Actuary Paper 1

SOCIETY OF ACTUARIES
EXAM MLC ACTUARIAL MODELS
EXAM MLC SAMPLE SOLUTIONS
Copyright 2008 by the Society of Actuaries
Some of the questions in this study note are taken from past SOA examinations.
MLC-09-08 PRINTED IN U.S.A.

Question #1
Key: E
2 q30:34 = 2 p30:34 − 3 p30:34
2 p30 = ( 0.9 )( 0.8 ) = 0.72

2 p34 = ( 0.5 )( 0.4 ) = 0.20
2 p30:34 = ( 0.72 )( 0.20 ) = 0.144
2 p30:34 = 0.72 + 0.20 − 0.144 = 0.776
3 p30 = ( 0.72 )( 0.7 ) = 0.504
3 p34 = ( 0.20 )( 0.3) = 0.06
3 p30:34 = ( 0.504 )( 0.06 ) = 0.03024
3 p30:34 = 0.504 + 0.06 − 0.03024
= 0.53376
2 q30:34 = 0.776 − 0.53376

= 0.24224
Alternatively,
2 q30:34 = 2 q30 + 2 q34 − 2 q30:34
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,
2 q30:34 = 3 q30 × 3 q34 − 2 q30 × 2 q34

= (1 − 3 p30 )(1 − 3 p34 ) − (1 − 2 p30 )(1 − 2 p34 )
= (1 − 0.504 )(1 − 0.06 ) − (1 − 0.72 )(1 − 0.20 )
= 0.24224
(see first solution for 2 p30 , 2 p34 , 3 p30 , 3 p34 )
MLC-09-08 -1-
Question #2
Key: E
1000 Ax = 1000 ⎡ Ax1:10 + 10 Ax ⎤

⎣ ⎦
= 1000 ⎡ ∫ e −0.04t e −0.06t (0.06)dt + e−0.4e−0.6 ∫ e−0.05t e−0.07t (0.07)dt ⎤
10 ∞
⎢⎣ 0 0 ⎥⎦
= 1000 ⎡ 0.06∫ e −0.1t dt + e −1 (0.07) ∫ e−0.12t dt ⎤

10 ∞
⎣⎢ 0 0 ⎦⎥
⎡ −0.10 t 10 −0.12 t ∞ ⎤
= 1000 ⎢ 0.06 ⎡ − e0.10 ⎤ + e −1 (0.07) ⎡ − e0.12 ⎤ ⎥
⎣ ⎣ ⎦0 ⎣ ⎦0 ⎦
= 1000 ⎡ 0.06 ⎡1 − e −1 ⎤ + 0.07 −1 ⎡ −1.2 ⎤ ⎤

⎦ 0.12 e ⎣1 − e ⎦ ⎦
⎣ 0.10 ⎣
= 1000 ( 0.37927 + 0.21460 ) = 593.87
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
With those relationships, the solution becomes

1000 Ax = 1000 ⎡⎣ Ax1:10 + 10 Ex Ax +10 ⎤⎦
⎡⎛
= 1000 ⎢⎜
0.06 ⎞
⎟ 1− e
⎣⎝ 0.06 + 0.04 ⎠
(
−( 0.06+ 0.04 )10
+e ( )
− 0.06+ 0.04 )10 ⎛
⎜
0.07 ⎞ ⎤
⎟⎥
⎝ 0.07 + 0.05 ⎠ ⎦
( )
= 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
Let ns = nonsmoker and s = smoker
q xb + kg pxb + kg q xb +gk px( +)k

ns ns s s
k=
0 .05 0.95 0.10 0.90
1 .10 0.90 0.20 0.80
2 .15 0.85 0.30 0.70
A x:2( ) = v q x( ) + px( ) qx( +1)

1 ns ns ns ns
v2
1 1
( 0.05) 0.95 × 0.10 = 0.1403
1.02 1.022
A x:2( ) qx( ) + v2 px( ) q x( +)1

1 s s s s
v
1 1
( 0.10 ) + 0.90 × 0.20 = 0.2710
1.02 (1.02 )2
A1x:2 = weighted average = (0.75)(0.1403) + (0.25)(0.2710)

= 0.1730
Question #5
Key: B
μ x(τ ) = μ x(1) + μ x( 2 ) + μ x( 3) = 0.0001045

px( ) = e −0.0001045t
τ
t
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
= 27.5 (16.6377 ) = 457.54
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
While this solution above recognized that π = 1000 P40:20

1
and was structured to take
advantage of that, it wasn’t necessary, nor would it save much time. Instead, you could
do:
APV Benefits = 1000 A40 = 161.32

∞
APV Premiums =π a&&40:20 + 20 E40 ∑ k E60 1000vq60+ k
k =0
= π a&&40:20 + 20 E40 1000 A60
= π ⎡⎣14.8166 − ( 0.27414 )(11.1454 ) ⎤⎦ + ( 0.27414 )( 369.13)
= 11.7612π + 101.19
11.7612π + 101.19 = 161.32
161.32 − 101.19
π= = 5.11
11.7612
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
Note that the approximation a&&x( ) ≅ a&&x −

m ( m − 1) works well (is closest to the exact answer,
2m
1
only off by less than 0.01). Since m = 2, this estimate becomes 8.8457 − = 8.5957
4
Question #8
Key: C
The following steps would do in this multiple-choice context:
1. From the answer choices, this is a recursion for an insurance or pure

endowment.
2. Only C and E would satisfy u(70) = 1.0.
1+ i
3. It is not E. The recursion for a pure endowment is simpler: u ( k ) = u ( k − 1)
pk −1
4. Thus, it must be C.
More rigorously, transform the recursion to its backward equivalent,

u ( k − 1) in terms of u ( k ) :
⎛ 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
Condition (iii) forces it to be answer choice C
u ( k − 1) = Ax fails at x = 69 since it is not true that

(
A69 = vq69 + vp69 (1) )
u ( k − 1) = A1x: y − x fails at x = 69 since it is not true that
1
A69:1 (
= vq69 + vp69 (1) )
u ( k − 1) = Ax: y − x is OK at x = 69 since
(
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
and a&&40 = (1 − A40 ) / d = (1 − 0.35076 ) / 0.05 = 12.9848

1000 A40 350.76
so P40 = = = 27.013
a&&40 12.9848
( )
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
Let NS denote non-smokers and S denote smokers.
The shortest solution is based on the conditional variance formula
(
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
Alternatively, here is a solution based on

( )
Var(Y ) = E Y 2 − ⎡⎣ E (Y ) ⎤⎦ , a formula for the variance of any random variable. This
2
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
Var ⎡⎣ aT ⎤⎦ = 53.557 − ( 6.67 ) = 9.1

2
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
= which is Bowers formula 5.2.9

δ2
( )
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 ⎤⎦
= E ⎡⎣ v 2T NS⎤⎦ × Prob ( NS) + E ⎡⎣ v 2T S⎤⎦ × Prob ( S )
( ) ( )
= ⎡⎢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
+ ⎣⎡( 0.01)( 8.818 ) + 0.4442 ⎦⎤ × 0.30

= ( 0.16683)( 0.70 ) + ( 0.28532 )( 0.30 )
= 0.20238
Ax = E ⎡⎣ vT ⎤⎦
= E ⎡⎣ vT NS⎤⎦ × Prob ( NS) + E ⎡⎣ vT S⎤⎦ × Prob ( S)

= ( 0.286 )( 0.70 ) + ( 0.444 )( 0.30 )
= 0.3334
Ax − ( Ax )
2 2
( )
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.
Preliminary calculations from the Illustrative Life Table:
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
For x ≤ 50, FT ( x ) = ∫ 3.813 f1 ( t ) dt = 3.813F1 ( x )

x
0
⎛ 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
Let NS denote non-smokers, S denote smokers.
Prob (T < t ) = Prob (T < t NS) × Prob ( NS ) + P rob (T < t S) × P rob ( S )
( ) (
= 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 )
0.25 = 0.3e−2t + 0.7e −0.1t = 0.3 e−0.1t

ˆ ˆ
( ˆ 2
) + 0.7e−0.1t
ˆ
Substitute: let x = e −0.1t

ˆ
0.3 x 2 + 0.7 x − 0.25 = 0
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
Let N = number of sales on that day

S = aggregate prospective loss at issue on those sales
K = curtate future lifetime
N~Poisson (0.2∗50) ⇒ E [ N ] = Var [ N ] = 10
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]
Var [ S ] = Var [ 0 L ] ⋅ E [ N ] + ( E [ 0 L ]) ⋅ Var [ N ]

2
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
Std Dev (S) = 12,416

⎛ S + 5504.5 5504.5 ⎞
Pr ( S < 0 ) = Pr ⎜ <
⎝ 12,416 12, 416 ⎟⎠
= Pr ( Z < 0.443)
= 0.67
With the answer choices, it was sufficient to recognize that:

0.6554 = Φ ( 0.4 ) < Φ ( 0.443) < Φ ( 0.5 ) = 0.6915
By interpolation, Φ ( 0.443) ≈ ( 0.43) Φ ( 0.5 ) + ( 0.57 ) Φ ( 0.4 )
= ( 0.43)( 0.6915 ) + ( 0.57 )( 0.6554 )
= 0.6709
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.
1000 P40 = 10.89 as above

1000 A40 + 4000 20 E40 A60:5
1
= 1000 P40 + 5000 P40 × 20 E40 a&&60:5 + π 20 E40 × 5 E60 a&&65
1
where A60:5 = A60 − 5 E60 A65 = 0.06674
a&&40:20 = a&&40 − 20 E40 a&&60 = 11.7612
a&&60:5 = a&&60 − 5 E60 a&&65 = 4.3407
1000 ( 0.16132 ) + ( 4000 )( 0.27414 )( 0.06674 ) =
= (10.89 )(11.7612 ) + ( 5 )(10.89 )( 0.27414 )( 4.3407 ) + π ( 0.27414 )( 0.68756 )( 9.8969 )
161.32 + 73.18 − 128.08 − 64.79

π=
1.86544
= 22.32
Having struggled to solve for π , you could calculate 20 V prospectively then (as
above)
calculate 21V recursively.
20V = 4000 A60:5

1
+ 1000 A60 − 5000 P40 a&&60:5 − π 5 E60 a&&65
= ( 4000 )( 0.06674 ) + 369.13 − ( 5000 )( 0.01089 )( 4.3407 ) − ( 22.32 )( 0.68756 )( 9.8969 )
= 247.86 (minor rounding difference from 1000 20V40 )
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
21V = ( 5000 )( 0.05779 ) + (1000 )( 0.73898 )( 0.43980 )

− ( 5 )(10.89 )( 3.5905 ) − 22.32 ( 0.73898 )( 9.8969 )
= 255
Finally. A moral victory. Under exam conditions since prospective benefit reserves
must equal retrospective benefit reserves, calculate whichever is simpler.
Question #17
Key: C
Var ( Z ) = 2 A41 − ( A41 )

2
A41 − A40 = 0.00822 = A41 − (vq40 + vp40 A41 )

= A41 − (0.0028 /1.05 + ( 0.9972 /1.05 ) A41 )
⇒ A41 = 0.21650
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
Var ( Z ) = 0.07193 − 0.216502

= 0.02544
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.
Big picture ideas:

1. We can express the present values of the perpetuity recursively.
2. Because the interest rates follow a Markov process, the present value (at time t )
of the future payments at time t depends only on the state you are in at time t ,
not how you got there.
3. Because the interest rates follow a Markov process, the present value of the
future payments at times t1 and t2 are equal if you are in the same state at times
t1 and t2 .
Method 1: Attack without considering the special characteristics of this transition matrix.
Let sk = state you are in at time k ( thus sk = 0, 1 or 2 )
Let Yk = present value, at time k , of the future payments.

Yk is a random variable because its value depends on the pattern of discount factors,
which are random. The expected value of Yk is not constant; it depends on what state
we are in at time k.
Recursively we can write
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.
Every time we are in state 0 we have

(
E ⎡⎣Yk sk = 0 ⎤⎦ = 0.95 × 1 + E ⎡⎣Yk +1 sk = 0 ⎤⎦ )
( {( )) (
= 0.95 × 1 + E ⎡⎣Yk +1 sk +1 = 0 ⎤⎦ × Pr ob s k+1 = 0 sk = 0] )
(
+ E ⎡⎣Yk +1 sk +1 = 1⎤⎦ ) × Pr ob ( s k +1 = 1 s = 0])
k
= ( 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.
Similarly, every time we are in state 2 we have

(
E ⎡⎣Yk sk = 2 ⎤⎦ = 0.93 × 1 + E ⎡⎣Yk +1 sk = 2 ⎤⎦ )
(
= 0.93 × 1 + E ⎡⎣Yk +1 sk +1 = 1⎤⎦ )
That last step follows because from the transition matrix if we are in state 2, we always
move to state 1 one period later.
Finally, every time we are in state 1 we have

(
E ⎡⎣Yk sk = 1⎤⎦ = 0.94 × 1 + E ⎡⎣Yk +1 sk = 1⎤⎦ )
( { })
= 0.94 × 1 + E ⎡⎣Yk +1 sk +1 = 0 ⎤⎦ × Pr ⎡⎣ sk +1 = 0 sk = 1⎤⎦ + E ⎡⎣Yk +1 sk +1 = 2 ⎤⎦ × Pr ⎡⎣ sk +1 = 2 sk = 1⎤⎦
( { })
= 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.)
= 1.6497 + 0.8037 E [Y ] + 0.1814 + 0.0874 E [Y ]

1.6497 + 0.1814
E [Y ] =
(1 − 0.8037 − 0.0874 )
= 16.82
Question #19
Key: E
The number of problems solved in 10 minutes is Poisson with mean 2.

If she solves exactly one, there is 1/3 probability that it is #3.
If she solves exactly two, there is a 2/3 probability that she solved #3.
If she solves #3 or more, she got #3.
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
= 0.8 2 qx( ) = 0.8 1 − 2 px( )

τ τ
( )
− ∫ μ x (t ) d t
2
(τ )
2 px = e
0
= 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
k min(k ,3) f(k) f ( k ) × ( min(k ,3) ) f ( k ) × ⎡⎣ min ( k ,3) ⎤⎦

2
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:
20V45 = ( 19V45 + P45 ) (1.03) − q64 (1 − 20V45 )
Recursion formula for Michel’s insurance
20V45 = ( 19V45 + P45 + 0.01) (1.03) − ( q64 + c ) (1 − 20V45 )
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.
Subtract the second equation from the first to get:
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
K is the curtate future lifetime for one insured.

L is the loss random variable for one insurance.
LAGG is the aggregate loss random variables for the individual insurances.
σ AGG is the standard deviation of LAGG .
M is the number of policies.
⎛ ⎞ 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
⇒ minimum number needed = 27
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
μ xy ( t ) = μ x ( t ) + μ y ( t ) = 0.08 + 0.04 = 0.12

Ax = μ x ( t ) / ( μ x ( t ) + δ ) = 0.5714
( )
Ay = μ y ( t ) / μ y ( t ) + δ = 0.4
( )
Axy = μ xy ( t ) / μ xy ( t ) + δ = 0.6667
( )
axy = 1/ μ xy ( t ) + δ = 5.556
Axy = Ax + Ay − Axy = 0.5714 + 0.4 − 0.6667 = 0.3047

Premium = 0.304762/5.556 = 0.0549
MLC-09-08 - 22 -
Question #27
Key: B
P40 = A40 / a&&40 = 0.16132 /14.8166 = 0.0108878
P42 = A42 / a&&42 = 0.17636 /14.5510 = 0.0121201
a45 = a&&45 − 1 = 13.1121
E ⎡⎣ 3 L K ( 42 ) ≥ 3⎤⎦ = 1000 A45 − 1000 P40 − 1000 P42 a45

= 201.20 − 10.89 − (12.12 )(13.1121)
= 31.39
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
E ⎡⎣ min (T ,40 ) ⎤⎦ = 40 − 0.005 ( 40 ) = 32

2
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
Step 1 Determine px from Kevin’s work:

608 + 350vpx = 1000vqx + 1000v 2 px ( px +1 + qx +1 )
608 + 350 ( 0.95 ) px = 1000 ( 0.95 ) (1 − px ) + 1000 ( 0.9025 ) px (1)
608 + 332.5 px = 950 (1 − px ) + 902.5 px
px = 342 / 380 = 0.9
Step 2 Calculate 1000 Px:2 , as Kira did:

608 + 350 ( 0.95 )( 0.9 ) = 1000 Px:2 ⎡⎣1 + ( 0.95 )( 0.9 ) ⎤⎦
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
Rearranging 8.3.10 from Bowers, we get =

( hV + π h ) (1 + i ) − bh+1qx+ h
h +1V
px + h
=
( 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
px( ) = p ' x( ) p ' x( ) = 0.8 ( 0.7 ) = 0.56

τ 1 2
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
To elaborate on the last step:
⎛ Number dying from cause ⎞

⎜ ⎟
(1) ⎝ 1 between x + 0.1 and x + 0.4 ⎠
0.3 q x + 0.1 =
Number alive at x + 0.1
Since UDD in double decrement,

l x( ) ( 0.3) qx( )
τ 1
=
(
lx( ) 1 − 0.1qx( )
τ 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
⎛ 0.7 0.1 0.2 ⎞ ⎛ 0.52 0.13 0.35 ⎞

⎜ ⎟ ⎜ ⎟
T = ⎜ 0.3 0.6 0.1 ⎟ T = ⎜ 0.39 0.39 0.22 ⎟
2
⎜ 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
Let Period 1 = first 10 minutes; period 2 = next 10.
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
.
Method 2: fail in period 1 if < 2; bg

Pr ob = F 1 = 0.7358
fail in period 2 if exactly 2 in period 1, then 0; bg bg
Pr ob = f 2 f 0
b gb
= 01839
. g
0.3679 = 0.0677
Succeed if fail neither period; Pr ob = 1 − 0.7358 − 0.0677
= 01965
.
(Method 1 is attacking the problem as a stochastic process model; method 2 attacks it

as a ruin model.)
Question # 40
Answer: D
Use Mod to designate values unique to this insured.
b g b g b gb g
a&&60 = 1 − A60 / d = 1 − 0.36933 / 0.06 / 106
. = 111418
.
1000 P60 = 1000 A60 / a&&60 = 1000b0.36933 / 111418

. g = 3315
.
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
1000 P50Mod = 19.04
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.
A40 = P40 a&&40:10 + P50Mod 10 E40 a&&50:10
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
px′b 2 g = 1 − 0.488 = 0.512
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).
Let decrement 1 = fail, 2 = resign, 3 = other.

Then q0′b1g = 1 4 , q1′ b1g = 15 , q2′b1g = 1 3
q0′b 2 g = 1
5, q1′b 2 g = 1
3, q2′b 2 g = 1
8
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
So 1b g = 200, 1b g = 200 b0.54g = 108 , and 1b g = 108 b0.474g = 512

0
τ
1
τ
. 2
τ
q2b1g = log p2′b1g / log p2bτ g q2bτ g
q2b1g = log c h / logb0.438g 1 − 0.438

2
3
= b0.405 / 0.826gb0.562g
= 0.276
d2b1g = l2bτ g q2b1g

= 512 b gb
. 0.276 = 14 g
Question #44
Answer: C
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
= b40gb10,000g + b40gd300 i = 4,000,000

2
Var b S g = E b N g × Var b X g + Var b N g × E b X g

2
AB AB AB AB AB
= b10gb90,000g + b10gb−100g = 1,000,000

2
S and S are independent, so

G AB
Var b S g = Var b S g + Var b S g = 4,000,000 + 1,000,000
G AB
= 5,000,000
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
= 90,000 + b−100g = 100,000

2
Since the probability a “bad” will be accepted is only 50%,

b g b g c h b
E X B = Prob accepted × E X B accepted + Prob not accepted × E X B not accepted g c h
= b0.5gb −100g + b0.5gb0g = −50
E d X i = b0.5gb100,000g + b0.5gb0g = 50,000
2
B
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
= b20gb47,500g + b20gd50 i = 1,000,000

2
SG and S B are independent, so

bg b g b g
Var S = Var SG + Var S B = 4,000,000 + 1,000,000
= 5,000,000
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
10 E30:40 = 10 p30 10 p40 v10 =d p v id p v ib1 + i g

10 30
10
10 40
10 10
= 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
a30:40:10 = a30:40 −10 E30:40 a30+10:40+10
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
Equivalence Principle, where π is annual benefit premium, gives
d
1000 A35 + IA b g 35 i
× π = a&&xπ
1000 A35 1000 × 0.42898

π= =
d b gi
a&&35 − IA 35 (1199143
. − 616761
. )
428.98
=
.
582382
= 73.66
We obtained a&&35 from
1 − A35 1 − 0.42898
a&&35 = = = 1199143
.
d 0.047619
MLC-09-08 - 37 -
Question #48
Answer: C
Time until arrival = waiting time plus travel time.
Waiting time is exponentially distributed with mean 1 λ . The time you may already have
been waiting is irrelevant: exponential is memoryless.
You: E (wait) = 201 hour = 3 minutes

b gb g b gb g
E (travel) = 0.25 16 + 0.75 28 = 25 minutes
E (total) = 28 minutes
Co-worker: E (wait) = 15 hour = 12 minutes

E (travel) = 16 minutes
E (total) = 28 minutes
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
b0.49 + 0.01gb1 + ig − 0.022b1 − 0.545g = 0.545

b1 + ig = b0.545gb1 − 0.022g + 0.022
0.50
= 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
1000 P60 = 1000 A60 / a&&60
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
= c15 + b0.985gb382.79gh / c106

. + b0.985gb10.9041gh = 33.22
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
Prob (Way #1) = Prob(0 in 5 days) = exp(-0.2*5) = 0.3679

Prob (Way #2) = Prob(1 in 5 days) × 0.8 × Prob(0 in 5 days)
= 5*0.2 exp(-0.2* 5)* 0.8 * exp(-0.2* 5)
= 1 exp(-1) * 0.8 * exp(-1) = 0.1083
Hence Prob empty at some time = 0.3679 + 0.1083 = 0.476
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
μ 2 = − ln ( 0.97 ) − λ = 0.03046 − 0.01 = 0.02046

μ xy = μ1 + μ 2 + λ = 0.03082 + 0.02046 + 0.01 = 0.06128
pxy = e ( ) (
− 5 0.06128 )
5 = e −0.3064 = 0.736
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
LM0.80 0.00 0.20 OP

0.00
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
P002 + P012 = 0.8 * 0.8 + 0.2 * 0.75 = 0.79
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.
For Case 1: decrease in 2003 (following 2 decreases) is 0.8; decrease in 2004

(following 2 decreases is 0.8. Prob(both) = 0.8 × 0.8 = 0.64
For Case 2: increase in 2003 (following 2 decreases) is 0.2; decrease in 2004 (following
a decrease, then increase) is 0.75. Prob(both) = 0.2 × 0.75 = 0.15
Combined probability of Case 1 and Case 2 is 0.64 + 0.15 = 0.79
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
A60 = 0.36913 d = 0.05660

2
A60 = 0.17741
and 2
A60 − A60
2
= 0.202862
⎛ π⎞ π
Expected Loss on one policy is E ⎣⎡ L (π ) ⎦⎤ = ⎜100,000 + ⎟ A60 −
⎝ d⎠ d
π⎞
2
⎛
Variance on one policy is Var ⎣⎡ L (π ) ⎦⎤ = ⎜100,000 + ⎟ 2 A60 − A60
⎝ d ⎠
( 2
)
On the 10000 lives,
E [ S ] = 10,000 E ⎡⎣ L (π ) ⎤⎦ and Var [ S ] = 10,000 Var ⎡⎣ L (π ) ⎤⎦
The π is such that 0 − E [ S ] / Var [ S ] = 2.326 since Φ ( 2.326 ) = 0.99
⎛π ⎛ π⎞ ⎞
10,000 ⎜ − ⎜100,000 + ⎟ A60 ⎟
⎝d ⎝ d⎠ ⎠ = 2.326
⎛ π⎞
100 ⎜100,000 + ⎟ 2 A60 − A60
2
⎝ d⎠
⎛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
* This equation is algebraic manipulation of the three equations in three unknowns

( 1V , 2V , π ) . One method – usually effective in problems where benefit = stated amount
plus reserve, is to multiply the 1V equation by 1.052 , the 2V equation by 1.05, and add
those two to the 3V equation: in the result, you can cancel out the 1V , and 2V terms.
Or you can substitute the 1V equation into the 2V equation, giving 2V in terms of π ,
and then substitute that into the 3V equation.
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
.
3V = 500,000 A281:2 − 6643 a&&28:2

= 287
MLC-09-08 - 47 -
Question #63
Answer: D
Let Ax and a x be calculated with μ x t and δ = 0.06 bg

Let Ax* and a x * be the corresponding values with μ x t bg
increased by 0.03 and δ decreased by 0.03
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
Ax* = 1 − 0.03 a x * = 1 − 0.03 a x

b gb
= 1 − 0.03 6.667 g
= 0.8
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
The diagonals represent bulbs that don’t burn out.

E.g., of the initial 10,000, (10,000) (1-0.1) = 9000 reach year 1.
(9000) (1-0.3) = 6300 of those reach year 2.
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
1000 2800 3700

Actuarial present value = + +
.
105 . 2 105
105 . 3
= 6688
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 =
e1 − q je1 − q jb1 − q gb1 − q gb1 − q g

60 +1 60 + 2 63 64 65
= 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
S.D. = 52.083 = 7.217
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
Ax +10 = 1 − da&&x +10 = 1 − 010

. b gb g
4 = 0.6
10V = 5000 Ax +10 − π a&& = b5000gb0.6g − b455gb4g = 1180
x +10
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
Actuarial present value (APV) of future benefits =

= ( 0.005 × 2000 + 0.04 × 1000 ) /1.06 + (1 − 0.005 − 0.04 )( 0.008 × 2000 + 0.06 × 1000 ) /1.062
= 47.17 + 64.60
= 111.77
APV of future premiums = ⎡⎣1 + (1 − 0.005 − 0.04 ) /1.06 ⎤⎦ 50

= (1.9009 )( 50 )
= 95.05
E ⎡⎣ 1 L K ( 55 ) ≥ 1⎤⎦ = 111.77 − 95.05 = 16.72
Question #71
Key: A
This is a nonhomogeneous Poisson process with intensity function
λ (t) = 3+3t, 0 ≤ t ≤ 2 , where t is time after noon
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
Let Z be the present value random variable for one life.

Let S be the present value random variable for the 100 lives.
bg
E Z = 10 z
5
∞ δt μ t
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
Prob{only 1 survives} = 1-Prob{both survive}-Prob{neither survives}

b ge
= 1− 3p50 × 3p 50 − 1− 3p50 1− 3p 50 j
b gb gb gb gb gb
= 1 − 0.9713 0.9698 0.9682 0.9849 0.9819 0.9682 − 1 − 0.912012 1 − 0.93632
14444244443 14444244443
g b gb g
= 0.912012 0.936320
= 0.140461
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
Let X = expected scientists eaten.

b
For each period, E X = E X dead × Prob already dead + E X alive × Prob alive g b g
b g
= 0 × Prob dead + E X alive × Prob alive b g
Day 1, E X1 = 1
−1 1
b g b g e 0!0 = 0.368
Prob dead at end of day 1 = f 0 =
Day 2, E X 2 = 0 × 0.368 + 1 × b1 − 0.368g = 0.632

Prob (dead at end of day 2) = 0.503
[per problem 10]
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.
E X = E X1 + E X 2 + E X 2.5 = 1 + 0.632 + 0.249 = 1881

.
E 10,000 X = 18,810
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
(APV above means Actuarial Present Value).
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
And plug in to get
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
From here, many formulas for 10 V c A h could be used.

40 One approach is:
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
10 V c A h = A − P c A ha = 0.3742 − b0.02331gb12.83g = 0.0751.

40 50 40 50
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 0.03 IJ × 0.70 + FG 0.6 IJ × 0.30

=G
H 0.03 + 0.08 K H 0.06 + 0.08 K
= 0.3195
FG 0.03 IJ × 0.70 + FG 0.06 IJ × 0.30 = 01923

Similarly, 2 Ax =
H 0.03 + 0.16K H 0.06 + 0.16K . .
F I= 2
Ax − Ax2 01923
. − 0.31952
H b gK
Var a T x δ2
=
0.082
= 141
..
Question #80
Key: B
2 q80:84 = 2 q80 + 2 q84 − 2 q80:84
= 0.5 × 0.4 × (1 − 0.6 ) + 0.2 × 0.15 × (1 − 0.1)

= 0.10136
Using new p82 value of 0.3
0.5 × 0.4 × (1 − 0.3) + 0.2 × 0.15 × (1 − 0.1)
MLC-09-08 - 56 -
= 0.16118
Change = 0.16118 – 0.10136 = 0.06
Alternatively,
2 p80 = 0.5 × 0.4 = 0.20
3 p80 = 2 p80 × 0.6 = 0.12
2 p84 = 0.20 × 0.15 = 0.03
3 p84 = 2 p84 × 0.10 = 0.003
2 p80:84 = 2 p80 + 2 p84 − 2 p80 2 p84 since independent
= 0.20 + 0.03 − ( 0.20 )( 0.03) = 0.224

3 p80:84 = 3 p80 + 3 p84 − 3 p80 3 p84
= 0.12 + 0.003 − ( 0.12 )( 0.003) = 0.12264
2 q 80:84 = 2 p80:84 − 3 p80:84
= 0.224 − 0.12264 = 0.10136
Revised
3 p80 = 0.20 × 0.30 = 0.06
3 p 80:84 = 0.06 + 0.003 − ( 0.06 )( 0.003)

= 0.06282
2 q 80:84 = 0.224 − 0.06282 = 0.16118
change = 0.16118 − 0.10136 = 0.06
Question #81
Key: D
Poisson processes are separable. The aggregate claims process is therefore

equivalent to two independent processes, one for Type I claims with expected
FG 1IJ b3000g = 1000 and
frequency
H 3K
one for Type II claims.
Let S I = aggregate Type I claims.

N I = number of Type I claims.
X I = severity of a Type I claim (here = 10).
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
FG 100 − 55IJ e b gb g − 0.05 5

=
H 100 − 50K
= b0.9gb0.7788g = 0.7009
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
bτ g = pbτ g − pbτ g = 0.7009 − 0.4852

5 5 q50 5 50 10 50
= 0.2157
Question #83
Key: C
Only decrement 1 operates before t = 0.7
′1b g = b0.7g q′b1g = b0.7gb010

. g = 0.07 since UDD
0.7 q40 40
Probability of reaching t = 0.7 is 1-0.07 = 0.93
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
FG 0.83910 IJ = 665.75 + πFG 0.08030 + 0.83910 × 0.09561IJ

H
π 1+
1.062 K H 2b106
. g 2b1.06g K 3
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
At issue, actuarial present value (APV) of benefits

= z ∞
0
bt v t t p65 μ
65
bt gdt
z ∞
d id
= 1000 e0.04 t e −0.04 t t p65 μ 65 t dt
0
i bg
= 1000 z ∞
p
0 t 65
bg
μ 65 t dt = 1000 ∞ q65 = 1000
APV of premiums = π a65 = π

FG 1 IJ = 16.667π
H 0.04 + 0.02K
Benefit premium π = 1000 / 16.667 = 60
2V = z
0
∞
b g
b2+u v u u p67 μ 65 2 + u du − π a67
= 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
(1) a x:20 = a&&x:20 − 1+ 20 Ex

1 − Ax:20
(2) a&&x:20 =
d
(3) Ax:20 = A1x:20 + Ax:201
(4) Ax = A1x:20 + 20 Ex Ax + 20
b gb g
0.28 = A1x:20 + 0.25 0.40
A1x:20 = 018
.
Now plug into (3): Ax:20 = 018

. + 0.25 = 0.43
1 − 0.43
a&&x:20 = = 1197
Now plug into (2):
b g
0.05 / 105
.
.
Now plug into (1): a x:20 = 1197

. − 1 + 0.25 = 1122
.
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
[Integrate by parts; not shown]
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 = Initial state matrix = 1 0 0 0

LM0.20 0.80 0 0 OP
T = One year transition matrix = M
0.50 0 0.50 0 P
MM0.75 0 0 0.25P
P
N1.00 0 0 0 Q
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
.
Probability of being in state F after three years = 0.468.
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
Let Yi be the number of claims in the ith envelope.
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
Let x denote the male and y denote the female.
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
By induction (proof omitted)

n V = π &&
sn
For n = 35, n V = a&&60 (actuarial present value of future benefits; there are no future
premiums)
a&&60 = π &&
s35
a&&
π = 60
&&
s35
For n = 20, 20 V = π &&
s20
⎛ a&& ⎞
= ⎜ 60 ⎟ &&
s
⎜ &&
s ⎟ 20
⎝ 35 ⎠
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
0V (1 + i )35 + π ⎡⎣(1 + i )35 + (1 + i )34 + L + (1 + i ) ⎤⎦ = 35V

Since 0V = 0
π &&s35 = 35V
= a&&60
(see above for remainder of solution)
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
For (x) = (y) = (50)
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
10.5 p50 μ ( 50 + 10.5 ) = ( 10 p50 ) q60 since UDD

Alternatively, (10+t ) p50 = 10 p50 t p60
(10+t ) p50:50 = ( 10 p50 ) ( t p60 )

2 2
(10+t ) p 50:50 = 2 10 p50 t p60 − ( 10 p50 ) ( t p60 )

2 2
= 2 10 p50 (1 − tq60 ) − ( 10 p50 ) (1 − tq60 ) since UDD

2 2
Derivative = −2 10 p50 q60 + 2 ( 10 p50 ) (1 − tq60 ) q60

2
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
μ x(τ ) ( t ) = μ x(1) ( t ) + μ x( 2) ( t ) = 0.01 + 2.29 = 2.30

∞
P = P ∫ vt t px( ) μ x( ) ( t ) dt + 50, 000 ∫ vt t px( ) μ x( ) ( t ) dt + 50, 000∫ vt t px( ) μ x( ) ( t ) dt
2 τ 2 2 τ 1 τ τ
0 0 2
2 −0.1t −2.3t 2 −0.1t −2.3t ∞
P = P∫ e e × 2.29dt + 50, 000∫ e e × 0.01dt + 50, 000 ∫ e−0.1t e−2.3t × 2.3dt
0 0 2
⎡ −2( 2.4 ) ⎤ ⎡ −2( 2.4 ) −2( 2.4 )
⎤
1− e 1− e e
P ⎢1 − 2.29 × ⎥ = 50000 ⎢ 0.01× + 2.3 × ⎥
⎣⎢ 2.4 ⎦⎥ ⎣⎢ 2.4 2.4 ⎦⎥
P = 11,194
Question #96
Key: B
ex = px + 2 px + 3 px + ... = 1105
.
Annuity = v 3 3 p x 1000 + v 4 4 p x × 1000 × 104

. + ... b g
∞
∑1000b104
. g
k −3 k
= v k px
k =3
∞
= 1000v 3 ∑ k px
k =3
b g FG 1 IJ 3
= 1000v 3 ex − 0.99 − 0.98 = 1000
H 104
. K
× 9.08 = 8072
Let π = benefit premium.
MLC-09-08 - 66 -
e
π 1 + 0.99v + 0.98v 2 = 8072 j
2.8580π = 8072
π = 2824
Question #97
Key B
π a&&30:10 = 1000 A30 + P IA 30

1
:10
+ 10π b g b ge 10 A30 j
1000 A30
π=
b g
a&&30:10 − IA 1
30:10
− 1010 A30
=
1000 0102
. b g
7.747 − 0.078 − 10 0.088 b g
102
=
6.789
= 15.024
Test Question: 98 Key: E
For de Moivre’s law,

o
z FG1 − t IJ dt
ω − 30
e 30 =
0 H ω − 30K
L t OP
= Mt −
2 ω − 30
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
0L = 100,000v 2.5 − 4000a&&3 @5%

= 77,079
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 -
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
For any compound distribution

Var S = E N Var X + Var N E X c h 2
= (30) (12.64) + (30) 3.62 d i

= 768
For specifically Compound Poisson

Var S = λt E X 2 = (60) (0.5) (25.6) = 768
Alternatively, consider this as 3 Compound Poisson processes (coins worth 1; worth 5;

b g bg b g
2
worth 10), where for each Var X = 0 , thus for each Var S = Var N E X .
Processes are independent, so total Var is
Var = b60gb0.5gb0.6g1 + b60gb0.5gb0.2g5 + b60gb0.5gb0.2gb10g
2 2 2
= 768
Test Question: 102 Key: D
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 p g where is from Illustrative Life Table, since μ b1g follows I.L.T.

2
k x k px
6,616,155
10 p60 = = 0.80802
8,188,074
6,396,609
11 p60 = = 0.78121
8,188,074
b τ g = p b τ g − p bτ g
q60
10 10 60 11 60
= b 10 p60 g −b
2
11 p60 g 2
from I.L.T.
= 0.80802 2 − 0.781212 = 0.0426
Test Question: 104 Key: C
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
a&&xy + a&&xy = a&&x + a&&y
a&&xy = 6.25 + 6.25 − 8.333 = 4.167

1
Pxy = − 0.06 = 018
.
4.167
MLC-09-08 - 70 -
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
Variance = v30 15 px 15 qx Expected value = v15 15 px

v30 15 px 15 qx = 0.065 v15 15 px
v15 15qx = 0.065 ⇒ 15 qx = 0.3157
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 -
π denotes benefit premium

19V = APV future benefits - APV future premiums
1
0.6 = − π ⇒ π = 0.326
108
.
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
Actuarial present value Benefits =

( 0.8)( 0.1)(10,000 ) + ( 0.8)( 0.9 )( 0.097 )( 9,000 )
1.062 1.063
= 1, 239.75
⎛ ( 0.8 ) ( 0.8 )( 0.9 ) ⎞

1, 239.75 = P ⎜ 1 + + ⎟
⎝ 1.06 1.062 ⎠
= P ( 2.3955 )
P = 517.53 ⇒ 518
1180 = 70a30 + 50a40 − 20a30:40

b gb g b gb g
1180 = 70 12 + 50 10 − 20a30:40
a30:40 = 8
a30:40 = a30 + a40 − a30:40 = 12 + 10 − 8 = 14
100a30:40 = 1400
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
Event Prob Present Value

x=0 ( 0.05) 15
x =1 ( 0.95)( 0.10 ) = 0.095 15 + 20 /1.06 = 33.87
x≥2 ( 0.95)( 0.90 ) = 0.855 15 + 20 /1.06 + 25 /1.062 = 56.12
E [ X ] = ( 0.05 )(15 ) + ( 0.095 )( 33.87 ) + ( 0.855 )( 56.12 ) = 51.95
E ⎡⎣ X 2 ⎤⎦ = ( 0.05 )(15 ) + ( 0.095 )( 33.87 ) + ( 0.855 )( 56.12 ) = 2813.01

2 2 2
( )
Var [ X ] = E X 2 − E ( X ) = 2813.01 − ( 51.95 ) = 114.2
2 2
Question #115
Key: B
Let K be the curtate future lifetime of (x + k)
kL = 1000v K +1 − 1000 Px:3 × a&&K +1

When (as given in the problem), (x) dies in the second year from issue, the curtate
future lifetime of ( x + 1) is 0, so
MLC-09-08 - 74 -
1L = 1000v − 1000 Px:3 a&&1
1000
= − 279.21
1.1
= 629.88 ≈ 630
The premium came from

A
Px:3 = x:3
a&&x:3
Ax:3 = 1 − d a&&x:3
1 − d a&&x:3 1
Px:3 = 279.21 = = −d
a&&x:3 a&&x:3
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
Let π = benefit premium
Actuarial present value of benefits =

b gb g b gb gb
= 0.03 200,000 v + 0.97 0.06 150,000 v 2 + 0.97 0.94 0.09 100,000 v 3 g b gb gb gb g
= 5660.38 + 7769.67 + 6890.08
= 20,32013
.
Actuarial present value of benefit premiums

= a&&x:3 π
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
Initial reserve, year 2 = 1V + π

= 1958.56 + 7452.55
= 9411.01
Let π denote the premium.
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
(0, 1) (1, 0.9)
(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 -
Original Calculation (assuming independence):
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
Revised Calculation (common shock model):
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
Difference = 0.42423 − 0.38502 = 0.03921
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
= b0.9gb.03g + b0.8gb0.05g − b0.9gb0.8g 1 − b0.97gb0.95g

= 0.01048
Alternatively,
6 p35 = 5 p35 × p40 = ( 0.90 )(1 − 0.03) = 0.873

6 p45 = 5 p45 × p50 = ( 0.80 )(1 − 0.05 ) = 0.76
5 q35:45 = 5 p35:45 − 6 p35:45

= ( 5 p35 + 5 p45 − 5 p35:45 ) − ( 6 p35 + 6 p45 − 6 p35:45 )
= ( 5 p35 + 5 p45 + 5 p35 × 5 p45 ) − ( 6 p35 + 6 p45 − 6 p35 × 6 p45 )
= ( 0.90 + 0.80 − 0.90 × 0.80 ) − ( 0.873 + 0.76 − 0.873 × 0.76 )
= 0.98 − 0.96952
= 0.01048
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 -
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
10V = APV (Future benefits) – APV (Future benefit premiums)

1000 4
= A35 − π a&&35
5 5
1
b g b gb
= 128.72 − 1258
5
4
5
. 15.3926 g
= 10.25
Let Y = present value random variable for payments on one life

S = ∑ Y = present value random variable for all payments
E Y = 10a&&40 = 148166
.
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
By normal approximation, need

E [S] + 1.645 Standard deviations = 14,816.6 + (1.645) (265.62)
= 15,254
MLC-09-08 - 81 -
Initial Benefit Prem =

e
5 A30 − 4 A301 :20 j
5a&&30:35 − 4a&&30:20
=
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
Let G be the expense-loaded premium.

Actuarial present value (APV) of benefits = 100,000A35
APV of premiums = Ga&&35
APV of expenses = ⎡⎣ 0.1G + 25 + ( 2.50 )(100 ) ⎤⎦ a&&35
Equivalence principle:
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
*Hence we have 10000 = 8.4353+10 E40a&&50 K b g

Derive 10 E40:
A40 = A4010
1
:
+ b 10 E40 gA 50
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
STANDARD: eo 25:11 = z11 FG1 − t IJ dt = t − t 2 11
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
= 0.95163 + 0.90484b9.32432g = 9.3886
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.
Comparing B to E: Reserves on E are constant at 0.
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
APV of regular death benefit = zb ∞

gd ib gd i
100000 e-δ t 0.008 e- μ t dt
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.
For smokers, λ = ( 0.2 )(1000 ) = 200
Var(losses) = λ ⎡⎢ Var ( X ) + ( E ( X ) ) ⎤⎥
2
⎣ ⎦
= 200 ⎡5000 + ( −100 ) ⎤
2
⎣ ⎦
= 3,000,000
For non-smokers, λ = ( 0.8 )(1000 ) = 800
Var(losses) = λ ⎡⎢ Var ( X ) + ( E ( X ) ) ⎤⎥
2
⎣ ⎦
= 800 ⎡8000 + ( −100 ) ⎤
2
⎣ ⎦
= 14, 400,000
Total variance = 3,000,000 + 14,400,000

= 17,400,000
bτ g = qb1g + qb2g = 0.34

q40 40 40
′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 -
b g
Pr L π ' > 0 < 0.5
Pr 10,000v K +1 − π ' a&&K +1 > 0 < 0.5

From Illustrative Life Table, 47 p30 = 0.50816 and 48 p30 =.47681
Since L is a decreasing function of K, to have

b g
Pr L π ′ > 0 < 0.5 means we must have L π ′ ≤ 0 for K ≥ 47. b g
b g
Highest value of L π ′ for K ≥ 47 is at K = 47.
b g
L π ′ at K = 47 = 10,000 v 47+1 − π ′ a&&47+1
= 609.98 − 16.589π ′
b g b
L π ′ ≤ 0 ⇒ 609.98 − 16.589 π ′ ≤ 0 g
609.98
⇒ π′ > = 36.77
16.589
b g
Pr K = 0 = 1 − px = 01
.
Prb K = 1g = p − p = 0.9 − 0.81 = 0.09
1 x 2 x
Prb K > 1g = p = 0.81

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
VARbY g = 6.407 − 2.4715 = 0.299 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 * = A −.15a = 1 − a bδ +.15g = 1 − 5b.23g = −.15

x x x
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].
Let l0bτ g = number of students entering year 1

superscript (f) denote academic failure
superscript (w) denote withdrawal
subscript is “age” at start of year; equals year - 1
p0bτ g = 1 − 0.40 − 0.20 = 0.40
l2bτ g = 10 l2bτ g q2b f g ⇒ q2b f g = 01

.
q2b wg = q2bτ g − q2b f g = 10

. − 0.6 − 01 b
. = 0.3 g
l1bτ gq1b f g = 0.4 l1bτ g 1 − q1b f g − q1b wg
e j
q1b f g = 0.4 1 − q1b f g − 0.3
e j
q1b f g =
0.28
= 0.2
14
.
p1bτ g = 1 − q1b f g − q1b wg = 1 − 0.2 − 0.3 = 0.5
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 -
e25 = p25 1 + e26b g

N
e26 = e26
M
since same μ
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 -
E YAGG = 100E Y = 100 10,000 a x b g

F c1 − A hI = 10,000,000
= 100b10,000gG
H δ JK
x
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 -
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
Each offer can be classified as either

R|
Type I - - accept with probability p ⇒ N1 t m b gr
S|Type II - - reject with probability b1 − pg ⇒ mN bt gr
T 2
mN bt gr is Poisson process with λ = λ ⋅ p

1 1
p = Prb w > 28,000g = Prbln w > ln 28,000g
F ln w − 1012
= Prbln w > 10.24g = Pr G
. . I
10.24 − 1012
JK = 1 − Φb1g
H 012 .
>
012
.
= 01587
.
λ1 = 01587
. × 2 = 0.3174
1
T has an exponential distribution with θ = = 315
.
.3174
b g
Pr T > 3 = 1 − F 3 bg
−3
= e 3.15 = 0.386
MCL-09-08 - 92 -
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
For death occurring in year 2

0.3 × 1000
APV = = 285.71
1.05
For death occurring in year 3, two cases:
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
Total. APV = 285.71 + 154.20 = 439.91
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:
π = 10,000 v − 2V50:3 = 9708.74 − 6539 = 3169.74
MCL-09-08 - 94 -
R|10,000 v − π a&& = 6539 for K = 0
|
1
L = S10,000 v − π a&& = 3178.80 for K = 1

2
0
||10,000 v − π a&& = −83.52 for K > 1
2
T
3
3
Prb K = 0g = q = 0.0083250
Prb K = 1g = p q = b0.99168gb0.00911g = 0.0090342

50 51
Prb K > 1g = 1 − Prb K = 0g − Prb K = 1g = 0.98265

Varb Lg = E L − E L = E L since π is benefit premium
2 2 2
0 0 0 0
= 0.00832 × 6539 + 0.00903 × 3178.80 + 0.98265 × b−83.52g

2 2 2
= 453,895 [difference from the other solution is due to rounding]
Let π denote the single benefit premium.

π = 30 a&&35 + π A351 :30
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
( 9V + P ) (1.03) = qx+9b + (1 − qx+9 ) 10V

= qx +9 ( b − 10V ) + 10V
( 343)(1.03) = 0.02904 ( 872 ) + 10V
⇒ 10V = 327.97
b = ( b − 10V ) + 10V = 872 + 327.97 = 1199.97
⎛ 1 ⎞ ⎛ 1 0.03 ⎞
P = b ⎜ − d ⎟ = 1200 ⎜ − ⎟
⎝ a&&x ⎠ ⎝ 14.65976 1.03 ⎠
= 46.92
9V = initial reserve – P = 343 – 46.92 = 296.08
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
Step 2 Determine 1000 Px:2

668 + 258 ( 0.94 )( 0.91) = 1000 Px:2 ⎡⎣1 + ( 0.94 )( 0.91) ⎤⎦
1000 Px:2 =
[ 220.69 + 668] = 479
1.8554
MCL-09-08 - 96 -
Question #158
Key: D
100,000 ( IA )40:10 = 100,000 v p40 ⎡( IA )41:10 − 10 v10 9 p41 q50 ⎤ + A40:10

1
⎣
1
⎦
1
(100,000 ) [see comment ]
⎡ ⎛ 8,950,901 ⎞ ⎤
⎢ 10 ⎜ ⎟ ⎥
0.16736 − ⎝
0.99722 ⎢ 9, 287, 264 ⎠
= 100,000 × ( 0.00592 )⎥
1.06 ⎢ 1.0610 ⎥
⎢ ⎥
⎣ ⎦
+ ( 0.02766 × 100,000 )
=15,513
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
term. But ( IA )41:10 provides a death benefit at 50 of 10, while ( IA )40:10

1 1 1
Hence the A40:10
provides 0. Hence a term involving 9 q41 = 9 p41 q50 . The various v’s and p’s just get all
actuarial present values at age 40.
Question #159
Key: A
10001Vx = π (1 + i ) − qx (1000 − 10001Vx )

40 = 80 (1.1) − qx (1000 − 40 )
88 − 40
qx = = 0.05
960
=
(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
At any age, p′x ( ) = e −0.02 = 0.9802

1
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
px( ) = 0.9802*0.96 = 0.9410

τ
Ex = px( )v = 0.941 v = 0.941*0.95 = 0.8940

τ
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
Or, with De Moivre’s law, it may be simpler to draw a picture:
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
One way to evaluate this expression is based on Equation 3.5.4 in Actuarial

Mathematics
∞
Var (T ) = ∫ 2 t t px dt − ex2
o
0
65
⎛ t ⎞ ⎛ 65 ⎛ t ⎞
= 2 ∫ t ⎜1 − ⎟dt − ⎜ ∫ ⎜1 − ⎟ dt 2
⎜
0 ⎝
65 ⎠ ⎝ 0 ⎝ 65 ⎠
= 2* ( 2112.5 − 1408.333) − ( 65 − 65 / 2 )
2
= 1408.333 − 1056.25 = 352.08
Another way, easy to calculate for De Moivre’s law is
(∫ )
∞ ∞ 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
218.15 (1.06 ) − 10,000 ( 0.02 )

1V = = 31.88
1 − 0.02
( 31.88 + 218.15)(1.06 ) − ( 9,000 )( 0.021) = 77.66
2V =
1 − 0.021
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
Local comes first. I board
So I get there first if he waits more than 28 – 16 = 12 minutes after the local arrived.
His wait time is exponential with mean 12

The wait before the local arrived is irrelevant; the exponential distribution is memoryless
−12
Prob(exp with mean 12>12) = e 12 = e −1 = 36.8%
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
Complete the table:

l81 = l[80] − d[80] = 910
l82 = l[81] − d[81] = 830 (not really needed)
o 1 ⎛1 ⎞
e x = ex + ⎜ since UDD ⎟
2 ⎝2 ⎠
o
e[ x] = e[ x] + 1 2
o ⎡ l + l + l +K⎤ 1
e[ x] = ⎢ 81 82 83 ⎥+
⎢⎣ l[80] ⎥⎦ 2
⎡ ⎤
⎢ eo − 1 ⎥ l = l + l + K Call this equation (A)
⎢ [80] 2 ⎥ [80] 81 82
⎣ ⎦
⎡ ⎤
⎢ eo − 1 ⎥ l = l + K Formula like (A), one age later. Call this (B)
⎢ [81] 2 ⎥ [81] 82
⎣ ⎦
Subtract equation (B) from equation (A) to get
⎡ ⎤ ⎡ ⎤
⎢ 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
Alternatively, and more straightforward,
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
You could also calculate Ax:3 and use it to calculate Px:3 .
MCL-09-08 - 104 -
Question #170
Key: E
Let G be the expense-loaded premium.

Actuarial present value (APV) of benefits = 1000A50 .
APV of expenses, except claim expense = 15 + 1× a&&50
APV of claim expense = 50A50 (50 is paid when the claim is paid)
APV of premiums = G a&&50
Equivalence principle: Ga&&50 = 1000 A50 + 15 + 1× a&&50 + 50 A50
1050 A50 + 15 + a&&50
G=
a&&50
a
For De Moivre’s with ω = 100, x = 50 A50 = 50 = 0.36512
50
1 − A50
a&&50 = = 13.33248
d
Solving for G, G = 30.88
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
18 p50 = ( 10 p50 )( 8 p60 ) = 0.6065 × 0.7261

= 0.4404
414 q50 = 4 p50 − 18 p50 = 0.8187 − 0.4404 = 0.3783
MCL-09-08 - 105 -
Question #172
Key: D
a&&40:5 = a&&40 − 5 E40 a&&45

= 14.8166 − ( 0.73529 )(14.1121)
= 4.4401
π a&&40:5 = 100,000 A45 v5 5 p40 + π ( IA )40:5
1
(
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
Pr(both alive) Pr(both dead) Pr(only one alive)

1 0 0
(0.91)(0.91) = 0.8281 (0.09)(0.09) = 0.0081 0.1638
(0.82)(0.82) = 0.6724 (0.18)(0.18) = 0.0324 0.2952
⎛ 1 0.8281 0.6724 ⎞ ⎛ 0 0.1638 0.2952 ⎞

APV Annuity = 30,000 ⎜ + + 2 ⎟
+ 20,000 ⎜ + + ⎟ = 80, 431
⎝ 1.05 1.05 ⎠ ⎝ 1.05 1.052 ⎠
0 1 0
1.05 1.051
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
Other alternatives also work.
Question #174
Key: C
Let P denote the contract premium.
∞ ∞
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
Let Fn denote the size of Fund 1 at the end of year n.
F1 = 2158.75 (1.07 ) − 1000 = 1309.86

F2 = 1309.86 (1.065 ) − 500 = 895.00
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)
10Vx = Ax +10 − P ( Ax ) × a&&x +10

⎛ 0.2861 ⎞
= 0.4769 − ⎜ ⎟6
⎝ 8 ⎠
= 0.2623
There are many other equivalent formulas that could be used.
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
= ∫ 100,000 e −0.06t e −0.001t ( 0.0002 ) dt

10
Accidental death
0
10
= 20 ∫ e −0.061t dt
0
⎡1 − e −0.61 ⎤
= 20 ⎢ ⎥ = 149.72
⎣ 0.061 ⎦
Actuarial Present Value = 1639.34 + 149.72 = 1789.06
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
Probability of surviving to 62, given alive at 61, is 560/800 = 0.70

(alternatively, 1 – 0.20 – 0.10), so correct answer is D.
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
The second entry is 0.489; that’s our answer.
Alternatively, start with the row matrix (0 1 0) and project it forward 3 years.
(0 1 0 ) Q1 = (0.00 0.70 0.30)

(0 0.70 0.30) Q2 = (0.07 0.49 0.44)
(0.07 0.49 0.44) Q3 = (0.16 0.35 0.49)
Thus, the probability that it is in state 3 after three transitions is 0.49.
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
Probabilities of being in each state at time t:
t Active Disabled Dead Deaths

0 1.0 0.0 0.0
1 0.8 0.1 0.1 0.1
2 0.65 0.15 0.2 0.1
3 not needed not needed 0.295 0.095
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
Split into three independent processes:

Deposits, with λ * = ( 0.2 )(100 )( 8 ) = 160 per day
Withdrawals, with λ * = ( 0.3)(100 )( 8 ) = 240 per day
Complaints. Ignore, no cash impact.
For aggregate deposits,

E ( D ) = (160 )( 8000 ) = 1, 280,000
Var ( D ) = (160 )(1000 ) + (160 )( 8000 )
2 2
= 1.04 × 1010
For aggregate withdrawals

E (W ) = ( 240 )( 5000 ) = 1, 200,000
Var (W ) = ( 240 )( 2000 ) + ( 240 )( 5000 )
2 2
= 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
Exponential inter-event times and independent implies Poisson process (imagine

additional batteries being activated as necessary; we don’t care what happens after two
have failed).
Poisson rate of 1 per year implies failures in 3 years is Poisson with λ = 3 .
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.
Alternatively, the sum of two independent exponential θ = 1 random variables is Gamma

with α = 2, θ = 1
1 3 −t
F ( 3) = Γ ( 2;3) =
Γ ( 2 ) ∫0
t e dt
= ( −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
1000 P45a&&45:15 + π a&&60:15 × 15 E45 = 1000 A45

A45
1000 ( a&&45 − 15 E45 a&&60 ) + π ( a&&60 − 15 E60 a&&75 )( 15 E45 ) = 1000 A45
a&&45
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
14.2573 ( 9.9568 ) + (π )( 3.4154 ) = 201.20
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
( (π (1.08) − 1000 × 0.1) + π ) (1.08) − 2000 × 0.1 = 2000

π = 1027.42
MCL-09-08 - 113 -
Question #186
Key: A
Let Y be the present value of payments to 1 person.

Let S be the present value of the aggregate payments.
E [Y ] = 500 a&&x = 500

(1 − Ax ) = 5572.68
d
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
l41( ) = l40( ) − d 40( ) − d 40( ) = 1000 − 60 − 55 = 885

τ τ 1 2
d 41( ) = l41( ) − d 41( ) − l42( ) = 885 − 70 − 750 = 65

1 τ 2 τ
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
Constant force implies exponential lifetime
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
% premium amount for 15 years

644474448
Ga&&x:15 ( 144244
)
= 100,000 Ax + 0.08G + 0.02Ga&&x:15 + ( ( x − 5 ) + 5a&&x )
3
Per policy for life
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
53,003.93 = 51, 481.97 + 1433.67 + ( x − 5 ) + 83.30

4.99 = ( x − 5 )
x = 9.99
The % of premium expenses could equally well have been expressed as

0.10G + 0.02G ax:14 .
The per policy expenses could also be expressed in terms of an annuity-immediate.
Question #191
Key: D
For the density where T ( x ) ≠ T ( y ) ,
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
= 0.40 + 0.20 = 0.60
For the overall density,
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 ⎠
Performing the integration we obtain

o ω−x
ex:x =
3
o 2 (ω − x )
ex:x =
3
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
The solution assumes that all lifetimes are independent.
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
Let k p0 = Probability someone answers the first k problems correctly.

p0 = ( 0.8 ) = 0.64 p0 = ( 0.8 ) = 0.41
2 4
2 4
p0:0 = ( 2 p0 ) = 0.642 = 0.41 p0:0 = ( 0.41) = 0.168

2 2
2 4
2 p0:0 = 2 p0 + 2 p0 − 2 p0:0 = 0.87 4 p0:0 = 0.41 + 0.41 − 0.168 = 0.652
Prob(second child loses in round 3 or 4) = 2 p0:0 − 4 p0:0

= 0.87-0.652
= 0.218
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
If (40) reaches 70 but dies before 100, he receives 2 payments.

Y = 10 + 20v30 = 16.16637
The probability of this is also 3/7. (Under DeMoivre, all intervals of the same length,
here 30 years, have the same probability).
If (40) survives to 100, he receives 3 payments.

Y = 10 + 20v30 + 30v 60 = 19.01819
The probability of this is 1 – 3/7 – 3/7 = 1/7
E (Y ) = ( 3/ 7 ) ×10 + ( 3/ 7 ) × 16.16637 + (1/ 7 ) × 19.01819 = 13.93104
( )
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 ( 300 ) × 0.02 + v 2 ( 350 )( 0.98 )( 0.04 ) + v3 400 ( 0.98 )( 0.96 )( 0.06 ) ⎤⎦

= 36.8
( ) = ∑ (v )
2 2
2 k +1
E Z bk +1 k px qx + k
k =0
= v 2 ( 300 ) × 0.02 + v 4 ( 350 ) ( 0.98 )( 0.04 ) + v 6 4002 ( 0.98 )( 0.96 ) 0.06

2 2
= 11,773
( )
Var [ Z ] = E Z 2 − E ( Z )
2
= 11,773 − 36.82
= 10, 419
MCL-09-08 - 119 -
Question #198
Key: A
Benefits + Expenses – Premiums

0 Le = 1000v +
3
( 0.20G + 8) + ( 0.06G + 2 ) v + ( 0.06G + 2 ) v 2 − G a&&3
at G = 41.20 and i = 0.05,

0 Le ( for K = 2 ) = 770.59
Question #199
Key: D
P = 1000 P40
( 235 + P )(1 + i ) − 0.015 (1000 − 255) = 255 [A]
( 255 + P )(1 + i ) − 0.020 (1000 − 272 ) = 272 [B]
Subtract [A] from [B]
20 (1 + i ) − 3.385 = 17
20.385
1+ i = = 1.01925
20
Plug into [A] ( 235 + P )(1.01925 ) − 0.015 (1000 − 255 ) = 255

255 + 11.175
235 + P =
1.01925
P = 261.15 − 235 = 26.15
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
Give Give Give

Given
n n n
x 0 15 25 35 75 90 100
s ( x) 1 0.70 0.50 0.48 0.4 0.16 0
Linear Linear Linear
Interpolation Interpolation Interpolation
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,
20 55 q15 20 p15 × 55 q35 s ( 35 )

= = 20 p15 =
55 q35 55 q35 s (15 )
0.48
=
0.70
= 0.6856
MCL-09-08 - 121 -
Question #201
Key: A
s ( 80 ) = 1 * ( e ^ ( −0.16*50 ) + e ^ ( −0.08*50 ) ) = 0.00932555

2
s ( 81) = 1 * ( e ^ ( −0.16*51) + e ^ ( −0.08*51) ) = 0.008596664
2
p80 = s ( 81) / s ( 80 ) = 0.008596664 / 0.00932555 = 0.9218

q80 = 1 − 0.9218 = 0.078
Alternatively (and equivalent to the above)

For non-smokers, px = e −0.08 = 0.923116
50 px = 0.018316
For smokers, px = e −0.16 = 0.852144
50 p x = 0.000335
So the probability of dying at 80, weighted by the probability of surviving to 80, is
0.018316 × (1 − 0.923116 ) + 0.000335 × (1 − 0.852144 )

= 0.078
0.018316 + 0.000335
Question #202
Key: B
lx( ) d x( ) d x( )
x τ 1 2
40 2000 20 60
41 1920 30 50
42 1840 40
because 2000 − 20 − 60 = 1920 ; 1920 − 30 − 50 = 1840
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
10V ( A40 ) = A40 − P ( A40 ) a40

= 0.5 −
( 0.057 ) = 0.14375
0.16
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).
L = 100,000 vT − 1600 a&& T 0 < T ≤10

[ ]+1
= 100,000vT − 1600 a&&10 10 < t ≤ 20
−1600 a&&10 20<t
Minimum is −1600 a&&10 when evaluated at i = 0.05

= −12,973
MCL-09-08 - 123 -
Question #205
Key: B
Method 1: as three independent processes, based on the amount deposited. Within

each
process, since the amount deposited is always the same, Var ( X ) = 0 .
Rate of depositing 10 = 0.05 * 22 = 1.1

Variance of depositing 10 = 1.1 * 10 * 10 = 110

Variance of depositing 5 = 3.3 * 5 * 5 = 82.5
Variance of depositing 1 = 17.6 * 1 *1 = 17.6
Total Variance = 110 + 82.5 + 17.6 = 210.1
Method 2: as a single compound Poisson process

E ( X ) = 0.8 × 1 + 0.15 × 5 + 0.05 × 10 = 2.05
( )
E X 2 = 0.8 ×12 + 0.15 × 52 + 0.05 × 102 = 9.55
Var ( S ) = E ( N )Var ( X ) + Var ( N ) ( E ( X ) )

2
(
= ( 22 )( 5.3475 ) + ( 22 ) 2.052 )
= 210.1
Question #206
Key: A
Pa&&x:3 = APV (stunt deaths)

⎡ 2500 + 2486 /1.08 + 2466 / (1.08 )2 ⎤ ⎛ 4 /1.08 + 5 / (1.08 )2 + 6 / (1.08 )3 ⎞
P⎢ ⎥ = 500000 ⎜ ⎟
⎢⎣ 2500 ⎥⎦ ⎜ 2500 ⎟
⎝ ⎠
P ( 2.77 ) = 2550.68
⇒ p = 921
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
A60 = v × ( p60 × A61 + q60 )

= (1/1.06 ) × ( 0.98 × 0.440 + 0.02 )
= 0.42566
a&&60 = (1 − A60 ) / d
= (1 − 0.42566 ) / ( 0.06 /1.06 )
= 10.147
100010V50 = 1000 A60 − 1000 P50 × a&&60
= 425.66 − 10.147 × 25
= 172
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
Let X represent the 95th percentile.
E (Portfolio) = 50 ( 2 ) a&&65 + 30 (1) a&&75

= 100 ( 9.8969 ) + 30 ( 7.217 ) = 1206.20
Var (Portfolio) = 50 × 22Var [Y65 ] + 30 (1) Var [Y75 ] = 200 (13.2996 ) + 30 (11.5339 ) = 3005.94
2
where Var [Y65 ] =

1
d2
( 2
A65 − A65
2
)
=
1
( 0.05660 ) 2
⎡0.23603 − ( 0.4398 )2 ⎤ = 13.2996
⎣ ⎦
and Var [Y75 ] =

1
d2
( 2
A75 − A75
2
= ) 1
( 0.05660 ) 2
⎡0.38681 − ( 0.59149 )2 ⎤ = 11.5339
⎣ ⎦
⎡⎛ 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 .
Here n = 10. So parameter = 10/5 = 2

Pr ( N ≥ 2 ) = 1 − Pr ( N = 0 ) − Pr ( N = 1)
= 1 − e −2 − e −2 2
= 1 − 0.135 − 0.271 = 0.594
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!
If 0, wait an additional 15 minutes (expected) so
Total expected wait = 23.31 + ( 0.223)(15 ) = 26.65
o
Note that this problem is equivalent to calculate e x
⎧1/ 30, 0 ≤ t < 45

where μ x ( t ) = ⎨
⎩1/15, t ≥ 45
o o o
and solution is e x = e x:45 + 45 p x e x + 45
Question #214
Key: A
Let π be the benefit premium at issue.
A45:20 ⎡0.20120 − 0.25634 ( 0.43980 ) + 0.25634 ⎤⎦

π = 10,000 = 10,000 ⎣
a&&45:20 14.1121 − 0.25634 ( 9.8969 )
= 297.88
The expected prospective loss at age 60 is
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
Ax = Ax1:5 + 5 Ex Ax1+5 :7 + 12 Ex Ax +12

where
−5( 0.04 + 0.02 )
5 Ex = e = 0.7408
0.04
Ax1:5 = × (1 − 0.7408 ) = 0.1728
0.04 + 0.02
−7 ( 0.05+ 0.02 )
7 E x +5 = e = 0.6126
⎛ 0.05 ⎞
Ax +1 5 :7 = ⎜ ⎟ (1 − 0.6126 ) = 0.2767
⎝ 0.05 + 0.02 ⎠
12 E x = 5 E x × 7 E x + 5 = 0.7408 × 0.6126 = 0.4538
0.05
Ax +12 = = 0.625
0.05 + 0.03
Ax = 0.1728 + ( 0.7408 )( 0.2767 ) + ( 0.4538 )( 0.625 )
= 0.6614
Question #216
Key: A
APV of Accidental death benefit and related settlement expense =

0.004
( 2000 ×1.05) × = 89.36
0.004 + 0.04 + 0.05
0.04
APV of other DB and related settlement expense = (1000 ×1.05 ) × = 446.81
0.094
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.
H to H to NH: (0.8)(0.05) = 0.04

H to HHC to NH: (0.15)(0.05) = 0.0075
H to NH to NH: (0.05)(1) = 0.05
Summing, we get 0.0975 as the probability for each member.

Variance for m members = mpq, here = 50*(0.0975)(0.9025) = 4.40
Question #218
Key: C
⎛ 0.6 0.3 0.1⎞ ⎛ 0.36 0.18 0.46 ⎞

⎜ ⎟ ⎜ ⎟
Q0 = ⎜ 0 0 1 ⎟ Q0 × Q1 = ⎜ 0 0 1 ⎟
⎜ 0 1 ⎟⎠ ⎜ 0 1 ⎟⎠
⎝ 0 ⎝ 0
⎛ 0 0.108 0.892 ⎞
⎜ ⎟
Q0 × Q1 × Q2 = ⎜ 0 0 1 ⎟
⎜0 1 ⎟⎠
⎝ 0
APV ( Premiums ) = 1 + 0.9v + 0.54v 2 + 0.108v3 = 2.35
( )
APV ( Benefits ) = 4 0.3v + 0.18v 2 + 0.108v3 = 2.01
Difference = 2.35 – 2.01 = 0.34
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:
(1.00 0.00 0.00 ) × Q0 = ( 0.6 0.3 1)

( 0.60 0.30 0.10 ) × Q1 = ( 0.36 0.18 0.46 )
( 0.36 0.18 0.46 ) × Q2 = ( 0 0.108 0.892 )
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
0.25 1.5 q x = 0.25 px − 1.75 px

Let μ be the force of mortality in year 1, so 3 μ is the force of mortality in year 2.
Probability of surviving 2 years is 10%
⎧ 0.10 = px px +1 = e − μ e −3μ = e −4 μ
⎪
⎨ ln ( 0.1)
⎪μ = = 0.5756
⎩ 4
px = e − 4( 0.5756 ) = 0.8660
1
0.25
3 13
−μ
− ( 3μ ) − ( 0.5756 )
1.75 px = px × 0.75 px +1 = e e 4 =e 4 = 0.1540
0.251.5 q x px − 1.75 px 0.866 − 0.154

1.5 q x + 0.25 = = = = 0.82
0.25
0.25 px 0.25 p x 0.866
Question #220
Key: C
The form of lx for non-smokers matches DeMoivre’s law, so

1
μ xNS =
110 − x
2
= 1 μ xS ⇒ μ xS =
2 110 − x
⇒ l xS = l0S (110 − x ) [see note below]
2
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
a&&30:20 = a&&30:10 + 10 E30 × a&&40:10

15.0364 = 8.7201 + 10 E30 × 8.6602
10 E30 = (15.0364 − 8.7201) / 8.6602 = 0.72935
Actuarial present value (APV) of benefits =
MCL-09-08 - 132 -
= 1000 × A40:10
1
+ 2000 × 10 E30 × A50:10
1
= 16.66 + 2 × 0.72935 × 32.61 = 64.23

APV of premiums = π × a&&30:10 + 2π × 0.72935 × a&&40:10
= π × 8.7201 + 2 × π × 0.72935 × 8.6602
= 21.3527π
π = 64.23/ 21.3527 = 3.01
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
e70:2 = 0.96682 + 0.93176 = 1.89858

CF: 0.93176 = 2 p70 = e −2 μ ⇒ μ = 0.03534
Hence e70:2 = p70 + 2 p71 = e − μ + e−2 μ = 1.89704
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
Hence e70:2 = 6,390, 409 / 6,616,155 + 6,164,663/ 6,616,155 = 1.89763
So the correct order is CF < DM < ILT

You could also work with p’s instead of l’s. For example, with the ILT,
p70 = (1 − 0.03318 ) = 0.96682

2 p70 = ( 0.96682 )(1 − 0.03626 ) = 0.93176
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
That really short formula takes advantage of

Var ( a X + b ) = a 2Var ( X ) , if a and b are constants.
Here a = v; b = Px1:2 ; X is binomial with p ( X = 1) = qx +1 .
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
Var ( 1 L ) = 0.1320 − ( 0.0497 ) = 0.1295

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
Seek g such that Pr aT ( 40 ) > g = 0.25 { }

aT is a strictly increasing function of T.
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 ⎠
11V = ( 2000 )( 0.6619 ) − (100 )( 7.1) = 613.80
( 10V + P ) (1.05) = 11V + q50 ( 2000 − 11V )
( 10V + 100 ) (1.05) = 613.80 + ( 0.011)( 2000 − 613.80 )
10V = 499.09
where q50 = ( 0.001)(10 ) + ( 0.001) = 0.011
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
1000 A81 = (1000 A80 ) (1 + i ) − q80 (1000 − A81 )
689.52 = ( 679.80 )(1.06 ) − q80 (1000 − 689.52 )
720.59 − 689.52
q80 = = 0.10
310.48
MCL-09-08 - 138 -
q[80] = 0.5q80 = 0.05
1000 A[80] = 1000vq[80] + vp[80] 1000 A81

0.05 0.95
= 1000 × + 689.52 × = 665.14
1.06 1.06
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 ⎠
2V = 76.40 − 65.28 = 11.12
Question #233
Key: B
pxx = 1 − qxx = 0.96
px = 0.96 = 0.9798
px +1:x +1 = 1 − qx +1:x +1 = 0.99
px +1 = 0.99 = 0.995
0.9798 ( 0.9798 )( 0.995 )

a&&x = 1 + vpx + v 2 × 2 px = 1 + +
1.05 1.052
= 2.8174
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
p′x( ) μ x( ) ( t ) = q′x( ) = 0.20

1 1 1
t
p′x( ) = 1 − tq′x( ) = 1 − 0.08t

2 2
t
p′x( ) = 1 − tq′x( ) = 1 − 0.125t

3 3
t
qx( ) = ∫ px( ) μ x( ) ( t ) dt = ∫ t p′x( ) t p′x( ) t p′x( ) μ x( ) ( t ) dt

1 1 τ 1 1 2 3 1 1
0t 0
= ∫ (1 − 0.08t )(1 − 0.125t )( 0.20 ) dt

1
0
( )
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
0.954G − 1.59 − 2.78 − 0.59

=
0.79722
= 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
Let G denote the expense-loaded premium, excluding policy fee.
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
APV of premiums = G a&&x:20 = 12.522 G
APV premium = APV benefits + APV expenses

12.522 G = 10,145 + 0.8261G + 194.025
10,339.025
G= = 883.99
(12.522 − 0.8261)
This G is the premium excluding policy fee.
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
Get G as in problem 3; G = 884
Now consider renewal per policy expenses, renewal policy fees (here called FR ) and expenses
associated with FR .
APV benefits = 0
APV expenses = ( 3 + 0.05 FR ) ax:19

= ( 3 + 0.05 FR )(12.522 − 1)
= 34.566 + 0.5761FR
APV premiums = ax:19 FR

= (12.522 − i ) FR
= 11.522 FR
11.522 FR = 34.566 + 0.5761 FR

34.566
FR = = 3.158
11.522 − 0.5761
Total renewal premium = G + FR

= 884 + 3.16
= 887
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
Let P denote the expense-loaded premium
From problem 3, APV of benefits = 10,145

From calculation exactly like problem 3,
APV of premiums = 12.522 P
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
12.522 P = 10,145 + 0.8261 P + 244

10,389
P=
12.522 − 0.8261
= 888
Question #240
Key: D
Let G denote the expense-loaded premium.

Actuarial present value (APV) of benefits = 1000A40:20
APV of premiums = G a&&40:10
APV of expenses = ( 0.04 + 0.25 ) G + 10 + ( 0.04 + 0.05 ) G a40:9 + 5a40:19

= 0.29G + 10 + 0.09G a40:9 + 5a40:19
= 0.2G + 10 + 0.09G a&&40:10 + 5a40:19
(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).
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
Let G denote the expense-loaded premium excluding policy fee.

Actuarial Present Value (APV) of benefits = 1000 Ax
= 100,000 (1 − d a&&x )
⎛ ⎛ 0.04 ⎞ ⎞
= 100,000 ⎜1 − ⎜ ⎟ (10.8 ) ⎟
⎝ ⎝ 1.04 ⎠ ⎠
= 58, 462
APV of premiums = G a&&x = 10.8 G
Excluding per policy expenses and expenses on the policy fee,

APV(expenses) = 0.5 G + ( 2.0 )(100 ) + ( 0.04 G + ( 0.5 )(100 ) ) ax
= 0.5 G + 200 + ( 0.04 G + 50 )( 9.8 )
= 0.892 G + 690
10.8 G = 58, 462 + 0.892 G + 690
59,152
G= = 5970.13
9.908
Let F denote the policy fee.

APV of benefits = 0
APV of premiums = F a&&x = 10.8 F
APV of expenses = 150 + 25 ax + 0.5 F + 0.04 F ax
= 150 + 25 ( 9.8 ) + 0.5 F + 0.04 F ( 9.8 )
= 395 + 0.892 F
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.
APV benefits = 58,462

APV premiums = 10.8P
APV expenses = 0.892 P + 690 + 150 + ( 25 )( 9.8 )
= 0.892 P + 1085
where 0.892P + 690 is comparable to the expenses in G above, now including all
percent of premium expense.
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

G = benefit premium plus level premium (e) for expenses.
Expense reserve = Actuarial Present Value (APV) of future expenses – APV of future
expense premiums.
At duration 9, there is only one future year’s expenses and due future premium, both
payable at the start of year 10.
Expense reserve = APV of expenses – APV of expense premiums

= 0.10G + 5 – e
( )
= 0.10 1000 P35:10 + e + 5 − e
= ( 0.10 )( 76.87 ) + 5 − 0.9e
= 12.687 – 0.9e
12.687 – 0.9e = – 1.67

e = 15.95
G = 1000 P35:10 + e
= 76.87 + 15.95
= 92.82
MCL-09-08 - 147 -
Question #244
Key: C
( 3 AS + G − c4G − e4 ) (1 + i ) − 1000qx(+d3) − 4 CVqx(+w3)

4 AS =
1 − qx( +3) − qx( +3)
d w
Plugging in the given values:
=
( 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
With higher expenses and withdrawals:
25.22 + 30 − (1.2 ) ( ( 0.02 )( 30 ) + 5 ) (1.05 ) − 1000 ( 0.013) − 75 (1.2 )( 0.05 )

4 AS
revised
=
1 − 0.013 − (1.2 )( 0.05 )
=
( 48.5)(1.05) − 13 − 4.5
0.927
33.425
=
0.927
= 36.06
4 AS − 4 AS revised = 37.73 − 36.06

= 1.67
MCL-09-08 - 148 -
Question #245
Key: E

APV (actuarial present value) of benefits = 100010 20 A30 .
APV of premiums = Ga&&30:5 .
APV of expenses = ( 0.05 + 0.25 ) G + 20 first year
+ ⎡⎣( 0.05 + 0.10 ) G + 10 ⎤⎦ a 30:4 years 2-5
+10 5 a&&35:4 years 6-10 (there is no premium)
= 0.30G + 0.15G a30:4 + 20 + 10 a30:4 + 10 5 a&& 30:5
= 0.15G + 0.15Ga&&30:5 + 20 + 10 a30:9
(The step above is motivated by the form of the answer. You could equally well put it that form
later).
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
Let G denote the expense-loaded premium

APV (actuarial present value) of benefits
= ( 0.1)( 3000 ) v + ( 0.9 )( 0.2 )( 2000 ) v 2 + ( 0.9 )( 0.8 )1000v 2
300 360 720
= + + = 1286.98
1.04 1.04 1.042
2
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
Equivalence principle: G = 1286.98 + 0.05G + 16.15

1303.13
G= = 1371.72
1 − 0.05
Question #247
Key: C
APV (actuarial present value) of benefits = 3499 (given)
APV of premiums = G + ( 0.9 )( G ) v

0.9G
=G+ = 1.8571G
1.05
APV of expenses, except settlement expenses,

= ⎡⎣ 25 + ( 4.5 )(10 ) + 0.2 G ⎤⎦ + ( 0.9 ) ⎡⎣10 + (1.5 )(10 ) + 0.1G ⎤⎦ v + ( 0.9 )( 0.85 ) ⎡⎣10 + (1.5 )(10 ) ⎤⎦ v 2
0.9 ( 25 + 0.1G ) 0.765 ( 25 )
= 70 + 0.2G + +
1.05 1.052
=108.78+0.2857G
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
1.8571G = 3499 + 108.78 + 0.2857G + 10.50

3618.28
G= = 2302.59
1.8571 − 0.2857
Question #248
Key: D
a&&50:20 = a&&50 − 20 E50 a&&70

= 13.2668 − ( 0.23047 )( 8.5693)
= 11.2918
⎛ 0.06 ⎞
A50:20 = 1 − d a&&50:20 = 1 − ⎜ ⎟ (11.2918 )
⎝ 1.06 ⎠
= 0.36084
Actuarial present value (APV) of benefits = 10,000 A50:20

= 3608.40
APV of premiums = 495 a&&50:20

= 5589.44
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
APV of amounts available for profit and contingencies

= APV premium – APV benefits – APV expenses
= 5589.44 – 3608.40 – 803.81
= 1177.23
MLC-09-08 - 151 -

Actuary Paper 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Actuary Paper 1

Uploaded by

Copyright:

Available Formats

SOCIETY OF ACTUARIES

EXAM MLC ACTUARIAL MODELS

EXAM MLC SAMPLE SOLUTIONS

Copyright 2008 by the Society of Actuaries

MLC-09-08 PRINTED IN U.S.A.

2 q30:34 = 2 p30:34 − 3 p30:34

2 p30 = ( 0.9 )( 0.8 ) = 0.72

2 q30:34 = 0.776 − 0.53376

2 q30:34 = 2 q30 + 2 q34 − 2 q30:34

2 q30:34 = 3 q30 × 3 q34 − 2 q30 × 2 q34

(see first solution for 2 p30 , 2 p34 , 3 p30 , 3 p34 )

1000 Ax = 1000 ⎡ Ax1:10 + 10 Ax ⎤

= 1000 ⎡ 0.06∫ e −0.1t dt + e −1 (0.07) ∫ e−0.12t dt ⎤

= 1000 ⎡ 0.06 ⎡1 − e −1 ⎤ + 0.07 −1 ⎡ −1.2 ⎤ ⎤

With those relationships, the solution becomes

Let ns = nonsmoker and s = smoker

q xb + kg pxb + kg q xb +gk px( +)k

A x:2( ) = v q x( ) + px( ) qx( +1)

A x:2( ) qx( ) + v2 px( ) q x( +)1

A1x:2 = weighted average = (0.75)(0.1403) + (0.25)(0.2710)

μ x(τ ) = μ x(1) + μ x( 2 ) + μ x( 3) = 0.0001045

= 27.5 (16.6377 ) = 457.54

While this solution above recognized that π = 1000 P40:20

APV Benefits = 1000 A40 = 161.32

Note that the approximation a&&x( ) ≅ a&&x −

The following steps would do in this multiple-choice context:

1. From the answer choices, this is a recursion for an insurance or pure

More rigorously, transform the recursion to its backward equivalent,

Condition (iii) forces it to be answer choice C

u ( k − 1) = Ax fails at x = 69 since it is not true that

and a&&40 = (1 − A40 ) / d = (1 − 0.35076 ) / 0.05 = 12.9848

Let NS denote non-smokers and S denote smokers.

The shortest solution is based on the conditional variance formula

Alternatively, here is a solution based on

Var ⎡⎣ aT ⎤⎦ = 53.557 − ( 6.67 ) = 9.1

= which is Bowers formula 5.2.9

= E ⎡⎣ v 2T NS⎤⎦ × Prob ( NS) + E ⎡⎣ v 2T S⎤⎦ × Prob ( S )

+ ⎣⎡( 0.01)( 8.818 ) + 0.4442 ⎦⎤ × 0.30

= E ⎡⎣ vT NS⎤⎦ × Prob ( NS) + E ⎡⎣ vT S⎤⎦ × Prob ( S)

Preliminary calculations from the Illustrative Life Table:

For x ≤ 50, FT ( x ) = ∫ 3.813 f1 ( t ) dt = 3.813F1 ( x )

Let NS denote non-smokers, S denote smokers.

Prob (T < t ) = Prob (T < t NS) × Prob ( NS ) + P rob (T < t S) × P rob ( S )

0.25 = 0.3e−2t + 0.7e −0.1t = 0.3 e−0.1t

Substitute: let x = e −0.1t

0.3 x 2 + 0.7 x − 0.25 = 0

Let N = number of sales on that day

N~Poisson (0.2∗50) ⇒ E [ N ] = Var [ N ] = 10

Var [ S ] = Var [ 0 L ] ⋅ E [ N ] + ( E [ 0 L ]) ⋅ Var [ N ]

Std Dev (S) = 12,416

With the answer choices, it was sufficient to recognize that:

1000 P40 = 10.89 as above

161.32 + 73.18 − 128.08 − 64.79

20V = 4000 A60:5

21V = ( 5000 )( 0.05779 ) + (1000 )( 0.73898 )( 0.43980 )

Var ( Z ) = 2 A41 − ( A41 )

A41 − A40 = 0.00822 = A41 − (vq40 + vp40 A41 )

Var ( Z ) = 0.07193 − 0.216502

Big picture ideas:

Let sk = state you are in at time k ( thus sk = 0, 1 or 2 )

Let Yk = present value, at time k , of the future payments.

Recursively we can write

Every time we are in state 0 we have

Similarly, every time we are in state 2 we have