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Some of the questions in this study note are taken from past SOA examinations.
Alternatively,
b
= 2 p30q32 + 2 p34q36 − 2 p30:34 1 − p32:36 g
= (0.9)(0.8)(0.3) + (0.5)(0.4)(0.7) – (0.9)(0.8)(0.5)(0.4) [1-(0.7)(0.3)]
= 0.216 + 0.140 – 0.144(0.79)
= 0.24224
Alternatively,
MLC-09-08 -1-
Question #2
Key: E
⎣⎢ 0 0 ⎦⎥
⎡ −0.10 t 10 −0.12 t ∞ ⎤
= 1000 ⎢ 0.06 ⎡ − e0.10 ⎤ + e −1 (0.07) ⎡ − e0.12 ⎤ ⎥
⎣ ⎣ ⎦0 ⎣ ⎦0 ⎦
Because this is a timed exam, many candidates will know common results for constant
force
and constant interest without integration.
μ
For example Ax1:10 = (1 − 10 Ex )
μ +δ
−10 ( μ +δ )
10 E x =e
μ
Ax =
μ +δ
( )
= 1000 ⎡( 0.60 ) 1 − e −1 + 0.5833 e −1 ⎤⎥
⎣ ⎦
= 593.86
Question #3
Key: D
∞ ∞ 1
E [ Z ] = ∫ bt v t t p x μ ( x + t ) dt = ∫ e0.06 t e −0.08 t e−0.05 t dt
0 0 20
1 ⎛ 100 ⎞ −0.07 t ⎤ ∞ 5
= ⎜ ⎟⎣⎡ − e =
20 ⎝ 7 ⎠ ⎦ 0 7
MLC-09-08 -2-
(b v )
∞ ∞ 1 1 ∞
px μ ( x + t ) dt = ∫ e0.12t e−0.16t e−0.05t
2
E ⎡⎣ Z 2 ⎤⎦ = ∫ t
t
t dt = ∫ e−0.09t dt
0 0 20 20 0
1 ⎛ 100 ⎞ −0.09t ∞ 5
= ⎜ ⎟ ⎡e ⎤
⎦0 = 9
20 ⎝ 9 ⎠ ⎣
2
5 ⎛5⎞
Var [ Z ] = − ⎜ ⎟ = 0.04535
9 ⎝7⎠
Question #4
Key: C
Question #5
Key: B
MLC-09-08 -3-
∞
APV Benefits = ∫ e −δ t 1,000,000 t px ( ) μ x( ) dt
τ 1
0
∞ −δ t
500,000 t px ( ) μ x( ) dt
τ
+∫ e
2
0
∞
+ ∫ e −δτ 200,000 t px ( ) μ x( ) dt
τ 3
0
1,000,000 ∞ −0.0601045t 500,000 ∞ −0.0601045t 250,000 ∞ −0.0601045t
= ∫
2,000,000 0
e dt + ∫
250,000 0
e dt +
10,000 ∫0
e dt
Question #6
Key: B
∞
APV Benefits = 1000 A40:20
1
+ ∑ k E401000vq40+k
k = 20
∞
APV Premiums = π a&&40:20 + ∑ k E401000vq40+k
k = 20
Benefit premiums ⇒ Equivalence principle ⇒
∞ ∞
1
1000 A40:20 + ∑ k E401000vq40+k = π a&&40:20 + ∑ k E401000vq40+k
k = 20 20
π = 1000 A40:
1
20
/ a&&40:20
161.32 − ( 0.27414 )( 369.13)
=
14.8166 − ( 0.27414 )(11.1454 )
= 5.11
MLC-09-08 -4-
Question #7
Key: C
ln (1.06 )
A70 = δ A70 = ( 0.53) = 0.5147
i 0.06
1 − A70 1 − 0.5147
a&&70 = = = 8.5736
d 0.06 /1.06
⎛ 0.97 ⎞
a&&69 = 1 + vp69a&&70 = 1 + ⎜ ⎟ ( 8.5736 ) = 8.8457
⎝ 1.06 ⎠
( 2)
a&&69 = α ( 2 ) a&&69 − β ( 2 ) = (1.00021)( 8.8457 ) − 0.25739
= 8.5902
Question #8
Key: C
⎛ q ⎞ ⎛ 1+ i ⎞
u ( k ) = − ⎜ k −1 ⎟ + ⎜ ⎟ u ( k − 1)
⎝ pk −1 ⎠ ⎝ pk −1 ⎠
pk −1u ( k ) = − qk −1 + (1 + i ) u ( k − 1)
u ( k − 1) = vqk −1 + vpk −1 u ( k )
This is the form of (a), (b) and (c) on page 119 of Bowers with x = k − 1 . Thus, the
recursion could be:
MLC-09-08 -5-
Ax = vqx + vpx Ax +1
or A1x: y − x = vq x + vp x Ax1+1: y − x −1
or Ax: y − x = vqx + vpx Ax +1: y − x −1
(
A69:1 = vq69 + vp69 (1) )
Note: While writing recursion in backward form gave us something exactly like page
119 of Bowers, in its original forward form it is comparable to problem 8.7 on page 251.
Reasoning from that formula, with π h = 0 and bh +1 = 1 , should also lead to the correct
answer.
MLC-09-08 -6-
Question #9
Key: A
You arrive first if both (A) the first train to arrive is a local and (B) no express arrives in
the 12 minutes after the local arrives.
P ( A) = 0.75
Expresses arrive at Poisson rate of ( 0.25 )( 20 ) = 5 per hour, hence 1 per 12 minutes.
e −110
f ( 0) = = 0.368
0!
A and B are independent, so
P ( A and B ) = ( 0.75 )( 0.368 ) = 0.276
Question #10
Key: E
d = 0.05 → v = 0.095
At issue
( ) ( )
49
A40 = ∑ v k +1 k q40 = 0.02 v1 + ... + v50 = 0.02v 1 − v50 / d = 0.35076
k =0
( )
K ( 40 ) ≥ 10 = 1000 A50 = 549.18 − ( 27.013)( 9.0164 ) = 305.62
Revised Revised
E 10 L − P40a&&50
where
( ) ( )
24
= ∑ v k +1 k q50
Revised Revised
A50 = 0.04 v1 + ... + v 25 = 0.04v 1 − v 25 / d = 0.54918
k =0
and
Revised
a&&50 = (1 − A
Revised
50 ) / d = (1 − 0.54918) / 0.05 = 9.0164
MLC-09-08 -7-
Question #11
Key: E
(
Var ( X ) = E Var ( X Y ) + Var E ( X Y ) ) ( )
Let Y = 1 if smoker; Y = 0 if non-smoker
1 − AxS
(
E aT Y = 1 = ax =
S
) δ
1 − 0.444
=
= 5.56
0.1
1 − 0.286
(
Similarly E aT Y = 0 =
0.1
= 7.14)
( (
E E aT Y ) ) = E ( E ( aT 0 ) ) × Prob ( Y=0 ) + E ( E ( aT 1) ) × Prob ( Y=1)
= ( 7.14 )( 0.70 ) + ( 5.56 )( 0.30 )
= 6.67
( (
E ⎡⎢ E aT Y )) ( ) ( )
2⎤
⎥⎦ = 7.14 ( 0.70 ) + 5.56 ( 0.30 )
2 2
⎣
= 44.96
( (
Var E aT Y ) ) = 44.96 − 6.672 = 0.47
E ( Var ( aT Y ) ) = ( 8.503)( 0.70 ) + ( 8.818 )( 0.30 )
= 8.60
( )
Var aT = 8.60 + 0.47 = 9.07
can be
( )
transformed into E Y 2 = Var (Y ) + ⎡⎣ E (Y ) ⎤⎦ which we will use in its conditional form
2
(( )
E aT
2
) (
NS = Var aT NS + ⎡ E aT NS ⎤
⎣ ⎦ ) ( )
2
Var ⎡⎣ aT ⎤⎦ = E ⎡ aT ( ) ( )
2⎤ 2
− E ⎡⎣ aT ⎤⎦
⎢⎣ ⎥⎦
E ⎡⎣ aT ⎤⎦ = E ⎡⎣ aT S⎤⎦ × Prob [S] + E ⎡⎣ aT NS⎤⎦ × Prob [ NS]
MLC-09-08 -8-
= 0.30axS + 0.70axNS
=
(
0.30 1 − AxS ) + 0.70 (1 − A ) NS
x
0.1 0.1
0.30 (1 − 0.444 ) + 0.70 (1 − 0.286 )
= = ( 0.30 )( 5.56 ) + ( 0.70 )( 7.14 )
0.1
= 1.67 + 5.00 = 6.67
( )
E ⎡ aT
2⎤
= E ⎡⎣ aT 2 S⎤⎦ × Prob [S] + E ⎡⎣ aT 2 NS⎤⎦ × Prob [ NS]
⎢⎣ ⎥⎦
( ( ) (
= 0.30 Var aT S + E ⎡⎣ aT S⎤⎦ ⎞⎟ )
2
( (
+0.70 Var aT NS + E aT NS ) ( )
2
)
= 0.30 ⎡8.818 + ( 5.56 ) ⎤ + 0.70 ⎡8.503 + ( 7.14 ) ⎤
2 2
⎣ ⎦ ⎣ ⎦
11.919 + 41.638 = 53.557
1 − vT
Alternatively, here is a solution based on aT =
δ
⎛1 v ⎞ T
( )
Var aT = Var ⎜ − ⎟
⎝δ δ ⎠
⎛ − vT ⎞
= Var ⎜ ⎟ since Var ( X + constant ) = Var ( X )
⎝ δ ⎠
=
Var vT ( ) since Var ( constant × X ) = constant 2
× Var ( X )
δ2
Ax − ( Ax )
2 2
( )
This could be transformed into 2Ax = δ 2 Var aT + Ax2 , which we will use to get
2
Ax NS and 2AxS .
MLC-09-08 -9-
2
Ax = E ⎡⎣ v 2T ⎤⎦
( ) ( )
= ⎡⎢δ 2 Var aT NS + Ax NS ⎤⎥ × Prob ( NS)
2
⎣ ⎦
( ) ( )
+ ⎢⎡δ 2Var aT S + AxS ⎥⎤ × Prob ( S)
2
⎣ ⎦
= ⎡⎣( 0.01)( 8.503) + 0.2862 ⎤⎦ × 0.70
Ax = E ⎡⎣ vT ⎤⎦
( )
Var aT =
δ2
0.20238 − 0.33342
= = 9.12
0.01
Question #12
Key: A
To be a density function, the integral of f must be 1 (i.e., everyone dies eventually). The
solution is written for the general case, with upper limit ∞ . Given the distribution of
f 2 ( t ) , we could have used upper limit 100 here.
l50
= 0.8951
l0
l40
= 0.9313
l0
MLC-09-08 - 10 -
∞ ∞
1 = ∫ fT ( t ) dt = ∫ k f1 ( t ) dt + ∫ 1.2 f 2 ( t )dt
50
0 0 50
∞
f1 ( t ) dt + 1.2∫ f 2 ( t )dt
50
= k∫
0 50
= k F1 ( 50 ) + 1.2 ( F2 ( ∞ ) − F2 ( 50 ) )
= k (1 − 50 p0 ) + 1.2 (1 − 0.5 )
= k (1 − 0.8951) + 0.6
1 − 0.6
k= = 3.813
1 − 0.8951
⎛ l ⎞
FT ( 40 ) = 3.813 ⎜ 1 − 40 ⎟ = 3.813 (1 − 0.9313) = 0.262
⎝ l0 ⎠
⎛ l ⎞
FT ( 50 ) = 3.813 ⎜ 1 − 50 ⎟ = 3.813 (1 − 0.8951) = 0.400
⎝ l0 ⎠
1 − FT ( 50 ) 1 − 0.400
p40 = = = 0.813
1 − FT ( 40 ) 1 − 0.262
10
Question #13
Key: D
( ) (
= 1 − e −0.1t × 0.7 + 1 − e −0.2t × 0.3 )
= 1 − 0.7e −0.1t − 0.3 e −0.2t
S ( t ) = 0.3e−0.2 t + 0.7e−0.1t
Want tˆ such that 0.75 = 1 − S ( tˆ ) or 0.25 = S ( tˆ )
MLC-09-08 - 11 -
−0.7 ± 0.49 + ( 0.3)( 0.25 ) 4
This is quadratic, so x =
2 ( 0.3)
x = 0.3147
e −0.1t = 0.3147
ˆ
so tˆ = 11.56
Question #14
Key: A
P ( Ax ) = μ = 0.03
μ 0.03
2
Ax = 0.20 = =
2δ + μ 2δ + 0.03
⇒ δ = 0.06
Ax − ( Ax ) 0.20 − ( 13 )
2 2 2
Var ( 0 L ) = = = 0.20
(δ a )2 ( 0.06
0.09 )
2
μ 0.03 1 1 1
where A = = = a= =
μ +δ 0.09 3 μ + δ 0.09
Question #15
Key: C
0L = 10,000v K +1
− 500a&&K +1 ⇒ E [ 0 L ] = 10,000 A65 − 500a&&65
2
⎛ 500 ⎞ K +1 500 ⎛ 500 ⎞ ⎡ 2
⇒ Var [ 0 L ] = ⎜ 10,000 + ⎟ ⎣ A65 − ( A65 ) ⎦
2⎤
0 L = ⎜ 10,000 + ⎟v −
⎝ d ⎠ d ⎝ d ⎠
S = 0 L1 + 0 L2 + ... + 0 LN
E [ S ] = E [ N ] ⋅ E [ 0 L]
MLC-09-08 - 12 -
⎛ 0 − E [S ] ⎞
Pr ( S < 0 ) = Pr ⎜ Z < ⎟
⎜
⎝ Var [ S ] ⎟
⎠
Substituting d = 0.06/(1+0.06), 2 A65 = 0.23603, A65 = 0.43980 and a&&65 = 9.8969 yields
E [ 0 L ] = −550.45
Var [ 0 L ] = 15,112,000
E [ S ] = −5504.5
Var [ S ] = 154,150,000
MLC-09-08 - 13 -
Question #16
Key: A
A40 161.32
1000 P40 = = = 10.89
a&&40 14.8166
⎛ a&& ⎞ ⎛ 11.1454 ⎞
1000 20V40 = 1000 ⎜ 1 − 60 ⎟ = 1000 ⎜ 1 − ⎟ = 247.78
⎝ a&&40 ⎠ ⎝ 14.8166 ⎠
( 20V + 5000 P40 ) (1 + i) − 5000q60
21V =
P60
=
( 247.78 + (5)(10.89) ) × 1.06 − 5000 ( 0.01376 ) = 255
1 − 0.01376
[Note: For this insurance, 20V = 1000 20V40 because retrospectively, this is identical to
whole life]
Though it would have taken much longer, you can do this as a prospective reserve.
The prospective solution is included for educational purposes, not to suggest it
would be suitable under exam time constraints.
Having struggled to solve for π , you could calculate 20 V prospectively then (as
above)
calculate 21V recursively.
MLC-09-08 - 14 -
Or we can continue to 21V prospectively
21V = 1
5000 A61:4 + 1000 4 E61 A65 − 5000 P40 a&&61:4 − π 4 E61 a&&65
l65 4 ⎛ 7,533,964 ⎞
where 4 E61 = v =⎜ ⎟ ( 0.79209 ) = 0.73898
l61 ⎝ 8,075, 403 ⎠
1
A61:4 = A61 − 4 E61 A65 = 0.38279 − 0.73898 × 0.43980
= 0.05779
a&&61:4 = a&&61 − 4 E61 a&&65 = 10.9041 − 0.73898 × 9.8969
= 3.5905
Finally. A moral victory. Under exam conditions since prospective benefit reserves
must equal retrospective benefit reserves, calculate whichever is simpler.
Question #17
Key: C
2
(
A41 − 2 A40 = 0.00433 = 2 A41 − v 2 q40 + v 2 p40 2 A41 )
( )
2
= 2 A41 − (0.0028 /1.052 + 0.9972 /1.052 A41 )
2
A41 = 0.07193
MLC-09-08 - 15 -
Question #18
Key: D
This solution looks imposing because there is no standard notation. Try to focus on the
big picture ideas rather than starting with the details of the formulas.
Method 1: Attack without considering the special characteristics of this transition matrix.
Yk = v × (1 + Yk +1 ) , where it would be better to have notation that indicates the v’s are not
constant, but are realizations of a random variable, where the random variable itself has
different distributions depending on what state we’re in. However, that would make the
notation so complex as to mask the simplicity of the relationship.
= ( E ⎡⎣Y k +1 sk +1 = 2 ⎤⎦ ) × Pr ob ( s k +1 = 2 s = 0])}
k
(
= 0.95 × 1 + E ⎡⎣Yk +1 sk +1 = 1⎤⎦ )
MLC-09-08 - 16 -
That last step follows because from the transition matrix if we are in state 0, we always
move to state 1 one period later.
( { })
= 0.94 × 1 + E ⎡⎣Yk +1 sk +1 = 0 ⎤⎦ × 0.9 + E ⎡⎣Yk +1 sk +1 = 2 ⎤⎦ × 0.1 . Those last two steps follow
from the fact that from state 1 we always go to either state 0 (with probability 0.9) or
state 2 (with probability 0.1).
Now let’s write those last three paragraphs using this shorter notation:
xn = E ⎡⎣Yk sk = n ⎤⎦ . We can do this because (big picture idea #3), the conditional
expected value is only a function of the state we are in, not when we are in it or how we
got there.
x0 = 0.95 (1 + x1 )
x1 = 0.94 (1 + 0.9 x0 + 0.1x2 )
x2 = 0.93 (1 + x1 )
That’s three equations in three unknowns. Solve (by substituting the first and third into
the second) to get x1 = 16.82 .
That’s the answer to the question, the expected present value of the future payments
given in state 1.
The solution above is almost exactly what we would have to do with any 3 × 3 transition
matrix. As we worked through, we put only the non-zero entries into our formulas. But
if for example the top row of the transition matrix had been ( 0.4 0.5 0.1) , then the first
of our three equations would have become x0 = 0.95 (1 + 0.4 x0 + 0.5 x1 + 0.1x2 ) , similar in
structure to our actual equation for x1 . We would still have ended up with three linear
equations in three unknowns, just more tedious ones to solve.
Method 2: Recognize the patterns of changes for this particular transition matrix.
MLC-09-08 - 17 -
This particular transition matrix has a recurring pattern that leads to a much quicker
solution. We are starting in state 1 and are guaranteed to be back in state 1 two steps
later, with the same prospective value then as we have now.
Thus,
E [Y ] = E ⎡⎣Y first move is to 0 ⎤⎦ × Pr [ first move is to 0] + E ⎡⎣Y first move is to 2 ⎤⎦ × Pr [first move is to 2 ]
⎣ ( ⎦ ) ⎣ ⎣(
= 0.94 × ⎡ 1 + 0.95 × (1 + E [Y ] ⎤ × 0.9 + ⎡ 0.94 × ⎡ 1 + 0.93 × (1 + E [Y ]) × 0.1⎤
⎦
(Note that the equation above is exactly what you get when you substitute x0 and x2
into the formula for x1 in Method 1.)
Question #19
Key: E
f(0) = 0.1353
f(1) = 0.2707
f(2) = 0.2707
⎛1⎞ ⎛ 2⎞
P = ⎜ ⎟ ( 0.2707 ) + ⎜ ⎟ ( 0.2707 ) + (1 − 0.1353 − 0.2707 − 0.2707 ) = 0.594
⎝ 3⎠ ⎝ 3⎠
MLC-09-08 - 18 -
Question #20
Key: D
μ x(τ ) = μ x(1) ( t ) + μ x( 2 ) ( t )
= 0.2 μ x( ) ( t ) + μ x( ) ( t )
τ 2
⇒ μ x( ) ( t ) = 0.8μ x( ) ( t )
2 τ
1 k
− ∫ 0.2 k t 2
−0.2
qx( ) = 1 − px( ) = 1 − e 0
dt
= 1− e = 0.04
'1 '1 3
k
3 ⇒ ln (1 − 0.04 ) / ( −0.2 ) = 0.2041
k = 0.6123
( 2)
px( ) μ x( ) dt = 0.8∫ px( ) μ x( ) ( t ) dt
2 τ 2 τ τ
=∫
2
2 qx 0 t 0 t
= e ∫0
− kt 2
dt
−8 k
= e 3
−( 8 ) ( 0.6123)
= e 3
= 0.19538
( 2)
2 qx = 0.8 (1 − 0.19538 ) = 0.644
Question #21
Key: A
0 0 0.1 0 0
1 1 (0.9)(0.2) = 0.18 0.18 0.18
2 2 (0.72)(0.3) = 0.216 0.432 0.864
3+ 3 1-0.1-0.18-0.216 = 0.504 1.512 4.536
2.124 5.580
MLC-09-08 - 19 -
E [ min( K ,3) ] = 2.124
{
E ⎡⎣ min ( K ,3) ⎤⎦
2
} = 5.580
Var [ min( K ,3) ] = 5.580 − 2.1242 = 1.07
Note that E [ min( K ,3) ] is the temporary curtate life expectancy, ex:3 if the life is age x.
Problem 3.17 in Bowers, pages 86 and 87, gives an alternative formula for the variance,
basing the calculation on k px rather than k q x .
Question #22
Key: B
e ( )( ) + e ( )( )
− 0.1 60 − 0.08 60
s ( 60 ) =
2
= 0.005354
e ( )( ) + e ( )( )
− 0.1 61 − 0.08 61
s ( 61) =
2
= 0.00492
0.00492
q60 = 1 − = 0.081
0.005354
Question #23
Key: D
Let q64 for Michel equal the standard q64 plus c. We need to solve for c.
Recursion formula for a standard insurance:
The values of 19 V45 and 20V45 are the same in the two equations because we are told
Michel’s benefit reserves are the same as for a standard insurance.
MLC-09-08 - 20 -
0 = − (1.03) (0.01) + c(1 − 20V45 )
(1.03) ( 0.01)
c=
(1 − 20V45 )
0.0103
=
1 − 0.427
= 0.018
Question #24
Key: B
⎛ ⎞ π
L = v K +1 − π a&&K +1 = ⎜ 1 + ⎟ v K +1 − π
⎝ d⎠ d
E [ L ] = ( Ax − π a&&x ) = Ax − π
(1 − Ax )
d
⎛ 0.75095 ⎞
= 0.24905 − 0.025 ⎜ ⎟ = −0.082618
⎝ 0.056604 ⎠
⎛ π⎞
( )
2 2
Var [ L ] = ⎜ 1 + ⎟
⎝ d⎠
( 2
Ax − Ax2 ) ⎛
= ⎜1 +
0.025 ⎞
⎟ 0.09476 − ( 0.24905 ) = 0.068034
⎝ 0.056604 ⎠
2
E [ LAGG ] = M E [ L ] = −0.082618M
Var [ LAGG ] = M Var [ L ] = M (0.068034) ⇒ σ AGG = 0.260833 M
⎡L − E [ LAGG ] − E ( LAGG ) ⎤
Pr [ LAGG > 0] = ⎢ AGG > ⎥
⎣ σ AGG σ AGG ⎦
⎛ 0.082618M ⎞
≈ Pr ⎜ N (0,1) > ⎟
⎜ M ( 0.260833) ⎟⎠
⎝
0.082618 M
⇒ 1.645 =
0.260833
⇒ M = 26.97
MLC-09-08 - 21 -
Question #25
Key: D
1 − v K +1
Annuity benefit: Z1 = 12,000 for K = 0,1, 2,...
d
Death benefit: Z 2 = Bv K +1 for K = 0,1, 2,...
1 − v K +1
New benefit: Z = Z1 + Z 2 = 12,000 + Bv K +1
d
12,000 ⎛ 12,000 ⎞ K +1
= +⎜B− ⎟v
d ⎝ d ⎠
2
⎛
Var( Z ) = ⎜ B −
⎝
12,000 ⎞
d ⎠
⎟ Var v
K +1
( )
12,000
Var ( Z ) = 0 if B = = 150,000 .
0.08
In the first formula for Var ( Z ) , we used the formula, valid for any constants a and b and
random variable X,
Var ( a + bX ) = b 2Var ( X )
Question #26
Key: A
MLC-09-08 - 22 -
Question #27
Key: B
Many similar formulas would work equally well. One possibility would be
1000 3V42 + (1000 P42 − 1000 P40 ) , because prospectively after duration 3, this differs from
the normal benefit reserve in that in the next year you collect 1000 P40 instead of
1000 P42 .
MLC-09-08 - 23 -
Question #28
Key: E
32 = ∫ t f ( t ) dt + ∫ 40 f ( t ) dt
40 w
0 40
= ∫ t f ( t ) dt − ∫ t f ( t ) dt + 40 (.6 )
w w
0 40
= 86 − ∫ tf ( t ) dt
w
40
∫ tf ( t )dt = 54
w
40
∫ ( t − 40 ) f ( t ) dt = 54 − 40 (.6 ) = 50
w
e° 40 = 40
s ( 40 ) .6
Question #29
Key: B
d = 0.05 ⇒ v = 0.95
1000 Px:2 =
[ 299.25 + 608] = 489.08
1.855
The first line of Kira’s solution is that the actuarial present value of Kevin’s benefit
premiums is equal to the actuarial present value of Kira’s, since each must equal the
actuarial present value of benefits. The actuarial present value of benefits would also
have been easy to calculate as
( )
(1000 )( 0.95)( 0.1) + (1000 ) 0.952 ( 0.9 ) = 907.25
MLC-09-08 - 24 -
Question #30
Key: E
Because no premiums are paid after year 10 for (x), 11Vx = Ax +11
=
( 32,535 + 2,078) × (1.05) − 100,000 × 0.011 = 35,635.642
10V
0.989
( 35,635.642 + 0 ) × (1.05) − 100,000 × 0.012 = 36,657.31 = A
11V = x +11
0.988
Question #31
Key: B
⎛ x⎞
For De Moivre’s law where s ( x ) = ⎜ 1 − ⎟ :
⎝ ω⎠
° ω−x ⎛ t ⎞
ex = and t px = ⎜ 1 − ⎟
2 ⎝ ω −x⎠
° 105 − 45
e45 = = 30
2
105 − 65
e°65 = = 20
2
° 40 40 60 − t 40 − t
e 45:65 = ∫ t p45:65dt = ∫ × dt
0 0 60 40
1 FG 60 + 40 2 1 3 IJ 40
=
60 × 40 H
60 × 40 × t −
2
t + t
3 K 0
= 1556
.
o o o o
e 45:65 = e 45 + e 65 − e 45:65
= 30 + 20 − 1556 . = 34
o
In the integral for e45:65 , the upper limit is 40 since 65 (and thus the joint status also)
can survive a maximum of 40 years.
MLC-09-08 - 25 -
Question #32
Answer: E
bg bg bg
μ 4 = − s' 4 / s 4
− d − e / 100i
4
=
1 − e4 / 100
e4 / 100
=
1 − e4 / 100
e4
=
100 − e4
= 1202553
.
Question # 33
Answer: A
τ g L ln px′ O bτ g LM ln e− μ OP
bi g bi g
b ig b
qx = qx M P =
M ln p bτ g P M ln e-μb g P
N x Q
q x
N
τ
Q
b τg μb g i
= q x × bτ g
μ
μ x bτ g = μ x b1g + μ x b 2 g + μ x b 3g = 15
.
q xbτ g = 1 − e − μ bτ g = 1 − e −1.5
=0.7769
q xb 2 g =
b0.7769gμ b2g
=
b0.5gb0.7769g
μ bτ g 15
.
= 0.2590
MLC-09-08 - 26 -
Question # 34
Answer: D
22 A 60 = v 3 × 2 p 60 × q 60 + 2 +
B B B
pay at end live then die
of year 3 2 years in year 3
+ v4 × 3p 60 × q60+ 3
pay at end live then die
of year 4 3 years in year 4
=
1
b103
. g
b1 − 0.09gb1 − 011
3
. gb013
. g+
1
b103
. g
b1 − 0.09gb1 − 011
4
. gb1 − 013
. gb015
. g
= 019
.
Question # 35
Answer: B
a x = a x:5 +5 E x a x +5
1 − e −0.07b5g
a x:5 = = 4.219 , where 0.07 = μ + δ for t < 5
0.07
5 Ex = e −0.07b5g = 0.705
1
a x +5 = = 12.5 , where 0.08 = μ + δ for t ≥ 5
0.08
b gb g
∴ a x = 4.219 + 0.705 12.5 = 13.03
MLC-09-08 - 27 -
Question #36
Key: D
1 ( )
⎡ ln p ' (1) ⎤
qx( ) = ⎢
x
⎥ q(τ ) since UDD in double decrement table
⎢⎣ ( )
⎢ ln p(τ ) ⎥ x
x
⎦⎥
⎡ ln ( 0.8 ) ⎤
=⎢ ⎥ 0.44
⎣ ln ( 0.56 ) ⎦
= 0.1693
0.3qx( )
1
(1)
0.3 q x + 0.1 = = 0.053
1 − 0.1qx( )
τ
MLC-09-08 - 28 -
Question #37
Key: E
P ( Ax ) =
1 1
− δ = − 0.04 = 0.04333
ax 12
o Le = o L + E
= v T − P ( Ax ) aT + co + ( g − e ) aT
⎛ 1− vT ⎞ ⎛ 1− vT ⎞
= v − P ( Ax ) ⎜
T
⎟ + co + ( g − e ) ⎜ ⎟
⎝ δ ⎠ ⎝ δ ⎠
⎛ P ( Ax ) ( g − e ) ⎞ P ( Ax ) ( g − e)
= v T ⎜1 + − ⎟− + co +
⎜ δ δ ⎟⎠ δ δ
⎝
⎛ P ( Ax ) ( g − e ) ⎞
2
Var ( o Le ) = Var v( )T
⎜1 +
⎜ δ
−
δ
⎟
⎟
⎝ ⎠
Above step is because for any random variable X and constants a and b,
Var ( a X + b ) = a 2 Var ( X ) .
Apply that formula with X = v T .
Plugging in,
⎛ 0.04333 ( 0.0030 − 0.0066 ) ⎞
2
Var ( o Le ) = ( 0.10 ) ⎜1 + − ⎟
⎝ 0.04 0.04 ⎠
= ( 0.10 )( 2.17325 )
2
= 0.472
Question #38
Key: D
⎜ 0 1 ⎟⎠ ⎜ 0 1 ⎟⎠
⎝ 0 ⎝ 0
MLC-09-08 - 29 -
Actuarial present value (A.P.V.) prem = 800(1 + (0.7 + 0.1) + (0.52 + 0.13)) = 1,960
A.P.V. claim = 500(1 + 0.7 + 0.52) + 3000(0 + 0.1 + 0.13) = 1800
Difference = 160
MLC-09-08 - 30 -
Question # 39
Answer: D
Per 10 minutes, find coins worth exactly 10 at Poisson rate 0.5 0.2 10 = 1 b gb gb g
Per 10 minutes, f b0g = 0.3679 bg
F 0 = 0.3679
f b1g = 0.3679 bg
F 1 = 0.7358
f b2g = 01839
. bg
F 2 = 0.9197
f b3g = 0.0613 bg
F 3 = 0.9810
Method 1, succeed with 3 or more in period 1; or exactly 2, then one or more in period 2
c b gh b gc b gh b
P = 1 − F 2 + f 2 1 − F 0 = 1 − 0.9197 + 01839
. g b
1 − 0.3679 gb g
= 01965
.
Question # 40
Answer: D
b g b g b gb g
a&&60 = 1 − A60 / d = 1 − 0.36933 / 0.06 / 106
. = 111418
.
d
A60Mod = v q60
Mod
+ p60
Mod
A61 = i .
1
106
.
01376 b gb g
+ 0.8624 0.383 = 0.44141
MLC-09-08 - 31 -
d i b
a&& Mod = 1 − A60Mod / d = 1 − 0.44141 / 0.06 / 106
. = 9.8684 g
d
E 0 LMod = 1000 A60Mod − P60a&&60
Mod
i
= 1000 0.44141 − 0.03315 9.8684 b g
= 114.27
Question # 41
Answer: D
The prospective reserve at age 60 per 1 of insurance is A60 , since there will be no
future premiums. Equating that to the retrospective reserve per 1 of coverage, we have:
&&s40:10
A60 = P40 + P50Mod &&s50:10 − 20 k40
10 E50
1
A a&&40:10 a&&50:10 A40:20
A60 = 40 × + P50Mod −
a&&40 10 E40 10 E50 10 E50 20 E40
016132
. 7.70 7.57 0.06
0.36913 = × + P50Mod −
b
14.8166 0.53667 0.51081 gb
0.51081 0.27414 g
0.36913 = 0.30582 + 14.8196 P50Mod − 0.21887
Alternatively, you could equate the retrospective and prospective reserves at age 50.
Your equation would be:
1
A40 a&&40:10 A40:10
A50 − P50Mod a&&50:10 = × −
a&&40 10 E40 10 E40
1
where A40:10
= A40 −10 E40 A50
= 016132
. b
− 0.53667 0.24905 gb g
= 0.02766
MLC-09-08 - 32 -
d
0.24905 − P50Mod 7.57 = ib g 14016132
.
×
7.70
−
0.02766
.8166 0.53667 0.53667
1000 P50Mod =
b gb
1000 014437
. g = 19.07
7.57
Alternatively, you could set the actuarial present value of benefits at age 40 to the
actuarial present value of benefit premiums. The change at age 50 did not change the
benefits, only the pattern of paying for them.
FG 016132
. IJ b7.70g + d P ib0.53667gb7.57g
=
H 14.8166K
Mod
016132
. 50
1000 P50Mod =
b1000gb0.07748g = 19.07
4.0626
Question # 42
Answer: A
d xb 2 g = q xb 2 g × lxbτ g = 400
b g
d xb1g = 0.45 400 = 180
d xb 2 g
q x′ b 2 g =
400
= = 0.488
lxbτ g − d xb1g 1000 − 180
Note: The UDD assumption was not critical except to have all deaths during the year so
that 1000 - 180 lives are subject to decrement 2.
MLC-09-08 - 33 -
Question #43
Answer: D
Use “age” subscripts for years completed in program. E.g., p0 applies to a person newly
hired (“age” 0).
q ′b 3g = 1
0 10 , q ′b3g = 1
1 9, q ′b 3g = 1
2 4
b gb
This gives p0bτ g = 1 − 1 / 4 1 − 1 / 5 1 − 1 / 10 = 0.54 gb g
b gb gb g
p1bτ g = 1 − 1 / 5 1 − 1 / 3 1 − 1 / 9 = 0.474
pb g = b1 − 1 / 3gb1 − 1 / 8gb1 − 1 / 4g = 0.438
2
τ
= b0.405 / 0.826gb0.562g
= 0.276
Let: N = number
X = profit
S = aggregate profit
subscripts G = “good”, B = “bad”, AB = “accepted bad”
λG = c hb60g = 40
2
3
MLC-09-08 - 34 -
λ AB = c hc hb60g = 10
1
2
1
3 (If you have trouble accepting this, think instead of a heads-tails
rule, that the application is accepted if the applicant’s government-issued identification
number, e.g. U.S. Social Security Number, is odd. It is not the same as saying he
automatically alternates accepting and rejecting.)
b g b g b g b g b g
Var SG = E N G × Var X G + Var N G × E X G
2
If you don’t treat it as three streams (“goods”, “accepted bads”, “rejected bads”), you
can compute the mean and variance of the profit per “bad” received.
c hb g
λ B = 13 60 = 20
d i
If all “bads” were accepted, we would have E X 2 B = Var X B + E X B b g b g 2
Likewise,
b g b g b g b g b g
Now Var S B = E N B × Var X B + Var N B × E X B
2
Question #45
Key: E
MLC-09-08 - 35 -
o ω−x
For De Moivre’s Law: ex =
2
1
qx =
k
ω−x
ω − x −1
1 ω − x −1 k +1
Ax = ∑ v k +1
k qx = ∑v
ω − x k =b
k =b
aω − x
Ax =
ω−x
1 − Ax
a&&x =
d
o
e50 = 25 ⇒ ω = 100 for typical annuitants
o
e y = 15 ⇒ y = Assumed age = 70
a30
A70 = = 0.45883
30
a&&70 = 9.5607
500000 = b a&&20 ⇒ b = 52, 297
Question #46
Answer: B
= b E gb E gb1 + i g
10
10 30 10 40
= b0.54733gb0.53667 gb179085
. g
= 0.52604
The above is only one of many possible ways to evaluate 10 p30 10 p40 v10 , all of which
should give 0.52604
b g b gb g
= a&&30:40 − 1 − 0.52604 a&&40:50 − 1
= b13.2068g − b0.52604gb114784
. g
= 7.1687
MLC-09-08 - 36 -
Question #47
Answer: A
d
1000 A35 + IA b g 35 i
× π = a&&xπ
1 − A35 1 − 0.42898
a&&35 = = = 1199143
.
d 0.047619
MLC-09-08 - 37 -
Question #48
Answer: C
Waiting time is exponentially distributed with mean 1 λ . The time you may already have
been waiting is irrelevant: exponential is memoryless.
Question #49
Answer: C
μ xy = μ x + μ y = 014
.
μ 0.07
Ax = Ay = = = 0.5833
μ + δ 0.07 + 0.05
μ xy 014
. 014
. 1 1
Axy = = = = 0.7368 and a xy = = = 5.2632
μ xy + δ 014 . + 0.05 019 . μ xy + δ 014
. + 0.05
P=
Axy
=
Ax + Ay − Axy
=
b g
2 0.5833 − 0.7368
= 0.0817
a xy a xy 5.2632
MLC-09-08 - 38 -
Question #50
Answer: E
b V + P gb1 + ig − q b1− V g= V
20 20 20 40 21 20 21 20
= 111
.
b V + P gb1 + ig − q b1− V g= V
21 20 20 41 22 20 22 20
b0.545+.01gb111
. g − q b1 − 0.605g = 0.605
41
0.61605 − 0.605
q41 =
0.395
= 0.028
Question #51
Answer: E
b gb g
= 1000 v q60 + p60 A61 / 1 + p60 v a&&61
= 1000bq + p A g / b106
60 60 . + p a&& g
61 60 61
MLC-09-08 - 39 -
Question #52
Key: D
Since the rate of depletion is constant there are only 2 ways the reservoir can be empty
sometime within the next 10 days.
Way #1:
There is no rainfall within the next 5 days
Way #2
There is one rainfall in the next 5 days
And it is a normal rainfall
And there are no further rainfalls for the next five days
Question #53
Key: E
0.96 = e ( 1 )
− μ +λ
μ1 + λ = − ln ( 0.96 ) = 0.04082
μ1 = 0.04082 − λ = 0.04082 − 0.01 = 0.03082
Similarly
Question #54
Answer: B
Transform these scenarios into a four-state Markov chain, where the final disposition of
rates in any scenario is that they decrease, rather than if rates increase, as what is
given.
MLC-09-08 - 40 -
from year t – 3 from year t – 2 Probability that year t will
State
to year t – 2 to year t – 1 decrease from year t - 1
0 Decrease Decrease 0.8
1 Increase Decrease 0.6
2 Decrease Increase 0.75
3 Increase Increase 0.9
Transition matrix is M PP
0.60 0.00 0.40 0.00
MM0.00 0.75 0.00 0.25
PQ
N0.00 0.90 0.00 .
010
For this problem, you don’t need the full transition matrix. There are two cases to
consider. Case 1: decrease in 2003, then decrease in 2004; Case 2: increase in 2003,
then decrease in 2004.
MLC-09-08 - 41 -
Question #55
Answer: B
lx = ω − x = 105 − x
⇒t P45 = l45+ t / l45 = 60 − t / 60
Let K be the curtate future lifetime of (45). Then the sum of the payments is 0 if K ≤ 19
and is K – 19 if K ≥ 20 .
F 60 − K IJ × 1
∑ 1 × GH
60
20 a45 =
60 K
&&
K = 20
=
b40 + 39+...+1g = b40gb41g = 13.66
60 2b60g
Hence,
c h c
Prob K − 19 > 13.66 = Prob K > 32.66 h
b g
= Prob K ≥ 33 since K is an integer
= ProbbT ≥ 33g
l78 27
= 33p45 = =
l45 60
= 0.450
MLC-09-08 - 42 -
Question #56
Answer: C
μ
2
Ax = = 0.25 → μ = 0.04
μ + 2δ
μ
Ax = = 0.4
μ +δ
d IAi x
= z ∞
0 s
Ax ds
z ∞
E
0s x
Ax ds
= zd ∞
0
ib g
e −0.1s 0.4 ds
F −e I
= b0.4 gG
−0.1s
∞
H 01. JK
0.4
= =4
01
.
0
Alternatively, using a more fundamental formula but requiring more difficult integration.
c IA h x
= z ∞
0
bg
t t px μ x t e − δ t dt
= z ∞
0
t e −0.04 t b0.04g e −0.06 t
dt
= 0.04 z
(integration by parts, not shown)
∞
0
t e −0.1t dt
−t 1 FG
e −0.1 t
∞ IJ
= 0.04
01
−
. 0.01 H0 K
0.04
= =4
0.01
MLC-09-08 - 43 -
Question #57
Answer: E
Subscripts A and B here just distinguish between the tools and do not represent ages.
ο
We have to find e AB
ο
z 10 FG 1 − t IJ dt = t − t 2 10
eA =
0 H 10K 20 0
= 10 − 5 = 5
ο
eB = z FGH
7
0
1−
t
7
IJ
K
dt = t −
t2
14
7
0
= 49 −
49
14
= 35
.
ο
z FGH7 t IJ FG 1 − t IJ dt = z FG 1 − t − t + t IJ dt
7 2
e AB =
ο
1−
7 K H 10K 0H 10 7 70K
7
t2 t2 t3
=t− − +
20 14 210 0
49 49 343
= 7− − + = 2.683
20 14 210
ο ο ο ο
e AB = e A + e B − e AB
= 5 + 35
. − 2.683 = 5817
.
MLC-09-08 - 44 -
Question #58
Answer: A
bg
μ bxτ g t = 0100
. + 0.004 = 0104
.
t pxbτ g = e −0.104 t
Actuarial present value (APV) = APV for cause 1 + APV for cause 2.
z 0
5
2000 e −0.04 t e −0.104 t 0100
. b g z 5
dt + 500,000 e −0.04 t e −0.104 t 0.400 dt
0
b g
c b g
= 2000 010
. + 500,000 0.004 b ghz e
5 −0.144 t
0
dt
1 − e −0.144b5g = 7841
e j
2200
=
.
0144
Question #59
Answer: A
R = 1 − px = q x
e z =e z z
d 1
bg i 1
bg 1
× eb − k g since
− μ x t + k dt − μ x t dt − k dt
S = 1 − px 0 0 0
=e z e z
1
bg
− μ x t dt − k dt
0
1
0
So S = 0.75R ⇒ 1 − px × e − k = 0.75q x
1 − 0.75q x
e− k =
px
px 1 − qx
ek = =
1 − 0.75q x 1 − 0.75q x
k = ln
LM 1 − q OPx
N1 − 0.75q Q x
MLC-09-08 - 45 -
Question #60
Key: C
⎛π ⎛ π ⎞⎞
100 ⎜ − ⎜100,000 + ⎟ ⎟ ( 0.36913)
⎝d ⎝ d ⎠⎠
= 2.326
⎛ π⎞
⎜100,000 + ⎟ ( 0.202862 )
⎝ d⎠
π
0.63087 − 36913
d = 0.004719
π
100,000 +
d
π π
0.63087 − 36913 = 471.9 = 0.004719
d d
π 36913 + 471.9
=
d 0.63087 − 0.004719
= 59706
π = 59706 × d = 3379
MLC-09-08 - 46 -
Question #61
Key: C
1V = ( 0V + π ) (1 + i ) − (1000 + 1V − 1V ) × q75
= 1.05π − 1000q75
Similarly,
2 V = ( 1V + π ) × 1.05 − 1000q76
3V = ( 2V + π ) × 1.05 − 1000q77
( )
1000 =3V = 1.053π + 1.052 ⋅ π + 1.05π − 1000 × q75 × 1.052 − 1000 × 1.05 × q76 − 1000 × q77 *
π=
(
1000 + 1000 1.052 q75 + 1.05q76 + q77 )
(1.05) + (1.05)
3 2
+ 1.05
=
(
1000 x 1 + 1.052 × 0.05169 + 1.05 × 0.05647 + 0.06168 )
3.310125
1000 × 1.17796
= = 355.87
3.310125
Question #62
Answer: D
A281:2 = z2 −δ t
0
e 1 72 dt
=
1
72δ
d i
1 − e −2δ = 0.02622 since δ = ln 106
. = 0.05827b g
FG IJ
71
a&&28:2 = 1+ v
72H K = 19303
.
MLC-09-08 - 47 -
Question #63
Answer: D
1 − Ax 0.4
ax = = = 6.667
δ 0.06
ax = ax
*
LM Proof: a e z
z d bg i
t
∞ − μ x s + 0.03 ds −0.03t
*
= 0 e dt
N x 0
z e z
∞
t
bg
− μ x s ds −0.03t −0.03t
= 0 e e dt
0
= z zt
∞ − 0 μ x s ds −0.06 t
e
bg
e dt
0
= ax
Question #64
Answer: A
bulb ages
#
Year 0 1 2 3
replaced
0 10000 0 0 0 -
1 1000 9000 0 0 1000
2 100+2700 900 6300 0 2800
3 280+270+3150 3700
MLC-09-08 - 48 -
Replacement bulbs are new, so they start at age 0.
At the end of year 1, that’s (10,000) (0.1) = 1000
At the end of 2, it’s (9000) (0.3) + (1000) (0.1) = 2700 + 100
At the end of 3, it’s (2800) (0.1) + (900) (0.3) + (6300) (0.5) = 3700
Question #65
Key: E
o
e25:25 = z15
0 t
p25dt +15 p25 z10
0t
p40 dt
F IJ e
z dt + G e z
Kz
15
15 −.04 t − .04 ds 10 −.05t
= e
H dt
0
0 0
=
1
d −.60 L1
1 − e i + e M d1 − e − .60 −.50
iOPQ
.04 N.05
= 112797
. + 4.3187
= 15.60
Question #66
Key: C
5 p 60 +1 =
= b0.89gb0.87gb0.85gb0.84gb0.83g
= 0.4589
MLC-09-08 - 49 -
Question # 67
Key: E
1
12.50 = a x = ⇒ μ + δ = 0.08 ⇒ μ = δ = 0.04
μ +δ
μ
Ax = = 0.5
μ +δ
μ 1
2
Ax = =
μ + 2δ 3
2
Ax − Ax2
e j
Var aT =
δ2
1 1
−
= 3 4 = 52.083
0.0016
Question # 68
Key: D
v = 0.90 ⇒ d = 010 .
Ax = 1 − da&&x = 1 − 010 b gb g
. 5 = 0.5
5000 Ax − 5000vqx
Benefit premium π =
a&&x
=
b5000gb0.5g − 5000b0.90gb0.05g = 455
5
a&&x +10
10Vx = 1−
a&&x
a&&
0.2 = 1 − x +10 ⇒ a&&x +10 = 4
5
MLC-09-08 - 50 -
Question #69
Key: D
v is the lowest premium to ensure a zero % chance of loss in year 1 (The present value
of the payment upon death is v, so you must collect at least v to avoid a loss should
death occur).
Thus v = 0.95.
bg b g
2
E Z = vqx + v 2 px qx +1 = 0.95 × 0.25 + 0.95 × 0.75 × 0.2
= 0.3729
d i b g 2
b g 4
E Z2 = v 2qx + v 4 px qx +1 = 0.95 × 0.25 + 0.95 × 0.75 × 0.2
= 0.3478
b g d i c b gh
Var Z = E Z2 − E Z
2
b g
= 0.3478 − 0.3729 = 0.21
2
Question #70
Key: D
Question #71
Key: A
MLC-09-08 - 51 -
∫1 λ ( t ) dt =
2
∫1 ( 3 + 3t )dt
2
Average λ =
1
2
⎡ 3t 2 ⎤
= ⎢3t + ⎥
⎣ 2 ⎦
1
= 7.5
e −7.5 7.52
f ( 2) = = 0.0156
2!
Question #72
Key: A
μ
e e μ dt
= 10 e − bδ + μ g 5
δ +μ
= 2.426
d i
E Z 2 = 102
FG μ IJ e b g − 2δ + μ 5
H 2δ + μ K
= 10 G
F 0.04IJ de i = 11233−0.8
H 0.16K
2
.
Var b Z g = E d Z i − c E b Z gh
2 2
= 11233
. − 2.4262
= 5.348
bg bg
E S = 100 E Z = 242.6
VarbSg = 100 Varb Zg = 534.8
F − 242.6
= 1645
. → F = 281
534.8
MLC-09-08 - 52 -
Question #73
Key: D
Question # 74
Key: C
The tyrannosaur dies at the end of the first day if it eats no scientists that day. It dies at
the end of the second day if it eats exactly one the first day and none the second day. If
it does not die by the end of the second day, it will have at least 10,000 calories then,
and will survive beyond 2.5.
b g bg b g
Prob (dies) = f 0 + f 1 f 0
b gb g
= 0.368 + 0.368 0.368
= 0.503
−1 0
b g e 01! = 0.368
since f 0 =
−1 1
f b1g =
e 1
= 0.368
1!
Question #75
Key: B
b
Day 2.5, E X 2.5 = 0 × 0.503 + 0.5 × 1 − 0.503 = 0.249 g
MLC-09-08 - 53 -
where E X 2.5 alive = 0.5 since only 1
2 day in period.
Question # 76
Key: C
This solution applies the equivalence principle to each life. Applying the equivalence
principle to the 100 life group just multiplies both sides of the first equation by 100,
producing the same result for P.
b g b g
APV Prems = P = APV Benefits = 10q70 v + 10 p70q71v 2 + Pp70 p71v 2
P=
b10gb0.03318g + b10gb1 − 0.03318gb0.03626g + Pb1 − 0.03318gb1 − 0.03626g
108
. . 2
108 . 2
108
= 0.3072 + 0.3006 + 0.7988 P
0.6078
P= = 3.02
0.2012
Question #77
Key: E
Level benefit premiums can be split into two pieces: one piece to provide term
insurance
for n years; one to fund the reserve for those who survive.
Then,
Px = Px1:n + Px:n1 nVx
b gb
0.090 = Px1:n + 0.00864 0.563 g
Px1:n = 0.0851
MLC-09-08 - 54 -
Another approach is to think in terms of retrospective reserves. Here is one such
solution:
nVx e j
= Px − Px1:n &&sx:n
a&&
= eP − P j
x
1
x:n
x:n
E n x
a&&x:n
e
= Px − Px1:n jP 1
a&&x:n
x:n
=
eP − P j
x
1
x:n
eP j x:n
1
e
0.563 = 0.090 − Px1:n / 0.00864 j
Px1:n = 0.090 − 0.00864 0.563 b gb g
= 0.0851
Question #78
Key: A
b g
δ = ln 1.05 = 0.04879
Ax = zω −x
0 t bg
px μ x t e −δt dt
= z0
ω −x 1
ω−x
e −δt dt for DeMoivre
1
= a
ω − x ω −x
Since
MLC-09-08 - 55 -
A50 =
a50
=
18.71
= 0.3742 so a50 =
FG
1 − A50 IJ
= 12.83
50 50 Hδ K
A40 =
a60
=
19.40
= 0.3233 so a40 =G
F1− A IJ = 1387
H δ K .
40
60 60
so P A40 =c h 01387
.3233
.
= 0.02331
Question #79
Key: D
b g bg
Ax = E v T b x g = E v T b x g NS × Prob NS + E v T b x g S × Prob S
F I= 2
Ax − Ax2 01923
. − 0.31952
H b gK
Var a T x δ2
=
0.082
= 141
..
Question #80
Key: B
MLC-09-08 - 56 -
= 0.16118
Alternatively,
2 p80 = 0.5 × 0.4 = 0.20
Revised
3 p80 = 0.20 × 0.30 = 0.06
Question #81
Key: D
MLC-09-08 - 57 -
b g
Since X I = 10, a constant , E X I = 10; Var X I = 0. b g
b g b g b g b g b g
Var S I = E N I Var X I + Var N I E X I
2
= b1000gb0g + b1000gb10g
2
= 100,000
bg b g
b g
Var S = Var S I + Var S II since independent
2,100,000 = 100,000 + Var b S g II
Var b S g = 2 ,000,000
II
Question #82
Key: A
bτ g = p′b1g p′b2g
p50
5 5 50 5 50
Similarly
bτ g = FG 100 − 60IJ e b g b g − 0.05 10
10 p50
H 100 − 50 K
= b0.8gb0.6065g = 0.4852
= 0.2157
Question #83
Key: C
Decrement 2 operates only at t = 0.7, eliminating 0.125 of those who reached 0.7
q40 b gb
b2g = 0.93 0125
. = 011625
. g
MLC-09-08 - 58 -
Question #84
Key: C
πvq80 πv 3 2 p80q82
e j
π 1+ 2 p80v 2 = 1000 A80 +
2
+
2
b
π 174680
. g b
= 665.75 + π 0.07156 g
πb167524
. g = 665.75
π = 397.41
3,284 ,542
Where 2 p80 = = 0.83910
3,914 ,365
b gb
Or 2 p80 = 1 − 0.08030 1 − 0.08764 = 0.83910 g
Question #85
Key: E
= z∞
1000 e0.04b 2+uge −0.04u u p67 μ 65 2 + u du − 60 16.667b g b gb g
z
0
= 1000e0.08
0 u
∞
b g
p67 μ 65 2 + u du − 1000
= 1083.29 ∞ q67 − 1000 = 1083.29 − 1000 = 83.29
MLC-09-08 - 59 -
Question #86
Key: B
b gb g
0.28 = A1x:20 + 0.25 0.40
A1x:20 = 018
.
1 − 0.43
a&&x:20 = = 1197
Now plug into (2):
b g
0.05 / 105
.
.
Question #87
Key: A
−( λ 2 )
e− λ λ1 ( λ / 2 ) e
p1 = ∫ p (1 λ ) f ( λ ) d λ = ∫
∞ ∞
dλ
0 0 1! λΓ (1)
1 ∞ − 32λ
= ∫ λe d λ
2 0
1 ⎛ 2 − 32 λ 4 − 23 λ ⎞ ∞
= ⎜ − λe − e ⎟
2⎝ 3 9 ⎠ 0
2
= = 0.22
9
MLC-09-08 - 60 -
Question #88
Key: B
ex 8.83
ex = px + pxex +1 ⇒ px = = = 0.95048
1 + ex +1 9.29
a&&x = 1 + vpx + v 2 2 px + ....
a&& = 1 + v + v 2 2 p x + ...
x:2
a&&x:2 − a&&x = vqx = 5.6459 − 5.60 = 0.0459
v (1 − 0.95048 ) = 0.0459
v = 0.9269
1
i = − 1 = 0.0789
v
Question #89
Key: E
M × T = 0.20 0.80 0 0
b M × T g × T = 0.44 016
. 0.40 0
cb M × T g × T h × T = 0.468 0.352 0.08 010
.
d
Actuarial present value = 0.468v 3 500 = 171 ib g
Note:
Only the first entry of the last matrix need be calculated (verifying that the four sum
to 1 is useful “quality control.”)
MLC-09-08 - 61 -
Question #90
Key: B
b g
Let X 13 be the aggregate number of claims received in 13 weeks.
g bb g b g b g
E Yi = 1 × 0.2 + 2 × 0.25 + 3 × 0.4 + 4 × 015
. = 2.5
E Y = b1 × 0.2g + b4 × 0.25g + b9 × 0.4g + b16 × 015
i
2
. g = 7.2
E X b13g = 50 × 13 × 2.5 = 1625
Var X b13g = 50 × 13 × 7.2 = 4680
ProbmXb13g ≤ Zr = 0.90 = Φb1282
. g
⇒ Prob S
R X b13g − 1625 ≤ 1282
. V
U
T 4680 W
X b13g ≤ 1712.7
b g
Note: The formula for Var X 13 took advantage of the frequency’s being
Poisson.
The more general formula for the variance of a compound distribution,
bg b g b g b gb g
2
Var S = E N Var X + Var N E X , would give the same result.
Question #91
Key: E
μ M 60 = b g ω −1 60 = 75 −1 60 = 151
μF b60g = ω ′ −1 60 = 151 × 53 = 251 ⇒ ω ′ = 85
t
t
M
p65 = 1−
10
t
t
F
p60 = 1−
25
MLC-09-08 - 62 -
eo x =5 cmean for uniform distribution over b0,10gh
eo y = 12 .5 c mean for uniform distribution over b0,25gh
eo xy = z 0
FG1 − t IJ FG1 − t IJ ⋅ dt
10
H 10K H 25K
F1 − 7 t + t I ⋅ dt
= z GH 50 250JK
10
0
2
F 7 t + t I = 10 − 7 × 100 + 1000
= Gt −
3 10
H 100 750JK
2
100 0 750
4 13
= 10 − 7 + =
3 3
o o o o 25 13 30 + 75 − 26
exy = ex + e y − exy = 5 + − = = 1317
.
2 3 6
Question #92
Key: B
μ 1
Ax = =
μ+δ 3
μ 1
2
Ax = =
μ + 2δ 5
c h
P Ax = μ = 0.04
F Pc A hI A − A
Var b Lg = G 1 +
2
H δ JK e j
x 2 2
x x
F 0.04 IJ FG 1 − FG 1IJ IJ
= G1 +
2 2
H 0.08 K H 5 H 3K K
F 3I F 4 I
=G J G J
2
H 2 K H 45K
1
=
5
Question #93
Key: A
MLC-09-08 - 63 -
Let π be the benefit premium
Let kV denote the benefit reserve a the end of year k.
For any n, ( nV + π ) (1 + i ) = ( q25+ n × n +1V + p25+ n × n +1V )
= n +1V
Thus 1V = ( 0 V + π ) (1 + i )
2V = ( 1V + π )(1 + i ) = (π (1 + i ) + π ) (1 + i ) = π &&
s2
3V (
= ( 2V + π )(1 + i ) = π && )
s2 + π (1 + i ) = π &&
s3
Alternatively, as above
( nV + π ) (1 + i ) = n+1V
Write those equations, for n = 0 to n = 34
0 : ( 0V + π ) (1 + i ) = 1V
1: ( 1V + π )(1 + i ) = 2V
2 : ( 2V + π )(1 + i ) = 3V
M
34 : ( 34V + π ) (1 + i ) = 35V
34 − k
Multiply equation k by (1 + i ) and sum the results:
( 0V + π ) (1 + i )35 + ( 1V + π )(1 + i )34 + ( 2V + π )(1 + i )33 + L + ( 34V + π ) (1 + i ) =
1V (1 + i ) + 2V (1 + i ) + 3V (1 + i ) + L + 34 V (1 + i ) + 35V
34 33 32
MLC-09-08 - 64 -
35− k
For k = 1, 2,L , 34, the k V (1 + i ) terms in both sides cancel, leaving
Question #94
Key: B
t qy t px μ ( x + t ) + t qx t p y μ ( y + t )
μ xy ( t ) =
t qx × t p y + t px × t q y + t px × t p y
μ50:50 (10.5 ) =
( 10.5 q50 )( 10 p50 ) q60 ⋅ 2 =
( 0.09152 )( 0.91478)( 0.01376 )( 2 ) = 0.0023
( 10.5 q50 )( 10.5 p50 ) ⋅ 2 + ( 10.5 p50 ) ( 0.09152 )( 0.90848)( 2 ) + ( 0.90848)2
2
where
p50 =
1
2 ( l60 + l61 ) = 12 (8,188,074 + 8,075, 403) = 0.90848
10.5
l50 8,950,901
10.5 q50 = 1 − 10.5 p50 = 0.09152
8,188,074
10 p50 = = 0.91478
8,950,901
Derivative at 10 + t = 10.5 is
−2 ( 0.91478 )( 0.01376 ) + ( 0.91478 ) (1 − ( 0.5 )( 0.01376 ) ) ( 0.01376 ) = −0.0023
2
MLC-09-08 - 65 -
p 50:50 = 2 10.5 p50 − ( 10.5 p50 )
2
10.5
= 2 ( 0.90848 ) − ( 0.90848 )
2
= 0.99162
dp
−
μ (for any sort of lifetime) = dt = − ( −0.0023) = 0.0023
p 0.99162
Question #95
Key: D
Question #96
Key: B
ex = px + 2 px + 3 px + ... = 1105
.
b g FG 1 IJ 3
= 1000v 3 ex − 0.99 − 0.98 = 1000
H 104
. K
× 9.08 = 8072
MLC-09-08 - 66 -
e
π 1 + 0.99v + 0.98v 2 = 8072 j
2.8580π = 8072
π = 2824
Question #97
Key B
=
1000 0102
. b g
7.747 − 0.078 − 10 0.088 b g
102
=
6.789
= 15.024
N 2bω − 30g Q 0
ω − 30
=
2
100 − 30
Prior to medical breakthrough ω = 100 ⇒ eo 30 = = 35
2
o o
After medical breakthrough e ′ 30 = e 30 + 4 = 39
o ω ′ − 30
so ′ = 39 =
e30 ⇒ ω ′ = 108
2
MLC-09-08 - 67 -
Test Question: 99 Key: A
Question #100
Key: D
μ ( accid ) = 0.001
μ ( total ) = 0.01
μ ( other ) = 0.01 − 0.001 = 0.009
∞
Actuarial present value = ∫ 500,000 e −0.05t e−0.01t ( 0.009 ) dt
0
∞
+10 ∫ 50,000 e0.04t e−0.05t e −0.01t ( 0.001) dt
0
⎡ 0.009 0.001 ⎤
= 500, 000 ⎢ + = 100, 000
⎣ 0.06 0.02 ⎥⎦
MLC-09-08 - 68 -
Test Question: 101 Key: E
b gb g
E N = Var N = 60 0.5 = 30
b gb g b gb g b gb g
E X = 0.6 1 + 0.2 5 + 0.2 10 = 3.6
E X2 = b0.6gb1g + b0.2gb25g + b0.2gb100g = 25.6
Var X = 25.6 − 3.62 = 12.64
= 768
1000 20
20Vx = 1000 Ax +20 =
1000 d 19Vx + 20 Px
20
ib106
. g − q b1000g
x +19
px +19
=
b342.03 + 13.72gb106
. g − 0.01254b1000g
= 36918
.
0.98746
1 − 0.36918
a&&x +20 = = 111445
b0.06 / 106
. g
.
Ax +20 36918.
so 1000 Px +20 = 1000 = = 331
.
a&&x +20 111445
.
MLC-09-08 - 69 -
Test Question: 103 Key: B
k pxbτ g = e
− z
0
k
μ bxτ g t dt
bg =e z b gb g
−
k
0
2 μ x1 t dt
F b g b g IJ
= Ge z
−
k
μ x1 t dt
2
H K
0
= b 10 p60 g −b
2
11 p60 g 2
from I.L.T.
= 0.80802 2 − 0.781212 = 0.0426
1
Ps = − d , where s can stand for any of the statuses under consideration.
a&& s
1
a&&s =
Ps + d
1
a&&x = a&&y = = 6.25
01. + 0.06
1
a&&xy = = 8.333
0.06 + 0.06
MLC-09-08 - 70 -
Test Question: 105 Key: A
z b
d 0bτ g = 1000 e − b μ + 0.04 gt μ + 0.04 dt
0
1
g
= 1000 1 − e − b μ + 0.04
e g j = 48
e − b μ + 0.04 g = 0.952
μ + 0.04 = − ln 0.952 b g
= 0.049
μ = 0.009
z
d 3b1g = 1000 e −0.049 t 0.009 dt
4
3
b g
0.009 − b 0.049 gb 3g − b 0.049 gb 4 g
= 1000
0.049
e e −e = 7.6 j
Question #106
Key: B
This is a graph of lx μ x . bg
bg
μ x would be increasing in the interval 80,100 . b g
The graphs of lx px , lx and lx2 would be decreasing everywhere.
Question #107
Key: B
Since μ is constant
15 q x (
= 1 − ( px )
15
)
( px )
15
= 0.6843
px = 0.975
qx = 0.025
MLC-09-08 - 71 -
Question #108
Key: E
) (p
1+ i)
(1) 11V
A
= ( 10V
A
+0 −
qx +10
px +10
× 1000
x +10
) (p
1+ i)
( 2) 11V
B
= ( 10V
B
+π B −
qx +10
px +10
× 1000
x +10
) (p
1+ i)
(1) − ( 2 ) 11V
A
− 11V B = ( 10V
A
− 10V B − π B
x +10
= (101.35 − 8.36 )
(1.06 )
1 − 0.004
= 98.97
2
A P V (x’s benefits) = ∑ v k +1bk +1 k px q x + k
k =0
b g b gb g
= 1000 300v 0.02 + 350v 2 0.98 0.04 + 400v 3 0.98 0.96 0.06b gb gb g
= 36,829
MLC-09-08 - 72 -
Test Question: 110 Key: E
11V =
b gb g b gb g
10V + π 108
. − q65 10
p65
=
b gb g b gb g
5.0 + 0.326 108
. − 010
. 10
1 − 010
.
=5.28
Question #111
Key: A
MLC-09-08 - 73 -
z ∞
a = a¬ f t dt =
o t
bg zo
∞ 1 − e −0.05t
0.05
1
Γ2
te − t dt
bg
=
1
0.05 zb
∞
o
te
−t
i
− te −1.05t dt
1 LM b g FG
− t + 1 e−t +
t 1 IJ
e −1.05t
OP ∞
=
0.05 N .H
105
+
. 2
105 K Q 0
1 L F 1 I O
2
= M1 − G . JK PP = 185941
0.05 NM H 105
.
Q
20,000 × 185941
. = 37,188
Question #114
Key: C
( )
Var [ X ] = E X 2 − E ( X ) = 2813.01 − ( 51.95 ) = 114.2
2 2
Question #115
Key: B
MLC-09-08 - 74 -
1L = 1000v − 1000 Px:3 a&&1
1000
= − 279.21
1.1
= 629.88 ≈ 630
Let M = the force of mortality of an individual drawn at random; and T = future lifetime
of the individual.
Pr T ≤ 1 n
= E Pr T ≤ 1 M s
= z
∞
0
Pr T ≤ 1 M = μ f M μ dμ bg
= zz
2 1
0 0
1
μe − μ t dt dμ
2
= zd
2
0
1 − e−μ i 21 du = 21 d2 + e −2
i 21 d1 + e i
−1 = −2
= 0.56767
Question #117
Key: E
Note that above 40, decrement 1 is DeMoivre with omega = 100; decrement 2 is
DeMoivre with omega = 80.
(1)
That means μ 40 ( 20 ) = 1/ 40 = 0.025; μ 40( 2) ( 20 ) = 1/ 20 = 0.05
(τ )
μ 40 ( 20 ) = 0.025 + 0.05 = 0.075
Or from basic definition of μ ,
60 − t 40 − t 2400 − 100t + t 2
(τ )
t p40 = × =
60 40 2400
MLC-09-08 - 75 -
d ( t
( )
p40
τ
)
/ dt = ( −100 + 2t ) / 2400
at t = 20 gives −60 / 2400 = 0.025
( )
= ( 2 / 3) * (1/ 2 ) = 1/ 3
τ
20 p40
(τ )
μ 40 ( 20 ) = ⎡⎢ −d ⎣ ( t p40 )
(τ ) (τ )
/ dt ⎤⎥ / 20 p40
⎦
= 0.025 / (1/ 3) = 0.075
b gb g
= 1 + 0.97v + 0.97 0.94 v 2 π
= 2.7266 π
20,32013
.
π = = 7452.55
2.7266
1V =
b7452.55gb106
. g − b200,000gb0.03g
1 − 0.03
= 1958.46
L = bT v T − π aT = 1+ i b g T
× v T − π aT
= 1 − π aT
E L = 1 − π ax = 0 ⇒π = 1
ax
MLC-09-08 - 76 -
⇒ L = 1 − π aT = 1 −
aT
=
d
δ ax − 1 − v T i
ax δ ax
=
b
v T − 1 − δ ax
=
g
v T − Ax
δ ax 1 − Ax
(1.5, 0.8775)
(2, 0.885)
tp1
1 2
t
1 p1 = (1 − 01
. ) = 0.9
2 b gb g
p1 = 0.9 1 − 0.05 = 0.855
b
since uniform, 1.5 p1 = 0.9 + 0.855 / 2 g
= 0.8775
o
e1:1.5 = Area between t = 0 and t = 15
.
FG 1 + 0.9 IJ b1g + FG 0.9 + 0.8775IJ b0.5g
=
H 2 K H 2 K
= 0.95 + 0.444
= 1394
.
Alternatively,
MLC-09-08 - 77 -
o
e11: .5 = z
1.5
0 t
p1dt
= z
1
0 t
0.5
p1dt +1p1 x
0 z p2 dx
= zb
1
0
1 − 01 g
. t dt + 0.9
1
z0
0.5
b1 − 0.05xgdx
0.5
= t − 0.12t + 0.9 x − 0.052 x
2 2
0 0
= 0.95 + 0.444 = 1394
.
b g
. = 5233
10,000 A63 112
A63 = 0.4672
Ax +1 =
b g
Ax 1 + i − qx
px
A64 =
b0.4672gb105
. g − 0.01788
1 − 0.01788
= 0.4813
A65 =
b0.4813gb105
. g − 0.01952
1 − 0.01952
= 0.4955
Single contract premium at 65 = (1.12) (10,000) (0.4955)
= 5550
b1 + ig 2
=
5550
5233
i=
5550
5233
− 1 = 0.02984
MLC-09-08 - 78 -
Test Question: 122 Key: B
μ x = 0.06
μ y = 0.06
μ xy = 0.06 + 0.06 = 012
.
μx 0.06
Ax = = = 0.54545
μ x + δ 0.06 + 0.05
μy 0.06
Ay = = = 0.54545
μ y + δ 0.06 + 0.05
μ xy 012
.
Axy = = = 0.70588
μ xy + δ 012. + 0.05
Axy = Ax + Ay − Axy = 0.54545 + 0.54545 − 0.70588 = 0.38502
μ x = 0.06, μ Tx *b x g = 0.04
μ y = 0.06, μ Ty*b y g = 0.04
μ xy = μ Tx *b x g + μ Ty*b y g + μ Z + 0.04 + 0.04 + 0.02 = 010
.
μx 0.06
Ax = = = 0.54545
μ x + δ 0.06 + 0.05
μy 0.06
Ay = = = 0.54545
μ y +δ 0.06 + 0.05
μ xy 010
.
Axy = = = 0.66667
μ xy + δ 010 . + 0.05
Axy = Ax + Ay − Axy = 0.54545 + 0.54545 − 0.66667 = 0.42423
MLC-09-08 - 79 -
Question #123
Key: B
5
q35:45 = 5 q35 + 5 q45 − 5 q35:45
= 5 p35q40 + 5 p45q50 − 5 p35:45q40:50
b g
= 5 p35q40 + 5 p45q50 − 5 p35 × 5 p45 1 − p40:50
= p q + p q − p × p b1 − p p g
5 35 40 5 45 50 5 35 5 45 40 50
Alternatively,
z 3
0
bg bg
λ t dt = 6 so N 3 is Poisson with λ = 6.
P is Poisson with mean 3 (with mean 3 since Prob yi < 500 = 0.5 b g g
P and Q are independent, so the mean of P is 3, no matter what the value of Q is.
MLC-09-08 - 80 -
Test Question: 125 Key: A
At age x:
FG 1 A IJ 1000
Actuarial Present value (APV) of future benefits =
H5 Kx
FG 4 a&& IJ π
APV of future premiums =
H5 K x
1000 4
A25 = π a&&25 by equivalence principle
5 5
1000 A25 1 8165
.
=π ⇒π = × = 1258
.
4 a&&25 4 16.2242
Var Y = 10 2 d 2
A40 − A40
2
i
2
d
d
= 100 0.04863 − 016132
. 2
106 ib
. / 0.06 g 2
= 70555
.
E S = 100 E Y = 14,816.6
Var S = 100 Var Y = 70,555
Standard deviation S = 70,555 = 265.62
MLC-09-08 - 81 -
Test Question: 127 Key: B
=
b
5 010248
. g b
− 4 0.02933 g
b g b
5 14.835 − 4 11959
. g
0.5124 − 011732
. 0.39508
= = = 0.015
74.175 − 47.836 26.339
Where
1
A30:20 e j
= A30:20 − A30:201 = 0.32307 − 0.29374 = 0.02933
and
1 − A30:20 1 − 0.32307
a&&30:20 = = = 11959
d FG IJ
0.06
.
H K
106
.
Comment: the numerator could equally well have been calculated as A30 + 4 20 E30 A50
= 0.10248 + (4) (0.29374) (0.24905)
= 0.39510
0.75 b gb g
px = 1 − 0.75 0.05
= 0.9625
0.75 b gb g
p y = 1 − 0.75 .10
= 0.925
0.75 qxy = 1− 0.75 pxy
= 1− b p gd p i since independent
0.75 x 0.75 y
= 1- b0.9625gb0.925g
= 01097
.
Question #129
Key: D
MCL-09-08 - 82 -
Ga&&35 = 100,000 A35 + ( 0.1G + 25 + 250 ) a&&35
A35
G = 100,000 + 0.1G + 275
a&&35
0.9G = 100,000 P35 + 275
G=
(100 )(8.36 ) + 275
0.9
= 1234
The person receives K per year guaranteed for 10 years ⇒ Ka&&10 = 8.4353K
The person receives K per years alive starting 10 years from now ⇒10 a&&40 K
A40 − A40
1
:10 0.30 − 0.09
10 E40 = = = 0.60
A50 0.35
1 − A50 1 − 0.35
Derive a&&50 = = = 16.90
d .04
104
.
Plug in values:
c
10,000 = 8.4353 + 0.60 16.90 K b gb gh
= 18.5753K
K = 538.35
0 H 75K 2 × 75 0
= 101933
.
=e z
1
− 0.1ds
MODIFIED: p25 0
= e −.1 = 0.90484
o
: =
e2511 z1
p dt
0 t 25
+ p25 z FGH
10
0
1−
t
74
IJ
dt
K
MCL-09-08 - 83 -
= z
0
1 −0.1t
e
IJ
dt + e−0.1
K z FGH
10
0
1−
t
74
dt
1− e F t I
−0.1
+ e Gt −
2 10
H 2 × 74 JK
−0.1
=
01
. 0
Difference =0.8047
Comparing B & D: Prospectively at time 2, they have the same future benefits. At issue,
B has the lower benefit premium. Thus, by formula 7.2.2, B has the higher reserve.
Comparing A to B: use formula 7.3.5. At issue, B has the higher benefit premium. Until
time 2, they have had the same benefits, so B has the higher reserve.
Comparing B to C: Visualize a graph C* that matches graph B on one side of t=2 and
matches graph C on the other side. By using the logic of the two preceding paragraphs,
C’s reserve is lower than C*’s which is lower than B’s.
Since only decrements (1) and (2) occur during the year, probability of reaching the end
of the year is
′b1g × p60
p60 b gb
′b 2g = 1 − 0.01 1 − 0.05 = 0.9405 g
Probability of remaining through the year is
p60′b1g × p60
′b 2g × p60 b gb
′b3g = 1 − 0.01 1 − 0.05 1 − 010 gb
. = 0.84645 g
Probability of exiting at the end of the year is
b3g = 0.9405 − 0.84645 = 0.09405
q60
MCL-09-08 - 84 -
Question #134
Key: D
Poisoned wine glasses are drunk at a Poisson rate of 2 × 0.01 = 0.02 per day.
Number of glasses in 30 days is Poisson with λ = 0.02 × 30 = 0.60
f ( 0 ) = e −0.60 = 0.55
zb
0
=
∞
0
gd ib gd
100000 e-0.06t 0.008 e-0.008t dt i
b
= 100000 0.008 / 0.06 + 0.008 = 11,764.71 g
APV of accidental death benefit = zb
30
gd ib gd i
100000 e-δ t 0.001 e- μ t dt
zb
0
=
30
0
gd ib gd
100000 e-0.06t 0.001 e-0.008t dt i
= 100 1 − e-2.04 / 0.068 = 1,279.37
Total APV = 11765 + 1279 = 13044
b gb g b gb
l 60 +.6 = .6 79,954 + .4 80,625 g
= 80,222.4
b gb g b gb
l 60 +1.5 = .5 79,954 + .5 78,839 g
= 79,396.5
80222.4 − 79,396.5
0.9 q 60 +.6 =
80,222.4
= 0.0103
P0 = 111 = 9.0909%
MCL-09-08 - 85 -
Question #137
Key: E
View the compound Poisson process as two compound Poisson processes, one for
smokers and one for non-smokers. These processes are independent, so the total
variance is the sum of their variances.
Var(losses) = λ ⎡⎢ Var ( X ) + ( E ( X ) ) ⎤⎥
2
⎣ ⎦
= 200 ⎡5000 + ( −100 ) ⎤
2
⎣ ⎦
= 3,000,000
Var(losses) = λ ⎡⎢ Var ( X ) + ( E ( X ) ) ⎤⎥
2
⎣ ⎦
= 800 ⎡8000 + ( −100 ) ⎤
2
⎣ ⎦
= 14, 400,000
′b g p40
= 1 − p40 ′b g
1 2
′ b 2g
0.34 = 1 − 0.75 p40
′ b 2g = 0.88
p40
′ b 2g = 012
q40 . =y
′ b 2g = 2 y = 0.24
q41
b gb g
bτ g = 1 − 0.8 1 − 0.24 = 0.392
q41
l b g = 2000b1 − 0.34gb1 − 0.392g = 803
τ
42
MCL-09-08 - 86 -
Test Question: 139 Key: C
b g
Pr L π ' > 0 < 0.5
b g
Pr K = 0 = 1 − px = 01
.
Prb K = 1g = p − p = 0.9 − 0.81 = 0.09
1 x 2 x
E bY g = .1 × 1+.09 × 187
. +.81 × 2.72 = 2.4715
E dY i = .1 × 1 +.09 × 187
2 2
. +.81 × 2.72 = 6.407
2 2
Question #141
Key: E
E [ Z ] = b Ax
since constant force Ax = μ / μ + δ
bμ b ( 0.02 )
E(Z) = = = b/3
μ +δ ( 0.06 )
MCL-09-08 - 87 -
Var [ Z ] = Var ⎡⎣b v T ⎤⎦ = b 2 Var ⎡⎣ vΤ ⎤⎦ = b 2 ( 2
Ax − Ax2 )
⎛ μ ⎛ μ ⎞ ⎞
2
=b ⎜
2
− ⎟
⎜ μ + 2δ ⎜⎝ μ + δ ⎟⎠ ⎟
⎝ ⎠
⎡ 2 1⎤ ⎛ 4⎞
= b2 ⎢ − ⎥ = b2 ⎜ ⎟
⎣10 9 ⎦ ⎝ 45 ⎠
Var ( Z ) = E ( Z )
⎡4⎤ b
b2 ⎢ ⎥ =
⎣ 45 ⎦ 3
⎡4⎤ 1
b ⎢ ⎥ = ⇒ b = 3.75
⎣ 45 ⎦ 3
b g b g c A−A h
In general Var L = 1 + δP
2 2
x
2
x
c h
Here P Ax =
1
ax
1
− δ = −.08 =.12
5
F .12 I
So Var b Lg = G 1 + J c A − A h =.5625
2
H .08K
2 2
x x
F b.12gIJ c A − A h
and Var b L *g = G 1 +
5
2
H .08 K
4 2 2
x x
So Var b L *g =
b1 + g b0.5625g =.744
15 2
8
b1 + g 12 2
8
E L * + Var b L *g =.7125
Serious claims are reported according to a Poisson process at an average rate of 2 per
month. The chance of seeing at least 3 claims is (1 – the chance of seeing 0, 1, or 2
claims).
b g
P 3 + ≥ 0.9 is the same as P 0,1,2 ≤ 01 b g
. is the same as P 0 + P 1 + P 2 ≤ 01
. b g bg b g
MCL-09-08 - 88 -
d
. ≥ e − λ + λe− λ + λ2 / 2 e− λ
01 i
The expected value is 2 per month, so we would expect it to be at least 2 months
bλ=4 . g
Plug in and try
d i
e−4 + 4e−4 + 42 / 2 e−4 =.238, too high, so try 3 months λ = 6 b g
e−6 + 6e−6 + d6 / 2ie
2 −6
=.062, okay. The answer is 3 months.
[While 2 is a reasonable first guess, it was not critical to the solution. Wherever you
start, you should conclude 2 is too few, and 3 is enough].
b g = q b w g + p b τ g q b w g + p b τ g p bτ g q b w g
w
3 q0 0 0 1 0 1 2
b gb g b gb gb g
= 0.2 + 0.4 0.3 + 0.4 0.5 0.3
= 0.38
MCL-09-08 - 89 -
Test Question: 145 Key: D
N
p25 =e z−
1
0
μ 25
M
bg c h
t + 0.1 1− t dt
=e z z
− μ 25
M 1
bg
t dt − 0.1 1− t dt
0
1
0
c h
=e z e z
− μ 25
M 1
bg
t dt − 0.1 1− t dt
0
1
0
c h
L F I OP1
M MN H
2
− 0.1 t − t2
= p25 e
K Q0
= e−0.05 p25
M
N
e25 = p25
N
b
1 + e26 g
= e−0.05 p25
M
1 + e26 b g
= 0.951 e25
M
= 0.951 10.0 = 9.5 b gb g
MCL-09-08 - 90 -
Test Question: 146 Key: D
σ Y = Var Y = b10,000g δ1 c A − A h2
2
2
x
2
x
=
b10,000g b0.25g − b016
. g = 50,000
δ
b
σ AGG = 100σ Y = 10 50,000 = 500,000 g
0.90 = Pr
LM F − E Y AGG
>0
OP
N σ AGG Q
F − E YAGG
⇒ 1282
. =
σ AGG
. σ AGG + E YAGG
F = 1282
F = 1282
. b g
500,000 + 10,000,000 = 10,641,000
Question #147
Key: A
1
A30:3 = 1000vq30 + 500v 2 1 q30 + 250v3 2 q30
2 3
⎛ 1 ⎞⎛ 1.53 ⎞ ⎛ 1 ⎞ ⎛ 1.61 ⎞ ⎛ 1 ⎞ ⎛ 1.70 ⎞
= 1000 ⎜ ⎟⎜ ⎟ + 500 ⎜ ⎟ ( 0.99847 ) ⎜ ⎟ + 250 ⎜ ⎟ ( 0.99847 )( 0.99839 ) ⎜ ⎟
⎝ 1.06 ⎠⎝ 1000 ⎠ ⎝ 1.06 ⎠ ⎝ 1000 ⎠ ⎝ 1.06 ⎠ ⎝ 1000 ⎠
= 1.4434 + 0.71535 + 0.35572 = 2.51447
1
⎛ 1 ⎞2 ⎛ 0.00153 ⎞
&&( 2 )
1 1
a30:1 = 1 2 + 1 2 ⎜ ⎟ (1 − 2 q30 ) = + ( 0.97129 ) ⎜1 − ⎟
1
⎝ 1.06 ⎠ 2 2 ⎝ 2 ⎠
1 1
= + ( 0.97129 )( 0.999235 )
2 2
= 0.985273
2.51447
Annualized premium =
0.985273
= 2.552
2.552
Each semiannual premium =
2
= 1.28
MCL-09-08 - 91 -
Test Question: 148 Key: E
b DAg 1
80:20 eb g j
= 20vq80 + vp80 DA 1
8119
:
q80 =.2 13 =
20 .2
+
bg.8
b gDA 81
1
:19
106
. 106
.
b g
∴ DA 8119 1 =
b g. −4
13 106
= 12.225
:
.8
q80 =.1 b g b gb g
DA801 :20 = 20 v .1 + v .9 12.225
2+.9b12.225g
= = 12.267
106
.
Let T denote the random variable of time until the college graduate finds a job
m bg r
Let N t , t ≥ 0 denote the job offer process
MCL-09-08 - 92 -
Test Question: 150 Key: A
px = exp −
LM z t ds OP
= exp ln 100 − x − s b g t
=
100 − x − t
t
N 0 100 − x − s Q 0
100 − x
o o o o
e50:60 = e50 + e60 − e50:60
o
e50 =z
50 50 − t
dt =
1 LM
50t −
t2 OP = 25 50
0 50 50 N 2 Q 0
1 L t O
=z
2 40
40 − t
M 40t − P = 20
o 40
e60 dt =
0 40 40 N 2Q 0
o
=z G
F 50 − t IJ FG 40 − t IJ dt = z 1 d2000 − 90t + t idt
40 40
H 50 K H 40 K
2
e50:60
0 20000
1 F I = 14.67
3
2000 GH 3 JK
t
= 2000 t − 45 t + 2 40
0
o
e50:60 = 25 + 20 − 14.67 = 30.33
Question #151
Key: C
Ways to go 0 → 2 in 2 years
0 − 0 − 2; p = ( 0.7 )( 0.1) = 0.07
0 − 1 − 2; p = ( 0.2 )( 0.25 ) = 0.05
0 − 2 − 2; p = ( 0.1)(1) = 0.1
Total = 0.22
Binomial m = 100 q = 0.22
Var = (100) (0.22) (0.78) = 17
Question #152
Key: A
MCL-09-08 - 93 -
(1) State 2 → State 1 → State 4: (0.2 × 0.1) = 0.02
(2) State 2 → State 2 → State 4: (0.5 × 0.3) = 0.15
Total 0.17
0.17 ×1000
APV = = 154.20
1.052
b g
Var 0 L b g b g since VarbΛ g = 0
= Var Λ 0 + v 2 Var Λ 1 2
Var b Λ g = v bb − V g p q
2
0 1 1 50 50
=
b10,000 − 3,209g b0.00832gb0.99168g
2
. 2
103
= 358664.09
b g
Var Λ 1 b
= v b2 − 2V g 2
p50q51 p51
=
b10,000 − 6,539g b0.99168gb0.00911gb0.99089g
2
. 2
103
= 101075.09
b g
Var 0 L = 358664.09 +
101075.09
. 2
103
= 453937.06
Alternative solution:
MCL-09-08 - 94 -
R|10,000 v − π a&& = 6539 for K = 0
|
1
T
3
3
Prb K = 0g = q = 0.0083250
π= 30 a&&35
=
eA 35:30
− A35
1
:30 j
a&&65
=
1 − A35
1
:30
1− 1
A35:30
=
b.21−.07g9.9
b1−.07g
1.386
=
.93
= 1.49
=.5 = e z
−
0. 4
e F +e2 x jdx
0.4 p0
0
LM e22x OP.4
−.4 F −
=e N Q0
−.4 F −F e 2 −1 I
0.8
=e H K
.5 = e−.4 F −.6128
MCL-09-08 - 95 -
bg
⇒ ln .5 = −.4 F −.6128
⇒ −.6931 = −.4F −.6128
⇒ F = 0.20
Question #156
Key: C
Question #157
Key: B
d = 0.06 ⇒ V = 0.94
Step 1 Determine px
668 + 258vpx = 1000vqx + 1000v 2 px ( px +1 + qx +1 )
668 + 258 ( 0.94 ) px = 1000 ( 0.94 ) (1 − px ) + 1000 ( 0.8836 ) px (1)
668 + 242.52 px = 940 (1 − px ) + 883.6 px
px = 272 / 298.92 = 0.91
1000 Px:2 =
[ 220.69 + 668] = 479
1.8554
MCL-09-08 - 96 -
Question #158
Key: D
1
Where A40:10 = A40 − 10 E40 A50
= 0.16132 − ( 0.53667 )( 0.24905 )
= 0.02766
Comment: the first line comes from comparing the benefits of the two insurances. At
each of age 40, 41, 42,…,49 ( IA )40:10 provides a death benefit 1 greater than ( IA )41:10 .
1 1
Question #159
Key: A
=
(G − expenses )(1 + i ) − 1000qx
1 AS
px
=
(100 − ( 0.4 )(100 ) ) (1.1) − (1000 )( 0.05)
1 − 0.05
60 (1.1) − 50
= = 16.8
0.95
MCL-09-08 - 97 -
Question #160
Key: C
q′x ( ) = 1 − 0.9802 = 0.0198 , which is also qx( ) , since decrement 2 occurs only at the end of
1 1
the year.
Actuarial present value (APV) at the start of each year for that year’s death benefits
= 10,000*0.0198 v = 188.1
APV of death benefit for 3 years 188.1 + E40 *188.1 + E40 * E41 *188.1 = 506.60
Question #161
Key: B
40
∫ t p30dt
o
e30:40 =
0
ω − 30 − t
40
= ∫ ω − 30
dt
0
t2 40
=t−
2 (ω − 30 ) 0
800
= 40 −
ω − 30
= 27.692
ω = 95
0 p30 = 1 40 p30
30 70
MCL-09-08 - 98 -
o
e30:40 = area =27.692 = 40
(1 + 40 p30 )
2
p30 = 0.3846
40
ω − 70
= 0.3846
ω − 30
ω = 95
65 − t
t p30 =
65
Var = E (T ) − ( E (T ) )
2 2
(∫ )
∞ ∞ 2
Var (T ) = ∫ t 2 t px μ x ( t ) dt − t t px μ x ( t ) dt
0 0
2
65 2 1 ⎛ 65 1 ⎞
=∫ t × dt − ⎜ ∫ t × dt ⎟
0 65 ⎝ 0 65 ⎠
2
t3 65 ⎛ t2 65 ⎞
= −⎜ ⎟
3 × 65 0
⎝ 2 × 65 0
⎠
= 1408.33 − ( 32.5 ) = 352.08
2
With De Moivre’s law and a maximum future lifetime of 65 years, you probably didn’t
need to integrate to get E (T ( 30 ) ) = e30 = 32.5
o
Likewise, if you realize (after getting ω = 95 ) that T ( 30 ) is uniformly on (0, 65), its
variance is just the variance of a continuous uniform random variable:
MCL-09-08 - 99 -
Var =
( 65 − 0 )
2
= 352.08
12
Question #162
Key: E
Question #163
Key: D
∞
ex = e y = ∑ t px = 0.95 + 0.952 + ...
k =1
0.95
= = 19
1 − 0.95
exy = pxy + 2 pxy + ...
= 1.02 ( 0.95 )( 0.95 ) + 1.02 ( 0.95 ) ( 0.95 ) + ...
2 2
1.02 ( 0.95 )
2
= 1.02 ⎡⎣0.95 + 0.95 + ...⎤⎦ =
2 4
= 9.44152
1 − 0.952
exy = ex + e y − exy = 28.56
Question #164
Key: A
So I get there first if he waits more than 28 – 16 = 12 minutes after the local arrived.
MCL-09-08 - 100 -
Question #165
Key: E
Deer hit at time s are found by time t (here, t = 10) with probability F(t – s), where F is
the exponential distribution with mean 7 days.
We can split the Poisson process “deer being hit” into “deer hit, not found by day 10”
and “deer hit, found by day 10”. By proposition 5.3, these processes are independent
Poisson processes.
Deer hit, found by day 10, at time s has Poisson rate 20 × F(t – s). The expected
number hit and found by day 10 is its integral from 0 to 10.
t
E ( N ( t ) ) = 20∫ F ( t − s )ds
0
10 −(10 − s )
E ( N (10 ) ) = 20 ∫ 1 − e 7 ds
0
s −10
⎛ 10 ⎞
= 20 ⎜ 10 − 7e 7 ⎟
⎜ ⎟
⎝ 0
⎠
(
= 20 10 − 7 + 7e
−10 7
) = 94
Question #166
Key: E
∞
ax = ∫ e −0.08t dt = 12.5
0
∞ 3
Ax = ∫ e −0.08t ( 0.03) dt = = 0.375
0 8
∞ 3
2
Ax = ∫ e −0.13t ( 0.03) dt = = 0.23077
0 13
( ) 1 ⎡2
Ax − ( Ax ) ⎤ = 400 ⎡ 0.23077 − ( 0.375 ) ⎤ = 6.0048
2
σ aT = Var ⎡⎣ aT ⎤⎦ =
2
2 ⎢ ⎥ ⎣ ⎦
δ ⎣ ⎦
( )
Pr ⎡⎣ aT > ax − σ aT ⎤⎦ = Pr ⎡⎣ aT > 12.5 − 6.0048⎤⎦
⎡ 1 − vT ⎤
= Pr ⎢ > 6.4952 ⎥ = Pr ⎡⎣ 0.67524 > e−0.05T ⎤⎦
⎣ 0.05 ⎦
⎡ − ln 0.67524 ⎤
= Pr ⎢T >
⎣ 0.05 ⎥⎦ = Pr [T > 7.85374]
= e −0.03×7.85374 = 0.79
Question #167
Key: A
MCL-09-08 - 101 -
(τ )
= e ( )( ) = e −0.25 = 0.7788
− 0.05 5
5 p50
(1) 5 (1)
( t ) × e−( 0.03+0.02)t dt = − ( 0.02 / 0.05 ) e−0.05t
5
5 q55 = ∫ μ55
0 0
(
= 0.4 1 − e −0.25
)
= 0.0885
( ) () τ
Probability of retiring before 60 = 5 p50 × 5 q55
1
= 0.7788*0.0885
= 0.0689
Question #168
Key: C
⎡ ⎤ ⎡ ⎤
⎢ o 1⎥ ⎢ o 1⎥
l81 = e[80] − l[80] − e[81] − l[81]
⎢ 2⎥ ⎢ 2⎥
⎣ ⎦ ⎣ ⎦
⎡o ⎤
910 = [8.5 − 0.5]1000 − ⎢e[81] − 0.5⎥ 920
⎣ ⎦
MCL-09-08 - 102 -
o 8000 + 460 − 910
e[81] = = 8.21
920
910
p[80] = = 0.91
1000
830
p[81] = = 0.902
920
830
p81 = = 0.912
910
e[80] = 1 q 80 + p 80 ⎛⎜1 + eo 81 ⎞⎟
o
2 [ ] [ ]
⎝ ⎠
1
where q[80] contributes since UDD
2
1 ⎛ o ⎞
8.5 = (1 − 0.91) + ( 0.91) ⎜1 + e81 ⎟
2 ⎝ ⎠
o
e81 = 8.291
o 1 ⎛ o ⎞
e81 = q81 + p81 ⎜ 1 + e82 ⎟
2 ⎝ ⎠
1 ⎛ o ⎞
8.291 = (1 − 0.912 ) + 0.912 ⎜ 1 + e82 ⎟
2 ⎝ ⎠
o
e82 = 8.043
o 1 ⎛ o ⎞
e[81] = q[81] + p[81] ⎜ 1 + e82 ⎟
2 ⎝ ⎠
1
= (1 − 0.902 ) + ( 0.902 )(1 + 8.043)
2
= 8.206
o
Or, do all the recursions in terms of e, not e , starting with e[80] = 8.5 − 0.5 = 8.0 , then final
o
step e[81] = e[81] + 0.5
MCL-09-08 - 103 -
Question #169
Key: A
T px +t t px vt vt t px
0 0.7 1 1 1
1 0.7 0.7 0.95238 0.6667
2 − 0.49 0.90703 0.4444
3 − − – −
2
From above a&&x:3 = ∑ vt t px = 2.1111
t =0
⎛ a&& ⎞ ⎛ 1 ⎞
1000 2Vx:3 = 1000 ⎜ 1 − x + 2:1 ⎟ = 1000 ⎜1 − ⎟ = 526
⎜ a&&x:3 ⎟ ⎝ 2.1111 ⎠
⎝ ⎠
Alternatively,
1
Px:3 = − d = 0.4261
a&&x:3
(
1000 2Vx:3 = 1000 v − Px:3 )
= 1000 ( 0.95238 − 0.4261)
= 526
MCL-09-08 - 104 -
Question #170
Key: E
Question #171
Key: A
p50 = e ( )( ) = 0.8187
− 0.05 4
4
p50 = e ( )( ) = 0.6065
− 0.05 10
10
p60 = e ( )( ) = 0.7261
− 0.04 8
8
MCL-09-08 - 105 -
Question #172
Key: D
(
π = 100,000 A45 × 5 E40 / a&&40:5 − ( IA )40:5
1
)
= 100,000 ( 0.20120 )( 0.73529 ) / ( 4.4401 − 0.04042 )
= 3363
Question #173
Key: B
Calculate the probability that both are alive or both are dead.
P(both alive) = k pxy = k px ⋅ k p y
P(both dead) = k qxy = k q x k q y
P(exactly one alive) = 1 − k pxy − k qxy
Only have to do two year’s worth so have table
Alternatively,
0.8281 0.6724
a&&xy = 1 + + = 2.3986
1.05 1.052
0.91 0.82
a&&x = a&&y = 1 + + = 2.6104
1.05 1.052
APV = 20,000 a&&x + 20,000 a&&y − 10,000 a&&xy
(it pays 20,000 if x alive and 20,000 if y alive, but 10,000 less than that if both are
alive)
MCL-09-08 - 106 -
= ( 20,000 )( 2.6104 ) + ( 20,000 )( 2.6104 ) − (10,000 ) 2.3986
= 80, 430
Question #174
Key: C
∞ ∞
P = ax = ∫ e −δ t e − μ t dt = ∫ e−0.05t dt = 20
0 0
E [ L] = axIMP −P
10 ∞
−0.03(10 ) −0.02(10 )
axIMP = ∫e −0.03t −0.02t
e dt + e e ∫e
−0.03t −0.01t
e dt
0 0
l − e −0.5 e−0.5
= + = 23
0.05 0.04
E [ L ] = 23 − 20 = 3
E [ L] 3
= = 15%
P 20
Question #175
Key: C
1
A30:2 = 1000vq30 + 500v 2 1 q 30
2
⎛ 1 ⎞ ⎛ 1 ⎞
= 1000 ⎜ ⎟ ( 0.00153) + 500 ⎜ ⎟ ( 0.99847 )( 0.00161)
⎝ 1.06 ⎠ ⎝ 1.06 ⎠
= 2.15875
Initial fund = 2.15875 × 1000 participants = 2158.75
Expected size of Fund 2 at end of year 2 = 0 (since the amount paid was the single
benefit premium). Difference is 895.
MCL-09-08 - 107 -
Question #176
Key: C
Var [ Z ] = E ⎡⎣ Z 2 ⎤⎦ − E [ Z ]
2
(v b )
∞ ∞
E [Z ] = ∫ t
t t p x μ x ( t ) dt = ∫ e −0.08t e0.03t e −0.02t ( 0.02 ) dt
0 0
∞ 0.02 2
=∫ ( 0.02 ) e−0.07t dt = =
7
0 0.07
(e )
∞ 2 ∞
( vt bt ) t px μ x ( t ) dt = ∫ e −0.02t ( 0.02 ) dt
2
E ⎡⎣ Z 2 ⎤⎦ = ∫ −0.05t
0 0
∞
= ∫ 0.02 e −0.12t μ x ( t ) dt = 2 =1
0 12 6
1 2
( ) 1 4
2
Var [ Z ] = − = − = 0.08503
6 7 6 49
Question #177
Key: C
0.1
From Ax = 1 − d ax
&& we have Ax = 1 − (8 ) = 311
1.1
0.1
Ax +10 = 1− ( 6 ) = 511
1.1
Ax = Ax × i
δ
3 0.1
Ax = × = 0.2861
11 ln (1.1)
5 0.1
Ax +10 = × = 0.4769
11 ln (1.1)
MCL-09-08 - 108 -
Question #178
Key: C
∞
Regular death benefit = ∫ 100,000 × e −0.06t × e −0.001t 0.001dt
0
⎛ 0.001 ⎞
= 100,000 ⎜ ⎟
⎝ 0.06 + 0.001 ⎠
= 1639.34
10
= 20 ∫ e −0.061t dt
0
⎡1 − e −0.61 ⎤
= 20 ⎢ ⎥ = 149.72
⎣ 0.061 ⎦
Question #179
Key: D
Once you are dead, you are dead. Thus, you never leave state 2 or 3, and rows 2 and
3 of the matrix must be (0 1 0) and (0 0 1).
Probability of dying from cause 1 within the year, given alive at age 61, is 160/800 =
0.20.
Probability of dying from cause 2 within the year, given alive at age 61, is 80/800 = 0.10
MCL-09-08 - 109 -
Question #180
Key: C
This first solution uses the method on the top of page 9 of the study note.
Note that if the species is it is not extinct after Q3 it will never be extinct.
This solution parallels the example at the top of page 9 of the Daniel study note. We
want the second entry of the product ( Q1 × Q2 × Q3 ) e3 which is equal to
Q1 × ( Q2 × ( Q3 × e3 ) ) .
0 0
Q3 0 = 0.1
1 1
0 0.01
Q2 0.1 = 0.27
1 1
0.01 0.049
Q1 0.27 = 0.489
1 1
Alternatively, start with the row matrix (0 1 0) and project it forward 3 years.
Yet another approach would be to multiply Q1 × Q2 × Q3 , and take the entry in row 2,
column 3. That would work but it requires more effort.
MCL-09-08 - 110 -
Question #181
Key: B
We built the Active Disabled Dead columns of that table by multiplying each row times
the transition matrix. E.g., to move from t = 1 to t = 2, (0.8 0.1 0.1) Q = (0.65 0.15
0.2)
The deaths column is just the increase in Dead. E.g., for t = 2, 0.2 – 0.1 = 0.1.
v = 0.9
( )
APV of death benefits = 100,000* 0.1v + 0.1v 2 + 0.095v3 = 24,025.5
APV of $1 of premium = 1 + 0.8v + 0.65v 2 = 2.2465
24,025.5
Benefit premium = = 10,695
2.2465
Question #182
Key: A
= 1.04 × 1010
= 0.696 ×1010
MCL-09-08 - 111 -
E (W − D ) = 1, 200,000 − 1, 280,000 = −80,000
Var (W − D ) = 0.696 ×1010 + 1.04 × 1010 = 1.736 × 1010
SD (W − D ) = 131,757
⎛ W − D + 80,000 80,000 ⎞
Pr (W > D ) = Pr (W − D > 0 ) = Pr ⎜ >
⎝ 131,757 131,757 ⎟⎠
= 1 − Φ ( 0.607 )
= 0.27
Question #183
Key: D
x f(x) F(x)
0 0.050 0.050
1 0.149 0.199
Probe works provided that there have been fewer than two failures, so we want F(1) =
0.199.
= ( −t − 1) e −t
3
0
−3
= 1− 4e
= 0.80 is probability 2 have occurred
1 – 0.80 = 0.20
MCL-09-08 - 112 -
Question #184
Key: B
201.20
14.1121
(14.1121 − ( 0.72988)( 0.51081)(11.1454 )
+π (11.1454 − ( 0.68756 )( 0.39994 )( 7.2170 ) ) × ( 0.72988 )( 0.51081) = 201.20
where 15 E x was evaluated as 5 Ex × 10 Ex +5
π = 17.346
Question #185
Key: A
1V = ( 0 V + π ) (1 + i ) − (1000 + 1V − 1V ) qx
2V = ( 1V + π )(1 + i ) − ( 2000 + 2V − 2V ) qx +1 = 2000
( (π (1 + i ) − 1000q ) +π )(1 + i ) − 2000q = 2000
x x +1
MCL-09-08 - 113 -
Question #186
Key: A
σ Y = Var [Y ] = ( 500 )2
1
d2
( 2
)
Ax − Ax2 = 1791.96
S = Y1 + Y2 + ... + Y250
E ( S ) = 250 E [Y ] = 1,393,170
σ S = 250 × σ Y = 15.811388σ Y = 28,333
⎡ S − 1,393,170 F − 1,393,170 ⎤
0.90 = Pr ( S ≤ F ) = Pr ⎢ ≤
⎣ 28,333 28,333 ⎥⎦
⎡ F − 1,393,170 ⎤
≈ Pr ⎢ N ( 0,1) ≤
⎣ 28,333 ⎥⎦
0.90 = Pr ( N ( 0,1) ≤ 1.28 )
F = 1,393,170 + 1.28 ( 28,333)
=1.43 million
Question #187
Key: A
q41 1 bg
q ′ b1g = 1 − p′ b1g = 1 − e p bτ g j
bg
q41 τ
41 41 41
q41( )
1
(τ ) 750 65
p41 = (τ )
=
885 q41 135
65
′ (1) = 1 − ⎛⎜
750 ⎞ 135
q41 ⎟ = 0.0766
⎝ 885 ⎠
MCL-09-08 - 114 -
Question #188
Key: D
α
⎛ x⎞
s ( x ) = ⎜1 − ⎟
⎝ ω⎠
α
log ( s ( x ) ) =
d
μ ( x) =
dx ω−x
α
ω −x ⎛ t ⎞ ω−x
ex = ∫
o
⎜1 − ⎟ dt =
0 ⎝ ω −x⎠ α +1
o 1 ω ω
e0new = × old = new ⇒ α new = 2α old + 1
2 α +1 α +1
2α + 1 9 α
old old
μ (0new ) = = × ⇒ α old = 4
ω 4 ω
Question #189
Key: C
2
⎛1⎞
Var [T ] = E ⎡⎣T ⎤⎦ − ( E [T ])
2 2 1
2
= 2 − ⎜ ⎟ = 2 = 100
μ ⎝μ⎠ μ
μ = 0.1
∞
E ⎡⎣ min (T ,10 ) ⎤⎦ = ∫ t ( 0.1)e −.1t dt + ∫ 10 ( 0.1)e−.1t dt
10
0 10
−.1t −.1t 10 ∞
= −te − 10e − 10e−.1t
0 10
−1 −1 −1
= −10e − 10e + 10 + 10e
= 10 (1 − e −1 ) = 6.3
Question #190
MCL-09-08 - 115 -
Key: A
4669.95 (11.35 ) = 51, 481.97 + ( 0.08 )( 4669.95 ) + ( 0.02 )(11.35 )( 4669.95 ) + ( ( x − 5 ) + 5a&&x )
1 − Ax 1 − 0.5148197
a&&x = = = 16.66
d 0.02913
Question #191
Key: D
Pr (T ( x ) < T ( y ) ) = ∫
40 y 50 40
y = 0 ∫x = 0
0.0005dxdy + ∫
y = 40 ∫x = 0
0.0005dxdy
40 y 50 40
=∫ 0.0005 x dy + ∫ 0.0005 x dy
y =0 0 y = 40 0
40 50
= ∫ 0.0005 ydy + ∫ 0.02 dy
0 y = 40
0.0005 y 2 40 50
= + 0.02 y
2 0 40
MCL-09-08 - 116 -
Pr (T ( x ) < T ( y ) ) = 0.4 × 0 + 0.6 × 0.6 = 0.36
where the first 0.4 is the probability that T ( x ) = T ( y ) and the first 0.6 is the probability
that T ( x ) ≠ T ( y ) .
Question #192
Key: B
1
The conditional expected value of the annuity, given μ , is .
0.01 + μ
The unconditional expected value is
0.02 1 ⎛ 0.01 + 0.02 ⎞
ax = 100∫ d μ = 100 ln ⎜ ⎟ = 40.5
0.01 0.01 + μ ⎝ 0.01 + 0.01 ⎠
100 is the constant density of μ on the internal [ 0.01,0.02] . If the density were not
constant, it would have to go inside the integral.
Question #193
Key: E
o ω−x
Recall ex =
2
o o o o
ex:x = ex + ex − ex:x
ω−x ⎛ t ⎞⎛ t ⎞
ex:x = ∫
o
⎜1 − ⎟ ⎜1 − ⎟ dt
0 ⎝ ω − x ⎠⎝ ω − y ⎠
2 (ω − 2a ) 2 (ω − 3a )
(i) = 3× ⇒ 2ω = 7a
3 3
2 2 (ω − 3a )
(ii) (ω − a ) = k ×
3 3
3.5a − a = k ( 3.5a − 3a )
MCL-09-08 - 117 -
k =5
Question #194
Key: B
μ ⎛ 0.10 ⎞
Upon the first death, the survivor receives 10,000 = 10,000 ⎜ ⎟ = 7143
μ +δ ⎝ 0.10 + 0.04 ⎠
The actuarial present value of the insurance of 7143 is
μ xy ⎛ 0.12 ⎞
7,143 = ( 7,143) ⎜ ⎟ = 5357
μ xy + δ ⎝ 0.12 + 0.04 ⎠
If the force of mortality were not constant during each insurance period, integrals would
be required to express the actuarial present value.
Question #195
Key: E
2 p0:0 − 4 p0:0
Prob(second loses in round 3 or 4 second loses after round 2) =
2 p0:0
0.218
= = 0.25
0.87
Question #196
Key: E
MCL-09-08 - 118 -
If (40) dies before 70, he receives one payment of 10, and Y = 10. Under DeMoivre, the
probability of this is (70 – 40)/(110 – 40) = 3/7
( )
E Y 2 = ( 3/ 7 ) × 102 + ( 3/ 7 ) × 16.16637 2 + (1/ 7 ) × 19.018192 = 206.53515
( )
Var (Y ) = E Y 2 − ⎡⎣ E (Y ) ⎤⎦ = 12.46
2
Since everyone receives the first payment of 10, you could have ignored it in the
calculation.
Question #197
Key: C
( )
2
E ( Z ) = ∑ v k +1bk +1 k px qx+ k
k =0
( ) = ∑ (v )
2 2
2 k +1
E Z bk +1 k px qx + k
k =0
= 11,773
( )
Var [ Z ] = E Z 2 − E ( Z )
2
= 11,773 − 36.82
= 10, 419
MCL-09-08 - 119 -
Question #198
Key: A
P = 1000 P40
20 (1 + i ) − 3.385 = 17
20.385
1+ i = = 1.01925
20
1000 25V40 =
( 272 + 26.15 )(1.01925 ) − ( 0.025)(1000 )
1 − 0.025
= 286
MCL-09-08 - 120 -
Question #200
Key: A
1.2
1 1
0.8
0.6
0.5
0.4 0.4
0.2
0 0
0 10 20 30 40 50 60 70 80 90 100
s ( 90 ) 0.16 32
55 q35 = 1− = 1− = = 0.6667
s ( 35 ) 0.48 48
s ( 35 ) − s ( 90 ) 0.48 − 0.16 32
20 55 q15 = = = = 0.4571
s (15 ) 0.70 70
20 55 q15 0.4571
= = 0.6856
55 q35 0.6667
Alternatively,
MCL-09-08 - 121 -
Question #201
Key: A
Question #202
Key: B
lx( ) d x( ) d x( )
x τ 1 2
40 2000 20 60
41 1920 30 50
42 1840 40
Let premium = P
⎛ 2000 1920 1840 2 ⎞
APV premiums = ⎜ + v+ v ⎟ P = 2.749 P
⎝ 2000 2000 2000 ⎠
⎛ 20 30 2 40 3 ⎞
APV benefits = 1000 ⎜ v+ v + v ⎟ = 40.41
⎝ 2000 2000 2000 ⎠
40.41
P= = 14.7
2.749
MCL-09-08 - 122 -
Question #203
Key: A
10 ∞
a30 = ∫ e−0.08t e −0.05dt + 10 Ex ∫ e−0.08t e−0.08t dt
0 0
10 −0.13t −1.3 ∞ −0.16
=∫ e dt + e ∫0 e dt
0
−e −0.13t 10 −e −0.16t
( )
∞
+ e −1.3
0.13 0 0.16 0
−1.3
−e 1.3
1 e
= + +
0.13 0.13 0.16
= 7.2992
∞
A30 = ∫ e −0.08t e −0.05t ( 0.05 ) dt + e−1.3 ∫ e−0.16t ( 0.08 ) dt
10
0 0
⎛ 1 e ⎞ −1.3
e −1.3
= 0.05 ⎜ − ⎟ + ( 0.08 )
⎝ 0.13 0.13 ⎠ 0.16
= 0.41606
= P ( A30 ) =
A30 0.41606
= = 0.057
a30 7.29923
1 1
a40 = =
0.08 + 0.08 0.16
A40 = 1 − δ a40
= 1 − ( 0.08 / 0.16 ) = 0.5
Question #204
Key: C
Let T be the future lifetime of Pat, and [T] denote the greatest integer in T. ([T] is the
same as K, the curtate future lifetime).
MCL-09-08 - 123 -
Question #205
Key: B
( )
E X 2 = 0.8 ×12 + 0.15 × 52 + 0.05 × 102 = 9.55
(
= ( 22 )( 5.3475 ) + ( 22 ) 2.052 )
= 210.1
Question #206
Key: A
MCL-09-08 - 124 -
Question #207
Key: D
80 ⎛ x2 ⎞
o ∫30 s ( x ) dx =
80
∫30 ⎜⎝ 1 − 10,000 ⎟⎠ dx
e30:50 =
s ( 30 ) ⎛ 30 ⎞
2
1− ⎜ ⎟
⎝ 100 ⎠
⎛ x3 ⎞ 80
⎜ x − ⎟
⎝ 30,000 ⎠ 30
=
0.91
33.833
=
0.91
= 37.18
Question #208
Key: B
MCL-09-08 - 125 -
Question #209
Key: E
Let Portfolio be the present value random variable for the aggregate payments.
Let Y65 = present value random variable for an annuity due of one on one life age 65.
Thus E (Y65 ) = a&&65
Let Y75 = present value random variable for an annuity due of one on one life age 75.
Thus E (Y75 ) = a&&75
⎡⎛ X − E ( Portfolio ) ⎞ ⎤
Pr ⎢⎜ ⎟ ≤ 1.645⎥ = 0.95 ⇒ X = E ( Portfolio ) + 1.645 Var [ Portfolio ]
⎢⎜⎝ Var ( Portfolio ) ⎟⎠ ⎥
⎣ ⎦
= 1206.20 + 1.645 ( 54.826 )
= 1296.39
Question #210
Key: C
∞ 1
a = ∫ e −δ t × e− μt dt =
0 δ +μ
1 1
∫ 0.5 δ + μ d μ = 100,000 × ⎡⎣ln (δ + 1) − ln (δ + 0.5)⎤⎦
1
APV = 50,000 ×
0.5
⎛ 0.045 + 1 ⎞
= 100,000 × ln ⎜ ⎟
⎝ 0.045 + 0.5 ⎠
= 65,099
MCL-09-08 - 126 -
Question #211
Key: E
The process described, where a key feature is the exponential time between events, is
a
Poisson process with λ = 1 5 per minute.
The number of claims in any interval of length n minutes has a Poisson distribution with
mean
λn = n / 5 .
Question #212
Key: D
The payouts in any time period of length t have a Poisson distribution with parameter
5t .
The payouts can be grouped by size. For each i, the number of payouts of size i is a
Poisson random variable with mean 5t / 2i , and these random variables are
independent.
Since they are independent Poisson random variables, the sum of the payouts of size 1,
⎛ 5t 5t 5t ⎞ 35t
2 or 3 is a Poisson random variable with mean ⎜ + + ⎟ =
⎝2 4 8⎠ 8
35 1
For t = 1/ 3 hour, the mean is × = 1.4583
8 3
f (0) = e −1.4583 = 0.23
MCL-09-08 - 127 -
Question #213
Key: D
How long was the expected wait during first 45 minutes? In that interval, wait is
exponential with
θ = 30, so
1 − 30x ∞ 1 − 30x
E ⎡⎣ min ( X , 45 ) ⎤⎦ = ∫ x e dx + ∫ 45 e dx
45
0 30 45 30
⎛ −
45
⎞
= 30 ⎜ 1 − e 30 ⎟ = 23.31
⎝ ⎠
Expected trains =
45
= 1.5 , so f ( 0 trains ) =
e −1.5
(1.5)0 = 0.223
30 0!
o
Note that this problem is equivalent to calculate e x
o o o
and solution is e x = e x:45 + 45 p x e x + 45
Question #214
Key: A
MCL-09-08 - 128 -
10,00015V45:20 = 10,000 A60:5 − 297.88 a&&60:5
= 10,000 × 0.7543 − 297.88 × 4.3407
= 6250
1
where A60:5 = 0.36913 − 0.68756 ( 0.4398 ) = 0.06674
A60:51 = 0.68756
A60:5 = 0.06674 + 0.68756 = 0.7543
a&&60:5 = 11.1454 − 0.68756 × 9.8969 = 4.3407
1
After the change, expected prospective loss = 10,000 A60:5 + (Reduced Amount) A60:51
Since the expected prospective loss is the same
6250 = (10,000 )( 0.06674 ) + ( Reduced Amount )( 0.68756 )
Reduced Amount = 8119
Question #215
Key: D
Question #216
Key: A
MCL-09-08 - 129 -
APV of Initial expense = 50
3
APV of Maintenance expense = = 31.91
0.094
100
APV of future premiums = = 1063.83
0.094
APV of 0 Le = 89.36 + 446.81 + 50 + 31.91 − 1063.83
= −445.75
Question #217
Key: C
Compute the probabilities of moving from healthy to NH. There are three paths.
Question #218
Key: C
⎛ 0 0.108 0.892 ⎞
⎜ ⎟
Q0 × Q1 × Q2 = ⎜ 0 0 1 ⎟
⎜0 1 ⎟⎠
⎝ 0
( )
APV ( Benefits ) = 4 0.3v + 0.18v 2 + 0.108v3 = 2.01
In the formula for APV (Premiums), states 0 and 1 are combined. For example, the
0.54 v 2 term represents a 0.36 probability of being in state 0 plus a 0.18 probability of
being in
state 1.
MCL-09-08 - 130 -
Alternatively, the same effort here but often shorter when everyone is in the same initial
state:
This method just calculates the top row of the cumulative transition matrix. It gives the
same elements you use if you calculate the complete cumulative transition matrix, so
you finish the problem the same way as before.
Question #219
Key: E
Question #220
Key: C
MCL-09-08 - 131 -
Thus S
S
l20
= S+t =
( 90 − t ) 2
t p20
l20 902
NS
l25 +t (85 − t )
t p25 = =
NS
NS
l25 85
85
e 20:25 = ∫
o
p20:25dt
0 t
=∫
85
pS NS
p25 dt =∫
( 90 − t ) ( 85 − t )
85
2
dt
0 t 20 t 0
( 90 )2 85
1
( 90 − t )2 ( 90 − t − 5) dt
85
=
688,500 ∫ 0
1 ⎡ 85 ( 90 − t )3 dt − 5 85 ( 90 − t )2 dt
688,500 ⎢⎣ ∫ 0 ∫0
=
85
1 ⎡ − ( 90 − t )4 5 ( 90 − t )3 ⎤
= ⎢ + ⎥
688,500 ⎢ 4 3 ⎥⎦ 0
⎣
1
= [ −156.25 + 208.33 + 16, 402,500 − 1, 215,000]
688,500
= 22.1
[There are other ways to evaluate the integral, leading to the same result].
Note: the solution above assumes the candidate will recognize that the smoker mortality
is modified DeMoivre and can proceed directly to the lx or s ( x ) form. The s ( x ) form is
x⎛ 2 ⎞
−∫ ⎜ x 2
0 ⎝ 110 −t ⎟⎠ 2ln (110−t ) ⎛ 110 − x ⎞
derived as s ( x ) = e dt = e 0 =⎜ ⎟
⎝ 110 ⎠
The lx form is equivalent.
Question #221
Key: B
MCL-09-08 - 132 -
= 1000 × A40:10
1
+ 2000 × 10 E30 × A50:10
1
MCL-09-08 - 133 -
Question #222
Key: A
1
A25:15
15V25 = P25 &&
s25:15 − (this is the retrospective reserve calculation)
15 E25
1
P25:15 = P25:15 − P25:151 = 0.05332 − 0.05107
= 0.00225
1
A25:15
=
a&&25:15
15 E25 1
0.05107 = P25:151 = =
a&&25:15 &&
s25:15
1
1
A25:15 A25:15 / a&&25:15 0.00225
= = = 0.04406
15 E25 15 E25 / a&&25:15 0.05107
0.01128
s25:15 =
P25 && = 0.22087
0.05107
25,00015V25 = 25,000 ( 0.22087 − 0.04406 ) = 25,000 ( 0.17681) = 4420
There are other ways of getting to the answer, for example writing
A: the retrospective reserve formula for 15V25 .
1
B: the retrospective reserve formula for 15V25:15 , which = 0
Subtract B from A to get
(P25 − P25:15
1
)
s25:15 = 15V25
&&
Question #223
Key: C
ILT:
We have p70 = 6,396,609 / 6,616,155 = 0.96682
2 p70 = 6,164,663/ 6,616,155 = 0.93176
DM: Since l70 and 2 p70 for the DM model equal the ILT, therefore l72 for the DM
model
MCL-09-08 - 134 -
also equals the ILT. For DM we have l70 − l71 = l71 − l72 ⇒ l71(
DM )
= 6,390, 409
Note also, since e70:2 = p70 + 2 p70 , and 2 p70 is the same for all three, you could just
order p70 .
Question #224
Key: D
( )τ
l60 = 1000
( )
= 1000 ( 0.99 )( 0.97 )( 0.90 ) = 864.27
τ
l61
( ) τ
d 60 = 1000 − 864.27 = 135.73
( ) − ln ( 0.9 ) 0.1054
= 135.73 × = = 98.05
3
d 60
− ln ⎡⎣( 0.99 )( 0.97 )( 0.9 ) ⎤⎦ 0.1459
( )
= 864.27 ( 0.987 )( 0.95 )( 0.80 ) = 648.31
τ
l62
( ) τ
d 61 = 864.27 − 648.31 = 215.96
( ) − ln ( 0.80 ) 0.2231
= 215.96 × = = 167.58
3
d 61
− ln ⎡⎣( 0.987 )( 0.95 )( 0.80 ) ⎤⎦ 0.2875
( ) ( )
+ d 61 = 98.05 + 167.58 = 265.63
3 3
So d60
Question #225
Key: B
t p40 = e −0.05t
t p50 = ( 60 − t ) / 60
μ50+t = 1/ ( 60 − t )
MCL-09-08 - 135 -
10
−0.05t
10 10 e 1 e−0.05t
∫0 t p40:50 μ50+t dt = ∫
0 60
dt = −
60 ( 0.05 ) 0
=
20
60
( )
1 − e −0.5 = 0.13115
Question #226
Key: A
3 5
Actual payment (in millions) = + 2 = 6.860
1.1 1.1
0.30
q3 = 1 − = 0.5
0.60
0.30 − 0.10
1 q3 = = 0.333
0.60
⎛ 0.5 0.333 ⎞
Expected payment = 10 ⎜ + 2 ⎟
= 7.298
⎝ 1.1 1.1 ⎠
6.860
Ratio = 94%
7.298
Question #227
Key: E
At duration 1
K ( x) 1L Prob
1 v− Px1:2 qx +1
>1 0 − Px1:2 1 − qx +1
So Var ( 1 L ) = v 2 qx +1 (1 − qx +1 ) = 0.1296
Alternatively, that same formula for Var arises from Hattendorf, since
MCL-09-08 - 136 -
2V = 0 and Var ( 2 L ) = 0
Alternatively, evaluate Px1:2 = 0.1303
1L = 0.9 − 0.1303 = 0.7697 if K ( x ) = 1
1L = 0 − 0.1303 = −0.1303 if K ( X ) > 1
E ( 1 L ) = ( 0.2 )( 0.7697 ) + ( 0.8 )( −0.1303) = 0.0497
( )
E 1 L2 = ( 0.2 )( 0.7697 ) + ( 0.8 )( −0.1303) = 0.1320
2 2
Question #228
Key: C
δ Ax ( 0.1) ( 13 )
P ( Ax ) =
Ax Ax
= = = = 0.05
ax ⎛ 1 − Ax ⎞ 1 − Ax (1 − 13 )
⎜ δ ⎟
⎝ ⎠
⎛ P ( Ax ) ⎞
2
Var ( L ) = ⎜ 1 +
⎜ δ
⎟
⎟ ( 2
Ax − Ax2 )
⎝ ⎠
2
1 ⎛ 0.05 ⎞
= ⎜1 + ⎟
5 ⎝ 0.10 ⎠
( 2
Ax − Ax2 )
( 2
)
Ax − Ax2 = 0.08888
⎛ π⎞
2
Var [ L′] = ⎜1 + ⎟
⎝ δ⎠
( 2
Ax − Ax2 )
π ⎞
2
16 ⎛
= ⎜1 + ⎟ ( 0.08888 )
45 ⎝ 0.1 ⎠
π ⎞
2
⎛
⎜1 + ⎟ =4
⎝ 0.1 ⎠
π = 0.1
Question #229
Key: E
MCL-09-08 - 137 -
100 − 40
Pr {T ( 40 ) > 60} = 0.25 since p40 = = 0.25
120 − 40
60
{
∴ Pr aT
( 40 ) }
> a60 = 0.25
g = a60 = 19.00
Question 230
Key: B
⎛ 0.05 ⎞
A51:9 = 1 − da&&51:9 = 1 − ⎜ ⎟ ( 7.1) = 0.6619
⎝ 1.05 ⎠
10V = 499.09
Alternatively, you could have used recursion to calculate A50:10 from A51:9 , then a&&50:10
from A50:10 , and used the prospective reserve formula for 10V .
Question #231
Key: C
720.59 − 689.52
q80 = = 0.10
310.48
MCL-09-08 - 138 -
q[80] = 0.5q80 = 0.05
Question #232
Key: D
lx( ) d x( ) d x( )
τ 1 2
42 776 8 16
43 752 8 16
(τ ) (τ )
came from lx( +1) = lx( ) − d x( ) − d x( )
τ τ 1 2
l42 and l43
APV Benefits =
( )
2000 8v + 8v 2 + 1000 16v + 16v 2 ( ) = 76.40
776
⎛ 776 + 752v ⎞
APV Premiums = 34 ⎜ ⎟ = ( 34 )(1.92 ) = 65.28
⎝ 776 ⎠
Question #233
Key: B
px = 0.96 = 0.9798
px +1 = 0.99 = 0.995
MCL-09-08 - 139 -
0.96 ( 0.96 )( 0.99 )
a&&xx = 1 + vpxx + v 2 × 2 pxx = 1 + + = 2.7763
1.05 1.052
APV = 2000 a&&x + 2000 a&&x + 6000 a&&xx
= ( 4000 )( 2.8174 ) + ( 6000 )( 2.7763)
= 27,927
Notes: The solution assumes that the future lifetimes are identically distributed. The
precise description of the benefit would be a special 3-year temporary life annuity-due.
Question #234
Key: B
( )
1
= 0.2 ∫ 1 − 0.205t + 0.01t 2 dt
0
1
⎡ 0.205t 2 0.01t 3 ⎤
= 0.2 ⎢t − + ⎥
⎣ 2 3 ⎦0
⎡ 0.01 ⎤
= ( 0.2 ) ⎢1 − 0.1025 + = 0.1802
⎣ 3 ⎥⎦
Question #235
Key: B
a&&41 14.6864
1V40 = 1− = 1− = 0.00879
a&&40 14.8166
(1000 )(1)
1 CV40 = ( 0.00879 ) = 2.93
3
MCL-09-08 - 140 -
AS =
( G − 0.1G − (1.50 )(1) ) (1.06 ) − 1000q40
(d ) ( w)
− 1CV40 × q40
1 ( ) ( )
1 − q40 − q40
d w
=
( 0.9G − 1.50 )(1.06 ) − (1000 )( 0.00278) − ( 2.93)( 0.2 )
1 − 0.00278 − 0.2
= 1.197G − 6.22
AS =
( 1 AS + G − 0.1G − (1.50 )(1) ) (1.06 ) − 1000q41 − 2 CV40 × q41
(d ) ( w)
2 ( ) ( )
1 − q41 − q41
d w
=
(1.197G − 6.22 + G − 0.1G − 1.50 )(1.06 ) − (1000 )( 0.00298) − 2 CV40 × 0
1 − 0.00298 − 0
=
( 2.097G − 7.72 )(1.06 ) − 2.98
0.99702
= 2.229G − 11.20
2.229G − 11.20 = 24
G = 15.8
Question #236
Key: A
AS =
( 4 AS + G (1 − c4 ) − e4 ) (1 + i ) − 1000q x + 4 − 5 CV × q x + 4
(1) ( 2)
1 − qx(+)4 − qx(+ 4)
5 1 2
=
( 396.63 + 281.77 (1 − 0.05) − 7 ) (1 + i ) − 90 − 572.12 × 0.26
1 − 0.09 − 0.26
=
( 657.31)(1 + i ) − 90 − 148.75
0.65
= 694.50
MCL-09-08 - 141 -
( 657.31)(1 + i ) = 90 + 148.75 + ( 0.65)( 694.50 )
690.18
1+ i = = 1.05
657.31
i = 0.05
Question #237
Key: C
Excluding per policy expenses, policy fee, and expenses associated with policy fee.
APV (actuarial present value) of benefits = 25,000 Ax:20 = ( 25,000 )( 0.4058 ) = 10,145
APV of expenses = ( 0.25 − 0.05 ) G + 0.05G a&&x:20 + ⎡⎣( 2.00 − 0.50 ) + 0.50 a&&x:20 ⎤⎦ ( 25,000 /1000 )
= ⎡⎣0.20 + ( 0.05 )(12.522 ) ⎤⎦ G + ⎡⎣1.50 + ( 0.50 )(12.522 ) ⎤⎦ 25
= 0.8261G + 194.025
Equivalence principle:
Now consider only year 1 per policy expenses, the year one policy fee (call it F1 ), and
expenses associated with F1 .
APV benefits = 0
APV premium = F1
Equivalence principle
F1 = 15 + 0.25 F1
15
F1 = = 20
0.75
MCL-09-08 - 142 -
Total year one premium = G + F1
= 884+20
= 904
Question #238
Key: B
Now consider renewal per policy expenses, renewal policy fees (here called FR ) and expenses
associated with FR .
APV benefits = 0
Equivalence principle:
Since all the renewal expenses are level, you could reason that at the start of every renewal year,
3
you collect FR and pay expenses of 3 + 0.05 FR , thus FR = = 3.16
1 − 0.05
Such reasoning is valid, but only in the case the policy fee and all expenses in the policy fee
calculation are level.
MCL-09-08 - 143 -
Question #239
Key: B
APV of expenses = ( 0.25 − 0.05 ) P + 0.05 P a&&x:20 + ⎡⎣( 2.00 − 0.50 ) + 0.50 a&&x:20 ⎤⎦ ( 25000 /1000 )
+ (15 − 3) + 3 a&&x:20
= 0.20 P + ( 0.05 P )(12.522 ) + (1.50 + ( 0.50 )(12.522 ) ) ( 25 ) + 12 + ( 3)(12.522 )
= 0.8261 P + 243.59
Equivalence principle:
Question #240
Key: D
(The above step is getting an a&&40:10 term since all the answer choices have one. It could
equally well have been done later on).
Equivalence principle:
MCL-09-08 - 144 -
G a&&40:10 = 1000 A40:20 + 0.2G + 10 + 0.09G a&&40:10 + 5 a40:19
( )
G a&&40:10 − 0.2 − 0.09 a&&40:10 = 1000 A40:20 + 10 + 5 a40:19
1000 A40:20 + 10 + 5 a40:19
G=
0.91a&&40:10 − 0.2
Question #241
Key: C
Equivalence principle:
10.8 G = 58, 462 + 0.892 G + 690
59,152
G= = 5970.13
9.908
Equivalence principle:
MCL-09-08 - 145 -
10.8 F = 395 + 0.892 F
395
F=
10.8 − 0.892
= 39.87
Total premium = G + F
= 5970.13 + 39.87
= 6010
Note: Because both the total expense-loaded premium and the policy fee are level, it was not
necessary to calculate the policy fee separately. Let P be the combined expense-loaded
premium.
where 0.892P + 690 is comparable to the expenses in G above, now including all
percent of premium expense.
Equivalence principle:
10.8 P = 58, 462 + 0.892 P + 1085
59547
P=
10.8 − 0.892
= 6010
This (not calculating the policy fee separately, even though there is one) only works with
level premiums and level policy fees.
Question #242
Key: C
(d ) ( w)
AS =
( 10 AS + G − c10 G − e10 ) (1 + i ) − 10,000q x +10 − 11 CV q x +10
1 − qx(+10) − qx(+10)
11 d w
=
(1600 + 200 − ( 0.04 )( 200 ) − 70 ) (1.05) − (10,000 )( 0.02 ) − (1700 )( 0.18)
1 − 0.02 − 0.18
MCL-09-08 - 146 -
1302.1
=
0.8
= 1627.63
Question #243
Key: E
At duration 9, there is only one future year’s expenses and due future premium, both
payable at the start of year 10.
G = 1000 P35:10 + e
= 76.87 + 15.95
= 92.82
MCL-09-08 - 147 -
Question #244
Key: C
=
( 25.22 + 30 − ( 0.02 )( 30 ) − 5) (1.05) − 1000 ( 0.013) − 75 ( 0.05)
4 AS
1 − 0.013 − 0.05
35.351
=
0.937
= 37.73
=
( 48.5)(1.05) − 13 − 4.5
0.927
33.425
=
0.927
= 36.06
MCL-09-08 - 148 -
Question #245
Key: E
(The step above is motivated by the form of the answer. You could equally well put it that form
later).
Equivalence principle:
Ga&&30:5 = 100010 20 A30 + 0.15G + 0.15G a&&30:5 + 20 + 10 a30:9
G=
(1000 10 20 A30 + 20 + 10 a 30:9 )
(1 − 0.15) a&&30:5 − 0.15
=
(1000 10 20 A30 + 20 + 10 a30:9 )
0.85 a&&30:5 − 0.15
MCL-09-08 - 149 -
Question #246
Key: E
APV of premium = G
APV of expenses = 0.02G + 0.03G + 15 + ( 0.9 )( 2 ) v
16.8
= 0.05G +
1.04
= 0.05G + 16.15
Question #247
Key: C
Settlement expenses are 20 + (1)(10 ) = 30 , payable at the same time the death benefit is
paid.
⎛ 30 ⎞
So APV of settlement expenses = ⎜ ⎟ APV of benefits
⎝ 10,000 ⎠
MLC-09-08 - 150 -
= ( 0.003)( 3499 )
= 10.50
Equivalence principle:
Question #248
Key: D
APV of expenses = ( 0.35 )( 495 ) + 20 + (15 )(10 ) + ⎡⎣( 0.05 )( 495 ) + 5 + (1.50 )(10 ) ⎤⎦ a50:19
= 343.25 + ( 44.75 )(11.2918 − 1)
= 803.81
MLC-09-08 - 151 -