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CS/JAN2012/ASC475

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

ACTUARIAL MATHEMATICS II

COURSE CODE

ASC475

EXAMINATION

JANUARY 2012

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of five (5) questions.

2.

Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3.

Do not bring any material into the examination room unless permission is given by the
invigilator.

4.

Please check to make sure that this examination pack consists of:
i)
ii)

the Question Paper.

an Answer Booklet - provided by the Faculty.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 5 printed pages
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CS/JAN 2012/ASC475

QUESTION 1
A couple of two independent lives Maya (60) and Adam (65) have purchased joint-life
insurance with $1 benefit. By following de Moivre's Law distribution with w = 100 and
6 =0.05, calculate:
a)

The actuarial present value (APV) of an insurance paying at the first death of either
Maya or Adam, A6o-.es.
(6 marks)

b)

The probability that Adam dies first within the next 10 years.
(6 marks)

c)

The actuarial present value (APV) of a contingent insurance which pays $1 to Maya on
the death of Adam.
(8 marks)

QUESTION 2
A 3-year term insurance is issued to (70) subject to 2 causes of decrement, (1) = death and
(2) = lapse. Given a double decrement model with forces of decrement as follows;
0)
a)

Compute:
i)
'/

o(r)
10.F70 '

(4 marks)
ii)

h(2).
(4 marks)
(1)

b)

(2)

Construct a double decrement table containing columns of q x and q x for x = 70, 71

and 72. Hence, find the probability that the policy would lapse in the second
(2)

year,,| q 70 .
(12 marks)

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CS/JAN 2012/ASC475

QUESTION 3
a)

Assuming constant forces of decrement in each year of age, you are given:
'(i)

i.

qx =0.10

ii.

<7,+1=0.25

iii.

JX

iv.

Aix+I=0.15

'(2)

(2)

x =
(i)

0.20

(2)

Calculate x\xq

for a double decrement table.

(10 marks)

b)

A population of 1000 lives aged 60 in a multiple decrement table are subject to 3

decrements; (1) death, (2) disability and (3) retirement. You are given:
i.

ii.

The following are absolute rates of decrement:

X

<??

<??

<7?

60

0.010

0.030

0.100

61

0.013

0.050

0.200

Decrements are uniformly distributed over each year of age in multiple

decrements table.
w
Calculate / 62 .
(10 marks)

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CS/JAN 2012/ASC47S

QUESTION 4
a)

A 40 year old participant entered service at the age of 30 and may retire at any time
between ages 60 and 70. His current annual salary is $30,000 and Sw+t = e003' is the
salary scale. Discounting is done at force of interest of 5%. Assume the following:
(r)

i.

/i 4 0 + , = 0 . 1 0 .

ii.

n 40+r = 0.03 .

()

III.

iv.

fl40+(

= loe

The income benefit rate is 2% times the total number of year of services times the
final salary.

Evaluate the actuarial present value of retirement annuity at the age of 40.
(10 marks)
b)

Suppose an employee aged 35 obtained his current annual salary of $45,000 until the
age of retirement at 70. The employee and his employer each contribute 2% of his
annual salary each year payable continuously throughout his service with the
company.
Given:
Sx = (1.05)x , = 0.10 and /> =0.03.
Evaluate the actuarial present value (APV) of the contributions.
(10 marks)

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CS/JAN 2012/ASC475

QUESTION 5
a)

The following multiple decrement probabilities apply to students entering a 4-year

college.
.:: :*:--y-,-,:<^

Curtate Duration at
the Beginning of
Academic Year
:
ir-'V ,'rf ' ' ' ' ' : ^ ;.,v: :i:v:

'

'-Www

Probability of;
Academic
Failure

Withdrawal for
All Other
Reasons

Survival through
the Academic

0.15

0.25

0.60

0.10

0.20

0.70

0.05

0.15

0.80

0.00

0.10

0.90

An entering class has 1,000 members. Compute:

i)

The expectation of the number of graduates.

(4 marks)

ii)

b)

The expected number of those who will fail sometime during the 4-year program.
(6 marks)

A $10,000 3-year term policy is issued to a person aged 25. The benefit is payable at
the end of year of death if death is caused by an accident. Let J=1 represents death by
accidental causes and J=2 represent death by other causes. You are given the
following information;
X

^;y^i^&

.1

25

30,000

3,600

1,950

26

26,400

4,620

2,805

27

21,780

5,567

3,570

Calculate the actuarial present value of this insurance given that the interest rate is
10%.
(10 marks)

END OF QUESTION PAPER

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