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    © All Rights Reserved
    Download as PDF or read online from Scribd
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    13 views55 pages

    MLC Sring2016 Solutions

    Uploaded by

    David Arteaga
    Solitions

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 55
    1. Youare using a Markov mocel for the future repair status of televisions. The three states are! Fully Functional (F), Requires Repairs (R). and Beyond Repair (B). You are given: (The tiie annual probability transition matix: FOR B > F{082 0.110 0.08 R| 0.60 005 0.35 BLO 0.10 1.0, Gi) ‘There are now five televisions that are Fully Functional. (iii) The status of each television is independent of the status of the others. 4 N be the & of FF Vs 2 yeas Calculate the probab’lity that exactly two of these five televisions wit be Full; Functional at the end of two years. Fl Fe ato = (8% a 98) N™ bineral (ne 5, pF Qe(w=2)> (4) aser cr aaey! = Bieamia\ an “ = 304) 2. You are gives the survival function: S| (2). 0< S60. Mome vebo, ae 5 Calculate 100044. . w Be love Pas (000, >|33) bo-35 - Sb) he 843 o BL fe DAL Bros ‘A fund is established for the benefit of 400 workers all age 25 with independent future Percontle lifetimes, When they reach age 65, the fund will be dissolved and distributed to the survivors. The fund will eam interest ata rate of 6% per year. ‘The initial fund ba.ance, £, is determined so that the probability Jeast 15.200 to eaca survivor is 86%, using the normal approximation. Mortality follows the Ilustrative Life Table. Q _ 7533, aby Nw beromcal (n> 40%, p> yhc = Ge > asset Calculate F. Leb Nobe Hae # o€ gurvivers ak age 6S py (Eetee Fx pot" > iS2ee ) « 0.86 N Evia Frio? fe ( 1S, 209 (s,a00 EON) + 1.0% OF = Ew): ye ne = 400@ > 315.06 Uae) ny ny (‘-) 2 5, >| (1-8) at the Ms lpr at - wl -o) Neal Bet CW rm 3 the Te pyle oe (ti pen eas uve ecladeetnerliinbuin om 80, A) ‘Re nina be tas pen Bo Mec. Tose ea em han = a EGEEE GQEGE 29989 288 oe ea tea Sat ‘in So soo oor ton om tia Some Sos Go tse Game Sica oe ison So i WT ff BERNE S008 2 a fr(ze Log) = 954 e ve Gostaut transish’on Gi 4. 4 5-year sickness insurance policy is based on the following Mactov model: 3. ) BD) $3) 2 @ Healtly 25 sick a co 0 a 1 oN Dead fo 2 4091 ‘You ace given the following constant forces of transition: ay 0 \ shy 1 @ pw" =005 ° Ss (i) pw" =002 si (ii) =0.01 5 we - 06, (5-3) ws" 006 Se . Bs wate 4 : Ve *( ser ds Calculate the probability that a Healthy life will become Sick exactly onge during the old ods ‘years and remain continuously Sick from that point untilthe eid ofthe 5 years. 2 oS @ ° - 009) * ots [ Trae) > 8 / ee oh D2. 5. Fora select and ultimate mortality model with a one-yea select period, you are given: GJ+) ext) S&u (@ pj =C+4)p,, for some constant & 1 \ 1 1 ae Wt ai) 4g= 2184 ~ ch xh aie) oe (ii) 5 =22.167 i pote w XH ge Ya BTA Calealate:k, ash = Buy t+ GV Sana) D BY Senne > 20989 Whe pane = gga 2 Vt fog” Senne 22lbF2 1 + (ite)ao.8S¥ he fold Ta4 6. Fora 10-year term insurance paying a death benefit of 100,000 at the end of the year of Tur the last death of (50) and (60), proviced the last death Occurs within the 10 years, you are given: — (i) Mortality follows the Illustrative Life Table. i) Future lifetimes are independent. eo = y* = 1feriee ov fos * wefte = yokse” ipbbe (ii) 1=0.06 yet gorte 1° » Lob Calculate the single net premium, t - i -| lo0,000 \ = 100,000 ( Ashiaa + hem Nesteorra) fesd.ea Breo :v0l E. = oS - Si vel (3618. Agim Py -wEs * bee aes ~ So) (3643) Aca hee — eEve: Ane = toad - asia CSIay 1 (S10 Agee ~ wl sto © Puvte = 4r7ab—- sve) (4519) 00" (SP) 7. Fora fully discrete whole life insurance policy of 100,000 on (35), you are given: (i) First year commissions are 19% of the annual gross premium. = \4‘le rirstyear commissi 19% of the annual gross premiur (ii) Renewal year commissions are 4% of the annual gross premium. — = Mortality follows the Illustrative Life Table. (iv) 1=006 Calculate the annual ro etn for this policy using the eiviady ciple AQUEL = APUEB + Ate G tye = W9PEP Age FG Hyg t SE (sable = versne) 4 ot (FIDE) HIE EX| 8. Fora fuly continuous 20-year term insurance policy of 100,000 on ($0), you are given: cr () Gross premiums, calculated using the quivalesee principle, are payable at an annual rate of 4500, Gi) Expenses at an annual rate of & are payable continuously throughout the life of the policy. NLP = lov 200 pr = 1oagon (01) fv) 5=008 > 4p0o Avet® APUFGS HPUFE US00 Gey aaj 100,000 Psp: 7a) 4+ R a0. (ii) fy, =004,fort>0 CF Calculate R. oD) lpm * (00,000 Foo] (ort) Belinatn) = tere he Crate) (uge0-t) ws = (00900 (ss > TAL 9, Fora fully discrete whole life insurance policy of $0,000 on (35), with premiums payable Let for a maximum of 10 years, you are given: Rr (i) Expenses of [00 are payable at the end of each year including the year of death. TT = ' 2 (i) Mortality follows the LJustrative Life Table. ? g (ii) i= 0,06 25 thay 3F € @ death Calculate the annual ross peraum using theequivelenes principle. * (0043. + 100 fay Mure = Kerbs ure wae 120 + ov" bs x « « G eye) = SPP Ags +0045 roof, 6 TaR Cisguzay = Gas 7 Ess “Cus > 9b - CHsts( 4.21) =O +1008 fs yee = (00+ 00y day 2 Qs* VEE tWaly # - 10. Foran g-year endowment in @ (ii) (iii) iv) w (vi) E31 yrance of 1000 on (1), you are given: udp wi CHh Death benefits are payable at the moment of death. Premiums are payable ancuslly at the beginning ofeach year. Deaths ace uniformly distributed overeach year of age. AOD i=005 Bam * $ Mem + aEy E,=0D mae 2h Ay oe nr > Abas ous does) Kal Aca = 0.192 00 8: o('9D_ Calculate the annual net premium for this insurance. > 200 Bsr », ween: Pa au Gam Wo. eof 0 E2| 11. xvz Insurance writes soon thy discrete whole life insurance policies of Bon lives rey age 20 20 and an additional 10.000 a uy discrete whole ¢ whole life Policies of 1000 1000 on lives age 50. 50. “s XYZ used the following Beet ‘o determine the net premiums for these policies: es Ay Ss (i) Mottality follows the Ilustrative Life Table. ee - bw (1.08 ") @=: eect ° (i) 1=0.06 = foo = ston (1.00) Darng the first ten years, morality dd follow the Illustra Sys) Calculate tad averagh ne: premiu ne: premium per poly in force received atthe beginning ofthe eleventh year = PP, - 52% 26 Ps * ayo (b.5133 fo = [OAse - 24Aee” = 13.2668 ee 10-660 ©. + ® r900 of - [vas] 2 L000 Qe 4 0660 fed E2| 12. Fortwo fully discrete whole life insurance policies 01 (x), you are given: w Death | Annual 5 €P Variance of Benefit | Net Premium | Loss at Issue Policy 1 | __8 1.250 20.55 Policy 2 | 12 1.875 We ; ob (i) i= 006 a> 778 (iii) The two policies are priced using the same mortality table caniacn, br (La) = (s+) Varlt) al goss = (8) LY Ver) (We(3) = 897) eu we (at sy)” (02!) = PH 13, Fora fully diserete 30-year endowment insurance of 2000 on (35), you are given: we more prem any (Atte end of 15 years, the policy is converted toa reduced paid-up endowment insurance of 800. ~ (i) tthe time of conversion, the actuarial present value ofthe reduced paid- upendowment insurance equals the 15* yeaaet premiutp reserve of the original policy less the amount of the surrender charge (iii) = i=5% t ¢ + i = 35 ea 6s Ag =0.255 Ww (Ags oo ° 3 (@ | A,q=0506 goo Asis) 2 V-sce 9 SC Calculate SC. = Qwol pod DB: Fr+av 14, Greg, age 36, buys a Type B uni policy. ‘The initial premium is 4450 and the additional death benefit is} ——evr The policy charges are: = 2009 © Cost of insurance rate: 120% of the. mortality from the Illustrative Life Table + Expense charges payable atthe stat of each year: 56 plus 2% of premium You are given: @ (i) (iii) Calculate the account value at the end of the first year. AV, — rai 005 All cash flows occur at policy anniversaries. Account values are calculated annually oot" 2 = (04 44sv(at)-s - 2ope v.12 a) {.06 zo: Db BA 15. Fora 40-year endowment insurance of 10,000 issued to (25), you are given: c @ — i=0.94 We weo- 4 Fae 4 ett Gi) 7,,=0.995 yom wa Xe bs 2 toporgg® Py Gi) iggy =N.987097 = sexe At) = tororvtg FO ye " (iy 65 =16.645 er (¥) The annual leval net premium is 216 A modified premium reserving method is used for this policy, where the modified wm 140 premilmisate: — (170 L A first jum equal to the first year net 2ost of insurance first year premium eq y 20 o mw II Level premiums of f for years 2 through 20, and ml Level peniuna 21rd. het 260 alba? Wort Baa - p cues p 232.65" \eel DS 297.2 99 16. Fora Typeh unfesal i universal life insurance policy issued to (50), you ae given: & 2500 oa ro (i) The total death benefit is 500,000. AdR= 920% - Av ®) 3000 Gi) Leve! annual premiums are $000 payable a the beginning of each year. © 3500 Death benefits are pad atthe end of the year of death a ae © 4500 (iv) The cost of insurance rates are 120% of the mortality from the Mlustative Life Table. ~, (vy) 4=093 and * =0,045 for all years. a (wi) Expense charges payable at the stat ofeach yeur: 75 plus 3.5%of each annual prem-um, (vil) Account values are calculated annually. (vii) The sccount value atthe end of the frst year is 1369.90. AY, Calculate the account value at the end of the second year. “| Loud - — Vag bE Na mee se go00 (\=.085) ~ 15. ~ 524700 AV) Mas” ings ye Ease esse? (es a85) - IS - $2,200 vn 4R) aH) be Vey Meat pons @) E2\ 17, Foraspecial fully discrete whole life insane "you are given: wid reaustoy () The death benefit is 1000.03)! for death in policy year & for F123. 2 jo00(L03) eoo(e8) (i) @, = 0.05 -_ x mt wd ii) §=0.06 wen wth ee (wy 700 dys EVP By yy HN Lae! (L--05) 7 = @ Aeuee () (©) The annual net premium for this insurance at issue age xis 110. = ————> —— Bes Cate te smal et pein for isis aise age. bs) NOG = fo0.04 Aeveplet) . sl - [wea] ooo oaiy> 8M = 3 +o lbos)g,- anvegird 9 AA y Feet * abe dal ohdvn roriante 9 twteslg, me eDaPatet oleate v (eye tu (4) = 10% (3) v er * 4222 (34) vad nto Paneer wT 18. You ate given the following information about a 60 year old member of a defined benefit aoe ‘pension plan with 35 years of past service: Ve Few ve Govyfy (iS, denotes the salary earned from age x 10 x+1. Vi ISS ol ay ste ° (ii) Death the only decrement other than retirement and occurs mid-year. vy (ii) There reno benefits paid upon death, * [ is ws (iv) V represents the actuarial liability at age 25-47. asV (8) Funding is based on the projected unit credit method. to Is ? Which of te following isa comect expression for the normal contribution forthe Sy setremert benefit at the stat of the current year) = 1 w iv 0 : . eV FCe VR WV ®) (-B)w 265, 2 BT © Lv 8 wv tC z 3. a5 > 265, wo [Be-iLy (ss | WS 1 © sy 19. Sem oi A pension plan provides an annul retirement bene®it of 2 of final year’s salary for each poly year of Srvice, 2eyable atthe start of each. month, upon retirement aLage 65. ‘The ant ual am retirement benefit cannot exceed 60% of inal yeas salary. “Y A member, now age45, joined the plan at age 30. Her current salary is 50,(00 and will increase at the raig af 3% per year atthe start of each yearin the future. ‘You are given: Sus = 50,000 @ 600 ant =3000 Siq> $0900 (103)"* 99845 iy i005 nSK > 3S- (37,695) (02) * W373 O(G1LAS)= $2,605. anual bend + §2,l0 Calculate the expected present valueof this member's retirement benefit, > $2,005 W ; rte (_Ioor EeVe Ses at? ve 9 = $2,b05 (74) Los (ee) ii) a 780 20. Phillip, whois age £0, joins XYZ company which offers him a choice of two pension ou plans: Plan 1 pays an annual pension of 1250 for each year of service. ¢ Pan pays an annul pension of 2% of his arer average salary for each year of servic s You are given ()Hisstaringsalary is S, and he wil ecive a4 salary increase atthe tw beginning of each yes starting at age 4. & Slt) - - Solio) “ 1+ —_»——_ ++ (ii) He wil retreat age 65. ew ae (iii) Plan 1 and Plan 2 both pay benefits atthe beginning of each year (iv) Plan 1 and Plan 2 y-eld the same replacement ratio for him. = Porstes Bowe SU) Calculate S, \2s0~25 > 28 xFx (02) DS tr: SK S (lot) r-4 Gl (1%). 5, S, Pat Fes a5 \— 1-04 (12 points) You are using te following 3-state Markov mode! to price a special three- ‘year term insurance for Jane, who is exact age 90: Healthy [———*[_ Disabled 1 4 to —_ 1 1590 woop we BY Dead 2 * [be tissue, Jae s Healthy. 20 a sex crn , . eH Ww @ “The poiey Frovides the fobwving benef: a3 o 429 +A death benefit of 100.000 payable atthe end ofthe year of death +A paymert of 23,000 atthe end of any vearif Tane provides evidence that she is Disabled at tiattime. & The policy bas annua level net prenfns payable when Jane is Healthy. we se shhh he wa OyhT Using the above probability values, the probabilizy that Jane is in State jat time 1's as, follows: Time Since Issue (() e) 0 1 2 3 1 oas_| 05880 [A 0 005 | 0.145 |B C 0.10 | 02875 [_C »)-J= (a) G points) Calculate A, B, and Cin the table above (i.e calculate the probabil ‘of being in State j 3 years after issue, for j=0.1,2), & You are given: Giz (i) ph, =0.08+0.07%1 for r= 019 Gi) p8,=0.1040.10r for #= 0,169 1 =0.15+0.200 for t= 0.1{5) 08!) (ii) pl, =020 fors iy) () i008 ev Ty: (1 0 2) Ty: (85 0s Th, = (s8 AMS 2878) T,74 @ vo) 27, faa. oe 192,200" ian ave - Ve # You are given: ° r L CpG, #0054001 fort= 0.1 er. ° my era LIC) Gi) p, =0.1040.10 for=0.1 ne Lu “as ii) ph, =0.20 fers =0,iB) ° ° \ (iv) Ph. =0.15+0.201 for 1=0,1{8] v () — i=008 2 (S86 [ees 2878, 2 RNIB Ty (Cn) A ( | 2 Ty: (a5 05 \) a, 2(ss8 4 BB) og (ser AS ers f 2 tsis T,2(4 & 9 = TT, Pee \ 3 > (sie arts 2498) (*): 3035 tl? 1 & G4 (6) (J point) Show that the expected present value of the Disability benefit is 6700 to the nearest 100. You should calculate the expected present value to the nearest J. T(t o 2 AV Ds, + 2S000v (,05) Ty: (5 cae 5) + 25000 (248) ay(see 24S ae) £1000 y3 (.142845) 1,2 (uns spsis 32395) Git (c) (J point) Show that the expected present value of the Death benefit is 45,000 to the nearest 1000. You should calculate the expected present value to the Beatest |. Ty (6 9 9) ERV Oketh = t0n,000v (.1-9) Ty: (5.05 4) + toopo0y” (1495-1) 1 (85 ay e(see ee 2875) + (oopvov¥(542375— 275) 22 . 1,2 (4uns Asis 32375) (4) (point) Calculate the annual net premium. Git 0° igs 2 1+ Sv + sev" 29UIS Ty: (1 0 9) Z T,: (35 05 4) 4, 2(s% ALES 2878) . v 1,2 (Uns sApeus 30375) AIR? ARVES Fam Q) — free) ¢- des = Ges) + 44,773 p= Qube . Pay eva 224s Gis (e) (3 points) Calculate the net premium reserves at the end of the second year, evi" Wand ,V% , for this poli “ PP ° \ Ps % Ae 4-3 054.00) tery qe P, . 2 SI 2.19 23 Re ass IS 2) ail 2 Vag ase ° ° \ v 2 ov) + 3 (too vv) — 9244] AV = paure — AWvER = AOS) 200 v) ©) av 5NO) = AAVER- ABNER > .25(25,00v) + llogorev) ~ O You me given: ‘The policy offers an optional feature that provides a refund of all premiums paid (including . the premium for this feature) without intrest at the end of those years if the policyholder 0 hhas not received any other benefits prior tothe expiration ofthe policy w ? (f) (2 points) Calculate the increase in the annual net. penium if his optional feature i) ‘saddedto the policy. “pf = DL Bbb - 22,444 (407 a wy) APve? = BAVA 0 from fret) J 3,0 00 a Pag = bch] + 4473 + BP V Be fs fe Gly ms, =008+007 for = {2 fs, = 0.100.108 fort =) 2 5, =020 fort =0.1.2 ‘, =0.15+020¢ fort =0,1,2 i008 Te) 2 Gb) 44,773 + Zp! Loe? (a5) (48) (5) f': 3p, 366 fre? t+ (ase. as er f= (stor tlt A)z 68 feo 7 Sl from Co) Gy (g) (I point) Features such as return of premium options may affect the other benefits claimed on a palicy. Explain why that might be true under this policy. 3p! s 3 (32366 )= 27,08 Hak 0 WU We % an Sewred thet becomes Aisabled doing yer 3 vil por regee® hey diseVled so ut che an veceive the layer Roe payment ol 2. (points) Sam, age35, purchases two insurance policies with present value random variables Z, and Z, given by: 10", O lwo he E(at)= 100 - Ara a } 13s vara) €(2)- €(a)*= ~ (0 Fes) we a2 heat Cl we 1", O< 7,25 “lt, 25<% 100v, O

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