08 3073.15 191252.84
4 191252.84 10518.91 13761.08 3242.17 188010.66
5 188010.66 10340.59 13761.08 3420.49 184590.17
6 184590.17 10152.46 13761.08 3608.62 180981.55
7 180981.55 9953.99 13761.08 3807.09 177174.46
8 177174.46 9744.60 13761.08 4016.48 173157.98
9 173157.98 9523.69 13761.08 4237.39 168920.59
10 168920.59 9290.63 13761.08 4470.45 164450.14
11 164450.14 9044.76 13761.08 4716.32 159733.82
12 159733.82 8785.36 13761.08 4975.72 154758.11
13 154758.11 8511.70 13761.08 5249.38 149508.73
14 149508.73 8222.98 13761.08 5538.10 143970.63
15 143970.63 7918.38 13761.08 5842.69 138127.93
16 138127.93 7597.04 13761.08 6164.04 131963.89
17 131963.89 7258.01 13761.08 6503.06 125460.83
18 125460.83 6900.35 13761.08 6860.73 118600.10
19 118600.10 6523.01 13761.08 7238.07 111362.02
20 111362.02 6124.91 13761.08 7636.17 103725.86
21 103725.86 5704.92 13761.08 8056.16 95669.70
22 95669.70 5261.83 13761.08 8499.24 87170.46
23 87170.46 4794.38 13761.08 8966.70 78203.75
24 78203.75 4301.21 13761.08 9459.87 68743.88
25 68743.88 3780.91 13761.08 9980.16 58763.72
26 58763.72 3232.00 13761.08 10529.07 48234.64
27 48234.64 2652.91 13761.08 11108.17 37126.47
28 37126.47 2041.96 13761.08 11719.12 25407.35
29 25407.35 1397.40 13761.08 12363.67 13043.68
30 13043.68 717.40 13761.08 13043.68 0.00
 i 3.50% Premium 100
v 0.9661836

age Year SA DF qx px n-1px PV PV of Premium

32 1 200000.00 0.966184 0.000839 0.999161 1 162.0464 100
33 2 197238.92 0.933511 0.000825 0.999175 0.999161 151.81 96.53733
34 3 194325.98 0.901943 0.000893 0.999107 0.998337 156.3321 93.19582
35 4 191252.84 0.871442 0.000952 0.999048 0.997445 158.2205 89.96382
36 5 188010.66 0.841973 0.001095 0.998905 0.996496 172.7487 86.83884
37 6 184590.17 0.813501 0.00109 0.99891 0.995404 162.9633 83.81038
38 7 180981.55 0.785991 0.001155 0.998845 0.994319 163.3963 80.88793
39 8 177174.46 0.759412 0.001278 0.998722 0.99317 170.804 78.0623
40 9 173157.98 0.733731 0.001404 0.998596 0.991901 176.8912 75.32611
41 10 168920.59 0.708919 0.001592 0.998408 0.990509 188.7885 72.67669
42 11 164450.14 0.684946 0.001675 0.998325 0.988932 186.5353 70.10727
43 12 159733.82 0.661783 0.001865 0.998135 0.987276 194.6396 67.62306
44 13 154758.11 0.639404 0.001985 0.998015 0.985435 193.5559 65.21444
45 14 149508.73 0.617782 0.002078 0.997922 0.983479 188.7567 62.88405
46 15 143970.63 0.596891 0.002227 0.997773 0.981435 187.8163 60.63128
47 16 138127.93 0.576706 0.002604 0.997396 0.97925 203.1308 58.45049
48 17 131963.89 0.557204 0.002659 0.997341 0.9767 190.9825 56.32685
49 18 125460.83 0.538361 0.002967 0.997033 0.974102 195.2179 54.27735
50 19 118600.10 0.520156 0.003282 0.996718 0.971212 196.6229 52.28629
51 20 111362.02 0.502566 0.003351 0.996649 0.968025 181.535 50.35236
52 21 103725.86 0.485571 0.00364 0.99636 0.964781 176.8564 48.48661
53 22 95669.70 0.469151 0.003857 0.996143 0.96127 166.4153 46.67647
54 23 87170.46 0.453286 0.004214 0.995786 0.957562 159.4313 44.92409
55 24 78203.75 0.437957 0.004764 0.995236 0.953527 155.5726 43.22202
56 25 68743.88 0.423147 0.005262 0.994738 0.948985 145.2485 41.56147
57 26 58763.72 0.408838 0.005702 0.994298 0.943992 129.3228 39.94472
58 27 48234.64 0.395012 0.006188 0.993812 0.938609 110.656 38.37386
59 28 37126.47 0.381654 0.006779 0.993221 0.932801 89.59574 36.84678
60 29 25407.35 0.368748 0.007741 0.992259 0.926478 67.19204 35.35943
61 30 13043.68 0.356278 0.008339 0.991661 0.919306 35.62576 33.89924
Total npv 4818.71 1864.747
Premium 2.584109
PV of Premium
 Policy Terms
Independent Independent
Age mortality rate Critical illness Age at outset
qx rate Policy Term
30 0.000504 0.0004 Minimum guaranteed death benefit
31 0.000541 0.0004 Annual Premium
32 0.000575 0.00045 Allocation rate for all policy years
33 0.000612 0.00045 Bid offer spread
34 0.000653 0.0005 Annual Management Charge
35 0.000696 0.00055
36 0.000747 0.0006
37 0.000802 0.0007
38 0.000854 0.0009
39 0.000901 0.001 Profit Test Assumptions
40 0.000949 0.001
41 0.001007 0.0011 Unit growth rate
42 0.001083 0.0012 Return on non-unit balances
43 0.001179 0.0012 Risk Discount Rate
44 0.0013 0.0013
45 0.001447 0.0014 Independent mortality and critical illness diagnosis rates are
46 0.001614 0.0015 You should assume that deaths and critical illness diagnoses
47 0.001805 0.0016
48 0.002029 0.0018 Initial Expenses
49 0.002289 0.002 Renewal expenses
50 0.002585 0.0023 Initial Commision
51 0.002908 0.0025 Renewal Commission
52 0.00326 0.0028
53 0.003645 0.0029
54 0.004064 0.0031
55 0.004517 0.0033
56 0.005002 0.0035
57 0.005515 0.0037
58 0.006053 0.004
59 0.006613 0.0045
60 0.007198 0.005
 30 exact.
20 years.
£15,000
£2,000 payable annually in advance.
95%
1%
0.5% per annum, payable at the end of each policy year by unit cancellation.

4% per annum effective.

1% per annum effective.
7% per annum effective.

tical illness diagnosis rates are given by the table.

hs and critical illness diagnoses occur uniformly across each policy year.

£75 at the start of the first policy year.

£25 per annum, at the start of each subsequent policy year.
50% of the premium payable at the start of the first policy year.
1% of the premiums payable at the start of each subsequent policy year.
UNIT FUND
Fund at end year
Policy Fund at Allocated Bid offer before AMC Fund at
Year start Premium Premium spread deduction AMC end
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Policy Independent Independent
Year Mortality rate Critical illness rate
1 0.000504 0.0004
2 0.000541 0.0004
3 0.000575 0.00045
4 0.000612 0.00045
5 0.000653 0.0005
6 0.000696 0.00055
7 0.000747 0.0006
8 0.000802 0.0007
9 0.000854 0.0009
10 0.000901 0.001
11 0.000949 0.001
12 0.001007 0.0011
13 0.001083 0.0012
14 0.001179 0.0012
15 0.001300 0.0013
16 0.001447 0.0014
17 0.001614 0.0015
18 0.001805 0.0016
19 0.002029 0.0018
20 0.002289 0.002
UNIT FUND
Fund at end year
Policy Fund at Allocated Bid offer before AMC Fund at
Year start Premium Premium spread deduction AMC end
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NON-UNIT FUND
Non-
Policy allocated Bid Offer
Year premium Spread Expenses Commission