AALI ASSIGNMENT (Case 3 - Annuity)

Submitted By:
Group 5
Sanket Khetale (182025)
Akhand Tomar (182078)
Case 3: Annuity
New Life Insurance Ltd., has an annuity plan under which the annuitants can make a one time payment a
sum every year.

The annuity can is offered for either

a) 15 years or till death, whichever is earlier
b) 15 year or till death, whichever is earlier subject to a minimum guaranteej of 5 years (if the annuitant
shall get the annuity till the end of fifth year)

There is also two sub varieties. The annuity can either be a level annuity or the annuitants can ask for 5%

Under all the schemes, 50% of the original investment shall be returned as survivial benefit at the end of

Calculate the annuity payable to a 70 year old annuitant for an investment of Rs.1,00,000 under following
a) Level annuity for 15 year or till death
b) Level annuity for 15 years or till death with first years guaranteed.
c) Growth annuity for 15 year or till death
make a one time payment and in turn get a predetermined

of 5 years (if the annuitant dies within five years, the family

e annuitants can ask for 5% increase per annum.

rvivial benefit at the end of the annuity term

Rs.1,00,000 under following options

 AALI A

A) Level an
Year Age P(D) Conditional P(D) P(S)
0 70 - 100%
1 71 2.4301% 2.4301% 97.5699%
2 72 2.7410% 2.6744% 94.8955%
3 73 3.0862% 2.9287% 91.9668%
4 74 3.4656% 3.1872% 88.7796%
5 75 3.8793% 3.4440% 85.3356%
6 76 4.3272% 3.6926% 81.6430%
7 77 4.8093% 3.9265% 77.7165%
8 78 5.3257% 4.1389% 73.5776%
9 79 5.8763% 4.3236% 69.2539%
10 80 6.4611% 4.4746% 64.7794%
11 81 7.0802% 4.5865% 60.1929%
12 82 7.7335% 4.6550% 55.5378%
13 83 8.4210% 4.6768% 50.8610%
14 84 9.1428% 4.6501% 46.2109%
15 85 9.8988% 4.5743% 41.6366%
As 50% of the value is to be Returned on survival of the term

Decimal points - Upto 4 digits

B) Level annuity for 15 ye

Year Age P(D) Conditional P(D) P(S)

0 70 - 100%
1 71 2.4301% 2.4301% 97.5699%
2 72 2.7410% 2.6744% 94.8955%
3 73 3.0862% 2.9287% 91.9668%
4 74 3.4656% 3.1872% 88.7796%
5 75 3.8793% 3.4440% 85.3356%
 6 76 4.3272% 3.6926% 81.6430%
7 77 4.8093% 3.9265% 77.7165%
8 78 5.3257% 4.1389% 73.5776%
9 79 5.8763% 4.3236% 69.2539%
10 80 6.4611% 4.4746% 64.7794%
11 81 7.0802% 4.5865% 60.1929%
12 82 7.7335% 4.6550% 55.5378%
13 83 8.4210% 4.6768% 50.8610%
14 84 9.1428% 4.6501% 46.2109%
15 85 9.8988% 4.5743% 41.6366%
As 50% of the value is to be Returned on survival of the term

Decimal points - Upto 4 digits

C) Growth a
Year Age P(D) Conditional P(D) P(S)
0 70 - 100%
1 71 2.4301% 2.4301% 97.5699%
2 72 2.7410% 2.6744% 94.8955%
3 73 3.0862% 2.9287% 91.9668%
4 74 3.4656% 3.1872% 88.7796%
5 75 3.8793% 3.4440% 85.3356%
6 76 4.3272% 3.6926% 81.6430%
7 77 4.8093% 3.9265% 77.7165%
8 78 5.3257% 4.1389% 73.5776%
9 79 5.8763% 4.3236% 69.2539%
10 80 6.4611% 4.4746% 64.7794%
11 81 7.0802% 4.5865% 60.1929%
12 82 7.7335% 4.6550% 55.5378%
13 83 8.4210% 4.6768% 50.8610%
14 84 9.1428% 4.6501% 46.2109%
15 85 9.8988% 4.5743% 41.6366%
As 50% of the value is to be Returned on survival of the term

Decimal points - Upto 4 digits

 Decimal points - Upto 4 digits

ANSWER
Year Annuity to be Paid per Annum Value of Annuity
0- -
1 1.00 X 6978.3786
2 1.05 X 7327.2975
3 1.10 X 7693.6624
4 1.16 X 8078.3455
5 1.22 X 8482.2628
6 1.28 X 8906.3759
7 1.34 X 9351.6947
8 1.41 X 9819.2795
9 1.48 X 10310.2435
10 1.55 X 10825.7556
11 1.63 X 11367.0434
12 1.71 X 11935.3956
13 1.80 X 12532.1654
14 1.89 X 13158.7736
15 1.98 X 13816.7123
If
Annuitant
survives at 50000
the end of
term
 AALI ASSIGNMENT (Case 3 - Annuity)
Submitted By:
Group 5
Sanket Khetale (182025)
Akhand Tomar (182078)

A) Level annuity for 15 year or till death

Annuity to be paid on Survival Spot Rate Expected Value of Annuity

1.00 X 4.706% 0.98 X

1.00 X 4.937% 0.95 X
1.00 X 5.549% 0.92 X
1.00 X 5.829% 0.89 X
1.00 X 5.901% 0.85 X
1.00 X 6.555% 0.82 X
1.00 X 6.734% 0.78 X
1.00 X 6.745% 0.74 X
1.00 X 6.760% 0.69 X
1.00 X 6.418% 0.65 X
1.00 X 6.774% 0.60 X
1.00 X 6.884% 0.56 X
1.00 X 6.889% 0.51 X
1.00 X 6.819% 0.46 X
1.00 X 6.986% 0.42 X
50000.0000 6.986% 20818.2780

Total of the PV 7.2342

Orignal Sum paid by the annuita 100000
Let Annuity Payable per year 1.00 X
Total of the PV= Orignal Sum paid by Annuitant
7567.5607 + 7.2342X = 100000
7.2342X = 92432.4393
X = 12,777.1473

annuity for 15 years or till death with first years guaranteed.

Probablity of payout Annuity to be paid on Survival Spot Rate

100% 1.00 X 4.706%

100% 1.00 X 4.937%
100% 1.00 X 5.549%
100% 1.00 X 5.829%
100% 1.00 X 5.901%
 - 1.00
- 1.00
- 1.00
- 1.00
- 1.00
- 1.00
- 1.00
- 1.00
- 1.00
- 1.00
rm
X 6.555%
X 6.734%
X 6.745%
X 6.760%
X 6.418%
X 6.774%
X 6.884%
X 6.889%
X 6.819%
X 6.986%
50000.0000 6.986%

Total of the PV
Orignal Sum paid by the annuitant
Annuity Payable per year
digits
Total of the PV= Orignal Sum p
16369.4043 + 9.0448X
9.0448X = 83639.5
X = 9247.2923

C) Growth annuity for 15 year or till death

Annuity to be paid on Survival Spot Rate Expected Value of Annuity

1.00 X 4.706% 0.98 X

1.05 X 4.937% 1.00 X
1.10 X 5.549% 1.01 X
1.16 X 5.829% 1.03 X
1.22 X 5.901% 1.04 X
1.28 X 6.555% 1.04 X
1.34 X 6.734% 1.04 X
1.41 X 6.745% 1.04 X
1.48 X 6.760% 1.02 X
1.55 X 6.418% 1.00 X
1.63 X 6.774% 0.98 X
1.71 X 6.884% 0.95 X
1.80 X 6.889% 0.91 X
1.89 X 6.819% 0.87 X
1.98 X 6.986% 0.82 X
50000.0000 6.986% 20818.2780

Total of the PV 7569.6506

Orignal Sum paid by the annuita 100000
Growth in Anuuity per Annum 5%
Annuity Payable per year 1.00 X
Total of the PV= Orignal Sum p
16369.4043 + 11.9855X
11.9855X = 83639.
X=
PV of expected Value of Annuity

0.93 X
0.86 X
0.78 X
0.71 X
0.64 X
0.56 X
0.49 X
0.44 X
0.38 X
0.35 X
0.29 X
0.25 X
0.21 X
0.18 X
0.15 X
7560.3264

(+) 7.2342 X
100000
1.00 X

Therefore, The Annuity Payable is Rs. 12,777.1473

Expected Value of Annuity

1.00 X
1.00 X
1.00 X
1.00 X
1.00 X
 0.82 X
0.78 X
0.74 X
0.69 X
0.65 X
0.60 X
0.56 X
0.51 X
0.46 X
0.42 X
20818.2780

16360.4906
100000
1.00 X
Total of the PV= Orignal Sum paid by Annuitant
16369.4043 + 9.0448X = 100000
9.0448X = 83639.5094
X = 9247.2923

PV of expected Value of Annuity

0.93 X
0.90 X
0.86 X
0.82 X
0.78 X
0.71 X
0.66 X
0.61 X
0.57 X
0.54 X
0.48 X
0.43 X
0.38 X
0.35 X
0.30 X
7560.3264

(+) 9.3242 X
100000
5%
1.00 X
Total of the PV= Orignal Sum paid by Annuitant
16369.4043 + 11.9855X = 100000
11.9855X = 83639.5094
6978.3786
 ASSUMPTIONS -:
Premium/Investment of Rs. 100000 is paid at the beigning of the term.
Annuity is payable at the end of the year, in annual mode. for example - at the end of Year 1, the
Year 2 etc.

METHOD OF CALCULATION -:
a) Level annuity for 15 year or till death -
Total of the PV of expected value will be equal to the sum invested by the annutant. Using Goal Seek
calculated the Annuity payable per year.
For Present value Calculation First assuming the Annuity to be Rs.1.
b) Level annuity for 15 years or till death with first years guaranteed. -
Total of the PV of expected value will be equal to the sum invested by the annutant. Using Goal Seek
calculated the Annuity payable per year.
For Present value Calculation First assuming the Annuity to be Rs.1.
First 5 years will be Guaranteed payment and probablity of survival/Death will not matter much as it
is 100% payout.

c) Growth annuity for 15 year or till death 0

Total of the PV of expected value will be equal to the sum invested by the annutant. Using Goal Seek
calculated the Annuity payable per year.
For Present value Calculation First assuming the Annuity to be Rs.1.
Annuity is increasing hence every value is changing at 5% rate.

PV of expected Value of Annuity

0.96 X
0.91 X
0.85 X
0.80 X
0.75 X
 0.56 X
0.49 X
0.44 X
0.38 X
0.35 X
0.29 X
0.25 X
0.21 X
0.18 X
0.15 X
7560.3264

(+) 7.5717 X
100000
1.00 X

Therefore, The Annuity Payable is Rs.

9247.2923
nd of Year 1, the

ant. Using Goal Seek

ant. Using Goal Seek

ot matter much as it

ant. Using Goal Seek

Mortality tables
Note: qx refers to the probability that a person with the given age dies before the next birthday

Table 1: Mortality table for insured life Table 2: Mortality table for Ann

Age qx Age qx
1 NA 20 0.0919%
2 0.0915% 21 0.0961%
3 0.0470% 22 0.0999%
4 0.0271% 23 0.1033%
5 0.0185% 24 0.1063%
6 0.0152% 25 0.1090%
7 0.0149% 26 0.1113%
8 0.0167% 27 0.1132%
9 0.0206% 28 0.1147%
10 0.0265% 29 0.1159%
11 0.0341% 30 0.1166%
12 0.0429% 31 0.1170%
13 0.0522% 32 0.1170%
14 0.0614% 33 0.1171%
15 0.0698% 34 0.1201%
16 0.0770% 35 0.1246%
17 0.0829% 36 0.1308%
18 0.0874% 37 0.1387%
19 0.0905% 38 0.1482%
20 0.0924% 39 0.1593%
21 0.0934% 40 0.1721%
22 0.0937% 41 0.1865%
23 0.0936% 42 0.2053%
24 0.0933% 43 0.2247%
25 0.0931% 44 0.2418%
26 0.0931% 45 0.2602%
27 0.0934% 46 0.2832%
28 0.0942% 47 0.3110%
29 0.0956% 48 0.3438%
30 0.0977% 49 0.3816%
31 0.1005% 50 0.4243%
32 0.1042% 51 0.4719%
33 0.1086% 52 0.5386%
34 0.1140% 53 0.6058%
35 0.1202% 54 0.6730%
36 0.1275% 55 0.7401%
37 0.1358% 56 0.8069%
38 0.1453% 57 0.8710%
39 0.1560% 58 0.9397%
40 0.1680% 59 1.0130%
41 0.1815% 60 1.0907%
42 0.1969% 61 1.1721%
43 0.2144% 62 1.1750%
44 0.2345% 63 1.2120%
45 0.2579% 64 1.2833%
46 0.2851% 65 1.3889%
47 0.3168% 66 1.5286%
48 0.3536% 67 1.7026%
49 0.3958% 68 1.9170%
50 0.4436% 69 2.1583%
51 0.4969% 70 2.4301%
52 0.5550% 71 2.7410%
53 0.6174% 72 3.0862%
54 0.6831% 73 3.4656%
55 0.7513% 74 3.8793%
56 0.8212% 75 4.3272%
57 0.8925% 76 4.8093%
58 0.9651% 77 5.3257%
59 1.0393% 78 5.8763%
60 1.1162% 79 6.4611%
61 1.1969% 80 7.0802%
62 1.2831% 81 7.7335%
63 1.3765% 82 8.4210%
64 1.4792% 83 9.1428%
65 1.5932% 84 9.8988%
66 1.7206% 85 10.6891%
67 1.8635% 86 11.5136%
68 2.0240% 87 12.3723%
69 2.2040% 88 13.2652%
70 2.4508% 89 14.1924%
71 2.6314% 90 15.1539%
72 2.8832% 91 16.1495%
73 3.1638% 92 17.1794%
74 3.4757% 93 18.2436%
75 3.8221% 94 19.3419%
76 4.2601% 95 20.4746%
77 4.6316% 96 21.6414%
78 5.1024% 97 22.8425%
79 5.6231% 98 24.0778%
80 6.1985% 99 25.3473%
81 6.8338% 100 26.6511%
82 7.5350% 101 27.9892%
83 8.3082% 102 29.3614%
84 9.1601% 103 30.7679%
85 10.0979% 104 32.2087%
86 11.1291% 105 33.6836%
87 12.2616% 106 35.1928%
88 13.5037% 107 36.7363%
89 14.8639% 108 38.3139%
90 16.3507% 109 39.9258%
91 17.9726% 110 41.5720%
92 19.7380% 111 43.2524%
93 21.6547% 112 44.9670%
94 23.7302% 113 46.7159%
95 25.9706% 114 48.4989%
96 28.3813% 115 50.3163%
97 30.9659% 116 52.1678%
98 33.7265%
99 36.6630%
100 39.7733%
101 43.5029%
102 46.4950%
103 50.0904%
104 53.8278%
105 57.6942%
106 61.6752%
107 65.7553%
108 69.9191%
109 74.1515%
110 78.4383%
111 82.7673%
112 87.1285%
113 91.5145%
114 95.9214%
115 100.0000%
 next birthday

ortality table for Annuitants

Risk free spot rates

Term in Term in Spot rate

text number
3 months 0.25 4.100%
6 months 0.50 4.500%
1 year 1.00 4.706%
2 years 2.00 4.937%
3 years 3.00 5.549%
4 years 4.00 5.829%
5 years 5.00 5.901%
6 years 6.00 6.555%
7 years 7.00 6.734%
8 years 8.00 6.745%
9 years 9.00 6.760%
10 years 10.00 6.418%
11 years 11.00 6.774%
12 years 12.00 6.884%
13 years 13.00 6.889%
14 years 14.00 6.819%
15 years 15.00 6.986%
19 years 19.00 6.925%
24 years 24.00 6.880%
30 years 30.00 6.824%