Long-Term Actuarial Mathematics

Solutions to Sample Multiple Choice Questions

May 7, 2020

Versions:

July 2, 2018 Original Set of Questions Published.

July 24, 2018 Correction to question 6.25.

August 10, 2018 Correction to question S4.1, S4.3, S4.4, and S4.5.

September 17, 2018 Added 72 questions from the 2016 and 2017 multiple choice MLC exams.
Corrected solutions to questions 6.15 and 9.7.

October 1, 2018 Corrected solution to question 7.27.

October 13, 2018 Corrected rendering of certain symbols that appeared incorrectly in October 1
version. Correction to questions 4.21, 6.4, 6.7, 6.27, 6.32, 7.7, 7.29, 7.30, 10.18,
S2.1, and S4.1.

January 1, 2019 Corrected solutions to questions 3.10, 8.24, and 10.15.

February 6, 2019 Questions 4.5, 5.3, 5.5, and 5.8 were previously misclassified so they were
renumbered to move them to the correct chapter.

March 6, 2019 Clarified solutions for questions S4.3, S4.4, and S4.5.

July 31, 2019 Questions 6.6 and 6.17 were previously misclassified so they were renumbered
to move them to the correct chapter. Also, correct minor typos in solution to
8.8.

May 7, 2020 Clarified solution to Question 6.45.

May 7, 2020 Page 1

Question 1.1
Answer C

Answer C is false. If the purchaser of a single premium immediate annuity has higher mortality than
expected, this reduces the number of payments that will be paid. Therefore, the Actuarial Present Value
will be less and the insurance company will benefit. Therefore, single premium life annuities do not
need to be underwritten.

The other items are true.

A Life insurance is typically underwritten to prevent adverse selection as higher mortality than
expected will result in the Actuarial Present Value of the benefits being higher than expected.

B In some cases such as direct marketed products for low face amounts, there may be very limited
underwriting. The actuary would assume that mortality will be higher than normal, but the expenses
related to selling the business will be low and partially offset the extra mortality.

D If the insured’s occupation or hobby is hazardous, then the insured life may be rated.

E If the purchaser of the pure endowment has higher mortality than expected, this reduces the
number of endowments that will be paid. Therefore, the Actuarial Present Value will be less and the
insurance company will benefit. Therefore, pure endowments do not need to be underwritten.

Question 1.2
Answer E

Insurers have an increased interest in combining savings and insurance products so Item E is false.

The other items are all true.

May 7, 2020 Page 2

Question # 2.1
Answer: B
1
 t 4 1   t 
Since S0 (t )  1  F0 (t )  1   , we have ln[S0 (t )]  ln  .
  4   

d 1 1 1 1 1
Then t   log S0 (t )  , and 65      110.
dt 4  t 180 4   65

3
e106   t p106 , since 4 p106  0
t 1

1/4
 106  t 
1
S0 (106  t )   1/4
110   4t 
p106   1/4
 
S0 (106)  4 
t
 106 
 1  
 110 

i 4
1
e105   t p105 
4 0.25
1 0.25
 2 0.25  3 0.25   2.4786
i 1

May 7, 2020 Page 3

Question # 2.2
Answer: D

This is a mixed distribution for the population, since the vaccine will apply to all once available.

S = # of survivors
Available?
(A) Pr( A) 2 p| A E ( S A) Var ( S A) E ( S 2 A)
Yes 0.2 0.9702 97,020 2,891 9,412,883,291
No 0.8 0.9604 96,040 3,803 9,223,685,403
E(S ) E(S 2 )
96,236 9,261,524,981
Var (S ) 157,285
SD(S ) 397

As an example, the formulas for the “No” row are

Pr(No) = 1 – 0.2 = 0.8

2 p given No = (0.98 during year 1)(0.98 during year 2) = 0.9604.

E(S | No), Var (S | No) and E(S 2 | No) are just binomial, n  100,000; p(success) = 0.9604

E(S ), E(S 2 ) are weighted averages,

Var (S )  E(S 2 )  E(S )2

Or, by the conditional variance formula:

Var ( S )  Var[ E ( S | A)]  E[Var ( S | A)]
 0.2(0.8)(97, 020  96, 040) 2  0.2(2,891)  0.8(3,803)
 153, 664  3, 621  157, 285
StdDev( S )  397

May 7, 2020 Page 4

Question # 2.3
Answer: A

d d   B  c x  ct 1 
f x t    S x  t     e ln c 
dt dt  
  
B x t
c c 1   B x t
 e ln c
   c   c  ln c
 ln c 
  
B x t
c c 1 
e ln c
 Bc x t
0.00027
  
ln 1.1
1.1x 1.1t 1 
 0.00027 1.1 x t
e

0.00027
50 10

ln 1.1
  
1.150 1.110 1
f50 (10)  0.00027 1.1 e  0.04839

Alternative Solution:

f x (t )  t px   x t

Then we can use the formulas given for Makeham with A  0, B  0.00027 and c  1.1

  0.00027 1.150 1.110 1 

f x (t )   e ln 1.1   0.00027 1.15010   0.04839
 
 

May 7, 2020 Page 5

Question # 2.4
Answer: E

t  x 
2

1
10000  10000   t  x 
2
t 10 p0
e75:10   p75 dt where t px  
tx
for 0  t  100  x
x2 10000  x 2
t 0 t
x p0
1
10000

10 10000  752  150t  t 2

 dt
0 10000  752

t 10
1  2 t3 
  4375t  75t    8.21
4375  3  t 0

Question # 2.5
Answer: B

e40  e40:20  20 p40  e60

 18  1  0.2  (25)
 38

e40  e40:1  p40  e41

e40  e40:1 e40  p40 38  0.997
 e41     37.11434
p40 p40 0.997

Question # 2.6
Answer: C

d 1 d  x 
x   lnS0  x    ln 1  
dx 3 d x  60 
1
1  x  1
 1   
180  60  3  60  x 

May 7, 2020 Page 6

 1 1000
Therefore, 100035  (1000)   13.3.
3  25 75

Question # 2.7
Answer: B

30    50   220 3
2

 1  
  1  
S0  30   S0  50   250   100   250  4
q30   
S0  30  30 220
20
1
250 250
440  375 65 13
    0.1477
440 440 88

Question # 2.8
Answer: C

The 20-year female survival probability = e20 

The 20-year male survival probability = e30 

We want 1-year female survival = e 

Suppose that there were M males and 3M females initially. After 20 years, there are expected to be
Me30  and 3Me20  survivors, respectively. At that time we have:

1
3Me20  85 85 17 9 10

30 
  e10     e      0.938
Me 15 45 9  17 

May 7, 2020 Page 7

Question # 3.1
Answer: B

Under constant force over each year of age, lx  k  (lx )1 k (lx 1 ) k for x an integer and 0  k  1.

l [60]  2.75  l [60]  5.75

23
q [60]  0.75 
l [60]  0.75

l [60]  0.75  (80, 000)0.25 (79, 000) 0.75  79, 249

l [60]  2.75  (77, 000)0.25 (74, 000)0.75  74, 739
l [60]  5.75  (67, 000)0.25 (65, 000) 0.75  65, 494

l [60]  2.75  l [60]  5.75 74, 739  65, 494

23
q [60]  0.75    0.11679
l [60]  0.75 79, 249

1000 2 3 q [60]  0.75  116.8

Question # 3.2
Answer: D

l 651  1000  40  960

l 661  955  45  910

1 1
e[65]   p [65]dt  p [65]  p 66 dt  p [65] p 66 e 67
0 t 0 t

  1  40   960   1  50    960  910 

15.0  1      1         e 67
  2  1000   1000   2  960    1000  960 
15(1000)  (980  935)
e 67   14.37912
910
1   1  45    910 
e[66]   t p [66]dt  p [66] e 67  1        e 67
0
  2  955    955 
  1  45    910 
e[66]  1        14.37912   14.678
  2  955    955 

1
Note that because deaths are uniformly distributed over each year of age, 
0 t
px dt  1  0.5qx .

May 7, 2020 Page 8

Question # 3.3
Answer: E

l[51] 0.5  l53.7

q
2.2 [51] 0.5 
l[51] 0.5
l[51] 0.5  0.5l[51]  0.5l[51]1  0.5(97, 000)  0.5(93, 000)  95, 000
l53.7  0.3l53  0.7l54  0.3(89, 000)  0.7(83, 000)  84,800
95, 000  84,800
q
2.2 [51] 0.5   0.1074
95, 000
10, 0002.2 q[51] 0.5  1, 074

Question # 3.4
Answer: B

Let S denote the number of survivors.

21,178.3
This is a binomial random variable with n  4000 and success probability  0.21206
99,871.1

E(S )  4,000(0.21206)  848.24

The variance is Var (S )  (0.21206)(1  0.21206)(4,000)  668.36

StdDev( S )  668.36  25.853

The 90% percentile of the standard normal is 1.282

Let S* denote the normal distribution with mean 848.24 and standard deviation 25.853. Since S is
discrete and integer-valued, for any integer s,

Pr(S ³ s) = Pr(S > s - 0.5) » Pr(S* > s - 0.5)

æ S *-848.24 s - 0.5- 848.24 ö
= Pr ç > ÷
è 25.853 25.853 ø
æ s - 0.5- 848.24 ö
= Pr ç Z > ÷
è 25.853 ø

s  0.5  848.24
For this probability to be at least 90%, we must have  1.282
25.853
 s  815.6

So s  815 is the largest integer that works.

May 7, 2020 Page 9

Question # 3.5
Answer: E

Using UDD

l 63.4  (0.6)66,666  (0.4)(55,555)  62, 221.6

l 65.9  (0.1)(44, 444)  (0.9)(33,333)  34, 444.1
l 63.4  l 65.9 62, 221.6  34, 444.1
q 
3.4 2.5 60
  0.277778 (a)
l 60 99,999

Using constant force

0.4
 l 64 
l 63.4  l 63    l 630.6 l 640.4
 l 63 
 
  66, 666 0.6  55,555 0.4 
 61,977.2
l 65.9  l 650.1 l 660.9   44, 444 0.1  33,333 0.9 
 34,305.9

61,977.2  34,305.9
3.4 2.5
q 60 
99.999
 0.276716 (b)

100,000(a  b)  100,000(0.277778  0.276716)  106

Question # 3.6
Answer: D

e[61]  e[61]:3  3 p [61] (e 64 )

p [61]  0.90,
2 p [61]  0.9(0.88)  0.792,
3 p [61]  0.792(0.86)  0.68112
3
e[61]:3   k p[61]  0.9  0.792  0.68112  2.37312
k 1

e[61]  2.37312  0.68112e64  2.37312  0.68112(5.10)  5.847

May 7, 2020 Page 10

Question # 3.7
Answer: B

q [50]0.4  1  2.5 p [50]0.4  1  2.9 p [50] /  p [50] 

0.4
2.5


 1  p [50] p [50]1  p 52 
0.9
 / 1  q [50] 
0.4

 1  1  q 1  q 1  q   / 1  q 

0.9 0.4
[50] [50]1 52 [50]


 1  1  0.0050 1  0.00631  0.0080 
0.9
 / 1  0.0050  0.4

 0.01642

1000 2.5 q 50  0.4  16.42

Question # 3.8
Answer: B

 85, 203.5 61,184.9 

E ( N )  1000  40 p35  40 p45   1000     1473.65
 99,556.7 99, 033.9 
Var ( N )  1000 40 p35 1  40 p35   1000 40 p45 1  40 p45   359.50
Since 1473.65  1.645 359.50  1504.84
N  1505

May 7, 2020 Page 11

Question # 3.9
Answer: E

From the SULT, we have:

99, 033.9
25 p 20  45
  0.99034
20 100, 000.0
91, 082.4
25 p 45  70
  0.91971
45 99, 033.9

The expected number of survivors from the sons is 1980.68 with variance 19.133.

The expected number of survivors from fathers is 1839.42 with variance 147.687.

The total expected number of survivors is therefore 3820.10.

The standard deviation of the total expected number of survivors is therefore

19.133  147.687  166.82  12.916

The 99th percentile equals 3820.10  (2.326)(12.916)  3850

Question # 3.10
Answer: C

The number of left-handed members at the end of each year k is:

L0  75 and L1  (75)(0.75)
Thereafter, Lk  Lk 1  0.75  35  0.75  75  0.75k  35   0.75  0.752  ...0.75k 1 

Similarly, the number of right-handed members after each year k is:

R0  25 and R1  (25)(0.5)
Thereafter, Rk  Rk 1  0.50  15  0.50  25  0.50k  15   0.50  0.502  ...0.50k 1 

At the end of year 5, the number of left-handed members is expected to be 89.5752, and the number of
right-handed members is expected to be 14.8435.

The proportion of left-handed members at the end of year 5 is therefore

89.5752
 0.8578
89.5752  14.8438

May 7, 2020 Page 12

Question # 3.11
Answer: B

 0.5 
q  2 q50  2 p50
2.5 50 q
0.5 52  0.02   0.98     0.04   0.0298
 2 

Question # 3.12
Answer: C

3.5 p[61] - 3.5 p[60]+1 = 0.5

p64 ( 3 p[61] - 3 p[60]+1 )

0.5
   
 65
  64
 64

 64   [61] [60]1 

0.5
 4016   5737 5737 
    
 5737   8654 9600 

= 0.05466

Question # 3.13
Answer: B

e0é58ù+2 = e[58]+2 + 0.5

ë û

é e60 ù
e[58]+2 = p[58]+2 (1+ e61) = p[58]+2 ê1+ -1ú
ë p60 û

e60 2210 1 3904

 61      1.100338
[58]2 p60 3548 (2210 / 3904) 3549

e0é58ù+2 = 1.100338 + 0.5 = 1.6

ë û

May 7, 2020 Page 13

Question # 4.1
Answer: A

E[ Z ]  2  A40  20 E40 A60  (2)(0.36987)  (0.51276)(0.62567)  0.41892

E[ Z 2 ]  0.24954 which is given in the problem.

Var ( Z )  E[ Z 2 ]  ( E[ Z ]) 2  0.24954  0.41892 2  0.07405

SD( Z )  0.07405  0.27212

1
An alternative way to obtain the mean is E[ Z ]  2 A40:20  20| A40 . Had the problem asked
for the evaluation of the second moment, a formula is
E[ Z 2 ]  (22 )  2 A40:20
1
  (v2 )20  20 p40   2 A60 

Question # 4.2
Answer: D

Half-year PV of Benefit
1 300,000v 0.5
 (300,000)(1.09) 1  275, 229 PV  277,000
2 330,000v1  (330,000)(1.09)2  277,754 if and only if (x)
dies in the 2nd
3 360,000v1.5  (360,000)(1.09)3  277,986 or 3rd half years.
4 390,000v2  (390,000)(1.09)4  276, 286

Under CF assumption, 0.5 px  0.5 p x  0.5  (0.84) 0.5  0.9165 and

0.5 p x 1  0.5 p x 1.5  (0.77) 0.5  0.8775 Then the probability of dying in the 2nd or 3rd half-years is
 0.5 p x 1  0.5 p x  0.5    p x 1  0.5 p x 1   (0.9165)(0.0835)  (0.84)(0.1225)  0.1794

May 7, 2020 Page 14

Question # 4.3
Answer: D

A60:3  q60v  (1  q60 )q601v 2  (1  q60 )(1  q601 )v 3  0.86545

0.01 0.99
A60:3  q60v  (1  q60 )v 3 0.86545  
q 601   1.05 1.05 3  0.017 when v = 1/1.05.
(1  q60 )v 2  (1  q60 )v 3 0.99 0.99
2

1.05 1.05 3
The primes indicate calculations at 4.5% interest.

  q60 v  (1  q60 )q601v 2  (1  q60 ) (1  q601 )v 3

A60:3
0.01 0.99(0.017) 0.99(0.983)
  
1.045 1.045 2 1.0453
 0.87777

Question # 4.4
Answer: A

Var ( Z )  E ( Z 2 )  E ( Z ) 2
E ( Z )  E (1  0.2T )(1  0.2T ) 2   E (1  0.2T ) 1 
40 1 1 40 1

40 0 1  0.2t
fT (t )dt  dt
0 (1  0.2t )

1 1 40 1
 ln (1  0.2t ) 0  ln(9)  0.27465
40 0.2 8
E ( Z )  E{(1  0.2T ) [(1  0.2T ) ] }  E[(1  0.2T ) 2 ]
2 2 2 2

40
40 1 1 1  1 
 fT (t ) 
0 (1  0.2t ) 2
40 0.2  (1  0.2t )  0
1 1 1
 1     0.11111
8 9 9
Var ( Z )  0.11111  (0.27465) 2  0.03568

May 7, 2020 Page 15

Question # 4.5

Question 4.5 was misclassified and therefore was moved to Question 8.26.

Question # 4.6
Answer: B

Improvement
Time Age q xSULT qx
factor
0 70 0.010413 100.00% 0.010413
1 71 0.011670 95.00% 0.011087
2 72 0.013081 90.25% 0.011806

v  1/1.05  0.952381

EPV  1, 000[0.010413v  0.989587(0.011087)v 2  0.989587(0.988913)(0.011806)v3 ]

 29.85

Question # 4.7
Answer: C

We need to determine 3 2.5

q90 .

l 903  l 903 2.5 l 93  l 95.5 l 93  (l 95  0.5d 95 ) 825  [600  0.5(240)]

3 2.5
q 90      0.3450
l 90 l 90 l 90 1, 000
d 97 72 l 97 72 l 96 360
where l 90  1, 000, l 93  825 , l 97    72 , l 96    360 , l 95    600
q 97 1 p 96 0.2 p 95 1  0.4
, and d 95  l 95  l 96  600  360  240 .

May 7, 2020 Page 16

Question # 4.8
Answer: C

SULT
Let A51 designate A51 using the Standard Ultimate Life Table at 5%.

 1 
APV (insurance)  1000    q 50  p 50 A51 
SULT

 1.04 
 1 
 1000   0.001209  1  0.001209  0.19780  
 1.04 
 191.12

Question # 4.9
Answer: D

A35  A35:15
1  A35:151 A50
0.32  0.25  0.14 A50
0.07
A50   0.50
0.14

Question # 4.10
Answer: D

Drawing the benefit payment pattern:

x x  10 x  20 x  30

E [ Z ]  10 E x A x 10  20 E x A x  20  2 30 E x A x 30

May 7, 2020 Page 17

Question # 4.11
Answer: A

    15,000
2
Var  Z 2   1000   2 Ax : n  Ax : n
2


  A   1000  A
2
 1000
2 2
2
A1x : n 2 1 1  A x 1n 
x:n  x:n 

   1000  A 
2 2
 1000 A1x : n  1000 A x :1n  1000 A1x : n
2 2 2 2 2 2 1
xn

 2(1000)  A  A 
2 1
x:n
1
xn

    1000   
2 2
 (1000) 2  2 Ax1: n  Ax1: n 22
A x :1n  1000 A x :1n


  
1000 A 
2
 1000 A x1: n  (2) 1000 A x1: n 1
xn


 V  Z 1   (1000) 1000 2 A x : n1   1000 A   1000 A 
2 2
1 1
xn x: n

(2) 1000 A 1000 A  1

x:n
1
xn

15,000  Var  Z 1   (1000)(136)  (209)2  2(528)(209)

Therefore, Var  Z 1   15,000  136,000  43,681  220,704  143,385.

Question # 4.12
Answer: C

Z 3  2 Z 1  Z 2 so that Var  Z 3   4Var  Z1   Var  Z 2   4Cov  Z 1 , Z 2 

 
where Cov Z 1 , Z 2  E  Z 1 Z 2   E  Z 1  E  Z 2   (1.65)(10.75)
0

Var  Z3   4(46.75)  50.78  4(1.65)(10.75)

 166.83

May 7, 2020 Page 18

Question # 4.13
Answer: C

2 2
A65  v3 2 p 65  q 65 2
payment year 3
Lives 2 years Die year 3

 v4 3 p65  q 653
payment year 4
Lives 3 years Die year 4

3
 1 
  (0.92)(0.9)(0.12)
 1.04 

4
 1 
  (0.92)(0.9)(0.88)(0.14)
 1.04 

 0.088  0.087  0.176

The actuarial present value of this insurance is therefore 2000  0.176  352 .

Question # 4.14
Answer: E

l85  61,184.9 
Out of 400 lives initially, we expect 400 25 p60  400  400    253.26 survivors
l60  96, 634.1 

The standard deviation of the number of survivors is 400 25 p60 1  25 p60   9.639

To ensure 86% funding, using the normal distribution table, we plan for
253.26  1.08  9.639   263.67

25
 1 
The initial fund must therefore be F  (264)(5000)    389,800.
 1.05 

May 7, 2020 Page 19

Question # 4.15
Answer: E

 
E  Z    bt  vt t px   x t dt   e0.02t  e 0.06t  e 0.04t  0.04 dt
0 0

 0.04 1
 0.04 e0.08t dt  
0 0.08 2

b  v   e  e  0.04e  dt  0.04 1
 
t 2
E  Z 2    t px   x t dt   0.04 t 0.12 t 0.04

0.12 3
0 t 0

2
1 1 1
Var  Z        0.0833
3  2  12

Question # 4.16
Answer: D

A501 :3  vq50  v 2 p50q501  v 3 p50 p501q52

1
where: v 
1.04

q50  0.7  0.045   0.0315

p50  1  q50  0.9685
q501  0.8  0.050   0.040
p501  1  q501  0.960
q52  0.055

So: A501 :3  0.1116

May 7, 2020 Page 20

Question # 4.17
Answer: A

The median of 𝐾48 is the integer 𝑚 for which

P ( K 48  m )  0.5 and P ( K 48  m )  0.5.

This is equivalent to finding 𝑚 for which

l48 m l48 m 1
 0.5 and  0.5.
l48 l48

Based on the SULT and l48 (0.5)  (98,783.9)(0.5)  49,391.95 , we have m  40 since

l88  49, 391.95 and l89  49, 391.95.

So: APV  5000 A48  500040 E48 A88  5000 A48  5000 20 E48 20 E68  A88
 5000  0.17330   5000  0.35370  (0.20343)  0.72349   1126.79

Question # 4.18
Answer: A

The present value random variable PV = 1,000,000e-0.05T , 2 £ T £ 10 is a decreasing function of

T so that its 90th percentile is

p
1,000,000e-0.05 p where p is the solution to 2
0.4t 2 dt  0.10 .

p
p  t 1  1 1 

2
0.4t dt  0.4    0.4     0.10
2
 1  2 2 p

p4

1,000,000e 0.054  81,873.08

May 7, 2020 Page 21

Question # 4.19
Answer: B

Ming Ming
q  0.8q SULT  0.0261264  p  0.9738736
80 80 80

Ming Ming Ming SULT

A  vq  vp A
80 80 80 81

 (1.05) 1 (0.0261264)  (1.05) 1 (0.9738736)(0.60984)  0.59051

Ming
100, 000 A  59, 051
80

Question # 4.20
Answer: B

Var ( Z )  0.10 E[ Z ]  v 50 25 px (1  25 px )  0.10  v 25 25 px

(1  0.57) 1
 50
 0.10 
(1  i ) (1  i) 25

0.43
 (1  i )25   4.3  i  0.06
0.10

May 7, 2020 Page 22

Question # 4.21
Answer: C

The earlier the death (before year 30), the larger the loss. Since we are looking for the 95th percentile of
the present value of benefits random variable, we must find the time at which 5% of the insureds have
died. The present value of the death benefit for that insured is what is being asked for.

l45  99, 033.9  0.95l45  94, 082.2

l65  94,579.7
l66  94, 020.3

So, the time is between ages 65 and 66, i.e. time 20 and time 21.

l65  l66  94,579.7  94, 020.3  559.4

l65t  l66  94,579.7  94, 082.2  497.5
497.5 / 559.4  0.8893
The time just before the last 5% of deaths is expected to occur is: 20 + 0.8893 = 20.8893

The present value of death benefits at this time is:

100,000e20.8893(0.05)  35,188

Question # 4.22
Answer: C

d  Ia 
40 : t  t p v t
 Ia 40 : t   s
t
s p40 v ds 
s
0 t 40
dt
At t  10.5,
10.5 10.5 E40  10.5 10 p40 0.5 p50v10.5
 10.5 10 E40 0.5 p50v 0.5
 10.5  0.60920  (1  0.5  0.001209)(0.975900073)
 6.239

May 7, 2020 Page 23

Question # 5.1
Answer: A

E (Y )  a10  e  (10) e   (10) a x 10


1  e   e
 0.6
 0.7 1
0.06 0.07
 14.6139
 1  e 0.06T 
Y  E (Y )     14.6139
 0.06 
 T  34.90
Pr[Y  E (Y )]  Pr(T  34.90)  e 34.90(0.01)  0.705

Question # 5.2
Answer: B

A x:1n  n E x
Ax  Ax1:n  n E x Ax  n
0.3  A1x:n  (0.35)(0.4)  A1x:n  0.16
A x:n  A x1:n  n E x  0.16  0.35  0.51
1  Ax:n 1  0.51
a x:n    10.29
d (0.05 /1.05)
a x:n  a x :n  1  n E x  10.29  0.65  9.64

Question # 5.3

Question 5.3 was misclassified and therefore was moved to Question 9.14.

May 7, 2020 Page 24

Question # 5.4
Answer: A

1
e 40   50 So receive K for 50 years guaranteed and for life thereafter.


10, 000  K  a50  50| a40 

50 1  e50 1  e50(0.01)
a 50   e t    39.35
0  0.01

1 1
50| a40  50 E40 a4050  e  (   )50  e1.5  7.44
  0.03

10, 000
K  213.7
39.35  7.44

Question # 5.5

Question 5.5 was misclassified and therefore was moved to Question 6.51.

Question # 5.6
Answer: D

Let Yi be the present value random variable of the payment to life i.

Ax   Ax 
2 2
1  Ax 0.22  0.45 2
E[Yi ]  a x   11.55 Var[Yi ]    7.7175
 0.05 /1.05
2
d d2
100
Then Y  Y
i 1
i is the present value of the aggregate payments.

E[Y ]  100E[Yi ]  1155 and Var[Y ]  100Var[Yi ]  771.75

 F  1155  F  1155
Pr[Y  F ]  Pr  Z    0.95   1.645
 771.75  771.75
 F  1155  1.645 771.75  1200.699

Question # 5.7

May 7, 2020 Page 25

Answer: C

(m  1)
(2)
a 35:30  a 35:30 
2m
1  v 30 30 p35 

1  A35:30 1  A35:30
1  30 E35
a 35:30  
d d
1   A35  30 E35 A65   30 E35

d
30
Since 30 E 35  v 30 p 35  0.2722, then
1   A35  v 30 30 p 35 A65   v 30 30 p 35
a 35:30 
d
1  (0.188  (0.2722)(0.498))  0.2722

(0.04 / 1.04)
 17.5592

(2) 1
a 35:30  17.5592  (1  0.2722)  17.38
4
(2)
1000 a 35:30  1000  17.38  17,380

Question # 5.8

Question 5.8 was misclassified and therefore was moved to Question 9.15.

Question # 5.9
Answer: C

   
a x:n  1  vp xax 1:n 1  1  1  k  vpx ax 1:n 1  1  1  k  ax:n  1

Therefore, we have

a[ x ]:n  1 21.167
k 1   1  0.015
ax : n  1 20.854

May 7, 2020 Page 26

Question # 5.10
Answer: C

The expected present value is:

a5  5 E55a60  4.54595  0.77382  14.9041  16.07904

The probability that the sum of the undiscounted payments will exceed the expected present value is
the probability that at least 17 payments will be made. This will occur if (55) survives to age 71. The
probability is therefore:

90,134.0
16 p55  71
  0.92118
55 97,846.2

Question # 5.11
Answer: A

S
a45  1  vp45
S SULT
a46

1 1 1 1


 45 
 ( 45t  0.05) dt 
 (  45 
t ) dt  (0.05) dt
 98,957.6  0.05
S SULT SULT
t dt
S
p45 e 0
e 0
e 0
e 0
 p45
SULT
 e 0.05   e  0.9504966
 99, 033.9 

S
a45  1  vp45 a46  1  (1.05) 1 (0.9504966)(17.6706)  17.00
S SULT

100a45
S
 1700

May 7, 2020 Page 27

Question # 6.1
Answer: D

The equation of value is given by

Actuarial Present Value of Premiums = Actuarial Present Value of Death Benefits.

The death benefit in the first year is 1000  P . The death benefit in the second year is 1000  2P .

The formula is Pa 80:2  1000 A80:2

1  P( IA) 80:2
1 .

1000 A80:2
1
Solving for P we obtain P  .
a 80:2  ( IA) 80:2
1

0.967342
a 80:2  1  p 80 v  1   1.93917
1.03
 0.032658 (0.967342)(0.036607) 
1000 A80:21  1000  vq 80  v 2 p 80 q 81   1000     65.08552
 1.03 1.03 2 
0.032658 (0.967342)(0.036607)
( IA) 80:2
1  vq 80  2v 2 p 80 q 81   (2)  0.09846
1.03 1.03 2

65.08552
P  35.36  D
1.93917  0.09846

Question # 6.2
Answer: E

Ga x:10  100, 000 Ax1:10  G ( IA)1x:10  0.45G  0.05Gax:10  200ax:10

(100, 000)(0.17094)  200(6.8865)

G  3604.23
(1  0.05)(6.8865)  0.96728  0.45

May 7, 2020 Page 28

Question # 6.3
Answer: C

20 E 45 a 65
Let C be the annual contribution, then C 
a 45:20
Let K 65 be the curtate future lifetime of (65). The required probability is

 Ca45:20   20 E 45 a 65 a45:20 
Pr 
 E
 20 45
 aK 1   Pr 
65 
  a 45:20 20 E45 65   65
 
 aK 1   Pr a 65  aK 1  Pr 13.5498  aK 1
65

 

Thus, since a21  13.4622 and a22  13.8212 we have


Pr aK
65 1

 13.5498  Pr  K 65  1  21  1  21 p65  1 
l86
l65
 1
57, 656.7
94,579.7
 0.390

May 7, 2020 Page 29

Question # 6.4
Answer: E

Let X i be the present value of a life annuity of 1/12 per month on life i for i  1, 2,..., 200.

200
Let S   X i be the present value of all the annuity payments.
i 1

(12)
(12) 1  A62 1  0.4075
E[ X i ]  a62  (12)
  10.19267
d 0.05813

 
2
2 12  12 
A62  A62 0.2105  (0.4075)2
Var  X i     13.15255
 
2
d 
12 (0.05813)2

E[ S ]  (200)(180)(10.19267)  366,936.12
Var ( S )  (200)(180) 2 (13.15255)  85, 228,524

With the normal approximation, for Pr( S  M )  0.90

M  E[ S ]  1.282 Var ( S )  366,936.12  1.282 85, 228,524  378, 771.45

378, 771.45
So    1893.86
200

Question # 6.5
Answer: D

Let k be the policy year, so that the mortality rate during that year is q30  k 1 . The objective is to
determine the smallest value of k such that
v k 1  k 1 p30  (1000 P30 )  v k  k 1 p30  q30 k 1 (1000)
P30  vq30 k 1
0.07698 q29 k

19.3834 1.05
q29 k  0.00417
29  k  61  k  32

Therefore, the smallest value that meets the condition is 33.

May 7, 2020 Page 30

Question # 6.6

Question 6.6 was misclassified and therefore was moved to Question 8.27.

Question # 6.7
Answer: C

There are four ways to approach this problem. In all cases, let π denote the net premium.

The first approach is an intuitive result. The key is that in addition to the pure endowment, there is a
benefit equal in value to a temporary interest only annuity due with annual payment π. However, if the
insured survives the 20 years, the value of the annuity is not received.
 a 40:20  100, 000 20 E40   a 40:20  20 p40 a 20 5%

Based on this equation,

100, 000 20 E40 100, 000v 20 100, 000 100, 000
     2880
20 p40 a20 a20 s20 34.71925

The second approach is also intuitive. If you set an equation of value at the end of 20 years, the present
value of benefits is 100,000 for all the people who are alive at that time. The people who have died
have had their premiums returned with interest. Therefore, the premiums plus interest that the
company has are only the premiums for those alive at the end of 20 years. The people who are alive
have paid 20 premiums. Therefore  s20  100, 000 .

The third approach uses random variables to derive the expected present value of the return of
premium benefit. Let K be the curtate future lifetime of (40). The present value random variable is then
 s v K 1 , K  20
Y   K 1
0, K  20
 a , K  20
  K 1
0, K  20
 a  0, K  20
  K 1 .
 a20   a20 , K  20

The first term is the random variable that corresponds to a 20-year temporary annuity. The second term
is the random variable that corresponds to a payment with a present value of  a20 contingent on
surviving 20 years. The expected present value is then  a 40:20  20 p40 a 20  .
The fourth approach takes the most steps.

May 7, 2020 Page 31

 19 19
(1  i ) k 1  1
 a 40:20  100, 000 20 E40    v k 1
s k 1 k
q40  100, 000 20 E40    v k 1
q
k 40
k 0 k 0 d
 19
 
 100, 000 20 E40   q40  v
d  k 0 k
k 1
k
q40   100, 000 20 E40   20
1
q40  A40:20 
 d

 100, 000 20 E40 
d
 20 q40  1  da 40:20  v 20 20 p40 
1  v 20
 100, 000 20 E40   a 40:20   20 p40
d
 100, 000 20 E40   a 40:20  20 p40 a 20 6% .

Question # 6.8
Answer: B

a 60:10  7.9555
a 60:20  12.3816

40  5a 60:10  5a 60:20 141.686

Annual level amount    9.51
a 60 14.9041
Question # 6.9
Answer: D

a 50:10  8.0550
1
A50:20  A50:20  20 E 50  0.38844  0.34824  0.04020
a 50:20  12.8428

APV of Premiums = APV Death Benefit + APV Commission and Taxes + APV Maintenance
Ga 50:10  100, 000 A50:20
1  0.12Ga 50:10  0.3G  25a 50:20  50
8.0550G  4020  1.2666G  371.07
6.7883G  4391.07
 G  646.86

May 7, 2020 Page 32

Question # 6.10
Answer: D

Actuarial PV of the benefit 152.85

a x:3    2.727
Level Annual Premium 56.05

0.975 0.975  p x 1 
a x:3  1    2.727
1.06 (1.06)2

 p x 1  0.93
Actuarial PV of the benefit =
 0.025 0.975(1  0.93) 0.975(0.93)  q x  2  
152.85  1, 000    
 1.06 (1.06)2 (1.06)3 

 q x  2  0.09  px  2  0.91

Question # 6.11
Answer: C

For calculating P

A50  vq 50  vp 50 A51  v(0.0048)  v(1  0.0048)(0.39788)  0.38536

a 50  1  A50  / d  15.981

P  A50 / a 50  0.02411

For this particular life,

A50  vq50  vp50 A51  v(0.048)  (1  0.048)(0.39788)  0.41037

a50  1  A50  / d  15.330

Expected PV of loss = A50  Pa50  0.41037  0.02411(15.330)  0.0408

May 7, 2020 Page 33

Question # 6.12
Answer: E

1,020 in the solution is the 1,000 death benefit plus the 20 death benefit claim expense.

A x  1  da x  1  d (12.0)  0.320755
Ga x  1, 020 A x  0.65G  0.10Ga x  8  2a x
1, 020 Ax  8  2a x 1, 020(0.320755)  8  2(12.0)
G   35.38622
a x  0.65  0.10a x 12.0  0.65  0.10(12.0)

Let Z  v K x 1 denote the present value random variable for a whole life insurance of 1 on (x).
Let Y  aK 1 denote the present value random variable for a life annuity-due of 1 on (x).
x

L  1, 020Z  0.65G  0.10GY  8  2Y  GY

 1, 020Z  (2  0.9G )Y  0.65G  8
K x 1 1  v K x 1
 1, 020v  (2  0.9G )  0.65G  8
d
 0.9G  2  K x 1 2  0.9G
 1, 020  v   0.65G  8
 d  d
2
2  2 0.9G  2 
Var ( L)   Ax  ( Ax )  1, 020  
 d 
2
 20.9(35.38622)  2 
 (0.14  0.320755 ) 1, 020  
 d 
 0.037116(2,394,161)
 88,861

Question # 6.13
Answer: D
If T45  10.5 , then K 45  10 and K 45  1  11.
K 45 1
0 L  10, 000v  G (1  0.10)a K  G (0.80  0.10)  10, 000v 11  0.9Ga 11  0.7G
45 1

4953  10,000(0.58468)  0.9G(8.72173)  0.7G

G  (5846.8  4953) / (7.14956)  125.01
E ( 0 L)  10, 000 A45  (1  0.1)Ga 45  (0.8  0.1)G
 (10, 000)(0.15161)  (0.9)(125.01)(17.8162)  (0.7)(125.01)
E ( 0 L)  400.87

May 7, 2020 Page 34

Question # 6.14
Answer: D

100, 000 A40  P[a 40:10  0.5 10 a 40:10 ]

100, 000 A40 100, 000(0.12106) 12,106
P    1148.59
a 40:10  0.5 10 a 40:10 8.0863  0.5(4.9071) 10.53985

where
a 40:10  10 E 40  a 50:10   0.60920 8.0550  4.9071
10  

There are several other ways to write the right hand side of the first equation.

Question # 6.15
Answer: B

3
Woolhouse: W
a x(4)  3.4611   3.0861
8

UDD
a x(4)   (4)a x   (4)
UDD:  1.00019(3.4611)  0.38272
 3.0790

and A x  1  d a x  1  (0.04762)(3.4611)  0.83518

1000(0.83518)
P (W )   270.63
3.0861

1000(0.83518)
P (UDD )   271.25
3.0790

P (UDD ) 271.25
  1.0023
P (W ) 270.63

May 7, 2020 Page 35

Question # 6.16
Answer: A

1 2,143 1
P30:20  d   0.05   a 30:20  14
a 30:20 100, 000 a 30:20

A30:20  1  d a 30:20  1  0.05(14)  0.3

Ga 30:20  100, 000 A30:20  (200  50a 30:20 )  (0.33G  0.06G a 30:20 )

14G  100,000(0.3)  [200  50(14)]  (0.33G  0.84G)

12.83 G  30,900

G  2408

Question # 6.17

Question 6.17 was misclassified and therefore was moved to Question 7.45.

Question # 6.18
Answer: D

P  30, 000 20
a 40  PA40:20
1

 P  30, 000 20 
a 40 / 1  A40:20
1

 30, 000(5.46429) / (1  0.0146346)  166,363

May 7, 2020 Page 36

Question # 6.19
Answer: C

Let  be the annual premium, so that  a 50  A50  0.01a 50  0.19

A50  0.19 0.18931  0.19
   0.01   0.01  0.03228
a 50 17.0245
 
Loss at issue: L 0  v k 1    0.01 a k 1 1  v k 1 / d  0.19
2
   0.01  2
 Var  L 0   1    A50  A50 
2

 d 
 (2.15467)(0.05108  0.18931 2 )
 (2.15467)(0.015242)
 0.033

Question # 6.20
Answer: B

EPV(premiums) = EPV(benefits)
P 1  vp x  v 2 2 p x   P  vq x  2v 2 p x q x 1   10000  v 3 2 p x q x  2 
 0.9 0.9  0.88   0.1 2  0.9  0.12   0.9  0.88  0.15 
P 1   2   P  2   10000  
 1.04 1.04   1.04 1.04   1.04 3 
2.5976P  0.29588P 1056.13
P  459

Question # 6.21
Answer: C

1000 A75:15
1
P  a 75:15  1000 A75:15
1
 15  P  A75:151  P   a 75:15  15  A75:151
1
A75:15  A75:15  A75:151  0.7  0.11  0.59
1  A75:15
a 75:15   (1  0.7) / 0.04  7.5
d
590
So P   100.85
7.5  15(0.11)

May 7, 2020 Page 37

Question # 6.22
Answer: C

Let the monthly net premium  

 (12)  1.00020
100, 000 A45
12  (12)
 (12)  0.46651
a 45:20
i
 1.02480

i
100, 000 A45  100, 000 A  (1.02480)(15,161)  15,536.99
 45
(12)
a 45:20   (12)a 45:20   (12) 1  20 E 45 
 1.00020 12.9391  0.46651(1  0.35994)
 12.6431

15,536.99
12 
12.6431
12  1228.891
  102.41

Question # 6.23
Answer: D

Ga x:30  APV  gross premium  APV  Benefits + expenses


 FAx   30  30a x   G 0.6  0.10a x:30  0.10a x:15 
FA x  30  30a x
G
a x:30  0.6  0.1a x:30  0.1a x:15
FA x  30  30(15.3926)

14.0145  0.6  0.1(14.0145)  0.1(10.1329)
FA x  491.78

10.9998
FA x 491.78 FA x
    44.71
10.9998 10.9998 10.9998
 h  44.71

May 7, 2020 Page 38

Question # 6.24
Answer: E

In general, the loss at issue random variable can be expressed as:

 1 Zx   P P
L  Z x  P Yx  Z x  P   Zx 1   
     

Using actuarial equivalence to determine the premium rate:

Ax 0.3
P   0.03
a x 1  0.3 / 0.07
2 2
 P  0.03 
Var ( L)   1   Var  Z x    1   Var  Z x   0.18
   0.07 
0.18
Var  Z x   2
 0.088
 0.03 
1  
 0.07 
2 2
 P*  0.06 
Var ( L*)   1   Var  Z x    1    0.088  0.304
    0.07 

Question # 6.25
Answer: C

Need EPV(Ben  Exp)  EPV(Prem)  800

EPV(Prem)  Ga55:10  8.0192G
(12)
EPV(Ben  Exp)=12,000 10 a55  300a55
(12)
 12, 000 10 E55 a65  300a55
 m 1 
 12, 000 10 E55  a65    300a55
 2m 

 12, 000(0.59342) 13.5498  11
24 
 300(16.0599)
 98, 042.83

Therefore, 98,042.83  8.0192G  800

G  12,326

May 7, 2020 Page 39

Question # 6.26
Answer: D

EPV (Premiums) = Pa90  P (a 90  1)  (4.1835) P

EPV(Benefits)  1000 A90  1000(0.75317)  753.17

Therefore,
753.17
P  180.03
4.1835

Question # 6.27
Answer: D

EPV(Premiums)  EPV(Benefits)
EPV(Premiums)  3P a x  2 P 20 E x a x 20


 3P 1 
    2P e
20(   )

 1   

 3P 1
0.09 
 2 Pe 1.8  1
0.09
 29.66 P
EPV(Benefits)  1,000,000 Ax  500,000 20 Ex Ax  20

 1,000,000   
    500,000e
20(   ) 
 

 1,000,000 0.03
0.09   500,000e 1.8 0.03
0.09
 305,783.5
29.66 P  305,783.5
305,783.5
P
29.66
P  10,309.62

May 7, 2020 Page 40

Question # 6.28
Answer: B

Ga40:5  1000 A40  0.15G  0.05Ga40:5  5  5a40:5

a 40:5  a 40  5 E 40 a 45  18.4578  (0.78113)(17.8162)  4.5410

121.06  5  5(4.5410)
G  35.73
0.15  0.95(4.5410)

Question # 6.29
Answer: B

Per equivalence Principle:

Ga 35  100,000 A35  0.4G  150  0.1Ga 35  50a 35

1770a 35  100,000 1  da 35   0.4(1770)  150  0.1(1770)a 35  50a 35
  0.035  
1770a 35  100,000  708  150  a 35 177  50  100,000  
  1.035  

Solving for a35 , we have

100,858 100,858
a   20.48
1770  3154.64 4924.64

May 7, 2020 Page 41

Question # 6.30
Answer: A

The loss at issue is given by:

L0  100v K 1  0.05G  0.05G aK 1  G aK 1

 1  v K 1 
 100v K 1  0.05G  0.95G  
 d 
 0.95G  K 1 G
 100   v  0.05G  0.95
 d  d

Thus, the variance is

2
0.95  2.338 

Var  L0   100 
 0.04 /1.04 
  A A  
2
x x
2

2
0.95  2.338     
2
  0.04
 100    0.17   1  16.50   
 0.04 /1.04    1.04  
 908.1414

Question # 6.31
Answer: D

   35   
 
A35  1  e35     
   
e A70  0.063421  0.146257  0.209679

1  A35 1  0.209679
a 35    15.80642
 0.05
A35 0.209679
P35    0.0132654
a 35 15.80642

The annual net premium for this policy is therefore 100,000  0.0132654  1,326.54

May 7, 2020 Page 42

Question # 6.32
Answer: C

Assuming UDD

Let P = monthly net premium

EPV(premiums)  12 Pax   12 P  12  ax   12  

12

 12 P 1.00020  9.19   0.46651

 104.7039P
EPV(benefits)  100,000 A x
i i
 100,000 Ax  100,000 1  da 
  x

0.05  0.05
 100, 000 1   9.19  
ln 1.05  1.05 
 57,632.62

57, 632.62
P  550.43
104.7039

May 7, 2020 Page 43

Question # 6.33
Answer: B

The probability that the endowment payment will be made for a given contract is:

15  15
p x  exp   0.02t dt
0 
 
15
 exp 0.01t 2
0

 exp  0.01(15) 2 
 0.1054

Because the premium is set by the equivalence principle, we have E  0 L   0. Further,

Var  0 L   500 10, 000v 15   15 p x 1  15 p x  

2

 
 1,942,329, 000

Then, using the normal approximation, the approximate probability that the aggregate losses exceed
50,000 is
 50, 000  0 
P  0 L  50, 000   P  Z    P( Z  1.13)  0.13
 1,942,329, 000 

Question # 6.34
Answer: A

Let B be the amount of death benefit.

EPV(Premiums)  500a 61  500(14.6491)  7324.55
EPV(Benefits)  B  A61  (0.30243)B
EPV(Expenses)  (0.12)(500)  (0.03)(500) a 61  (0.12)(500)  (0.03)(7324.55)  279.74
EPV(Premiums)  EPV(Benefits)  EPV(Expenses)
7324.55  (0.30243)B  279.74
7044.81  (0.30243)B
B  23, 294

May 7, 2020 Page 44

Question # 6.35
Answer: D

Let G be the annual gross premium. By the equivalence principle, we have

Ga35  100,000 A35  0.15G  0.04Ga35

so that

100, 000 A35 100, 000  0.09653

G   534.38
0.96a35  0.15 0.96 18.9728   0.15

Question # 6.36
Answer: B

By the equivalence principle,

4500a x:20  100,000 A x1:20  Ra x:20

where

 0.04
A x1:20 
 
1  e  20(   )
  0.12 1  e  20(0.12)
  0.3031
1  e  20(   ) 1  e  20(0.12)
a x:20    7.5774
  0.12

Solving for R, we have

 0.3031 
R  4500  100,000    500
 7.5774 

May 7, 2020 Page 45

Question # 6.37
Answer: D

By the equivalence principle, we have

Ga35:10  50,000 A35  100a35  100 A35

so

50,100 A35  100  a35  1 50,100  0.09653   100 17.9728 

G   819.69
a35:10 8.0926

Question # 6.38
Answer: B

Let P be the annual net premium

1000 A x:n 1000(0.192)

P 
a x:n a x:n
where
1  A x:n
a x:n 
d

(1.05)
(0.05)

1  A1x:n  Ax:n1 
A x:n 
i

A 
1
x :n n Ex

 0.192 
0.05
A 1  0.172
0.04879 x:n
 
 A 1x:n  0.019516
1.05
 a x:n  (1  0.019516  0.172)  16.978
0.05

Therefore, we have

1000  0.192 
P  11.31
16.978

May 7, 2020 Page 46

Question # 6.39
Answer: A

1000 A40 121.06

Premium at issue for (40):   6.5587
a40 18.4578

1000 A80 592.93

Premium at issue for (80):   69.3615
a80 8.5484

Lives in force after ten years:

98,576.4
Issued at age 40: 10, 000 10 p40  10, 000   9923.30
99,338.3

41,841.1
10, 000 10 p80  10, 000   5530.35
Issued at age 80: 75, 657.2

The total number of lives after ten years is therefore: 9923.30  5530.35  15, 453.65

The average premium after ten years is therefore:

(6.5587  9923.30)  (69.3615  5530.35)

 29.03
15, 453.65

May 7, 2020 Page 47

Question # 6.40
Answer: C

Let P be the annual net premium at x+1. Also, let A*y be the expected present value for the special
insurance described in the problem issued to ( y) .

Pax 1  1000 k 0 1.03

 k 1
v k 1 k | qx 1  1000 Ax*1

We are given

110ax  1000 k 0 1.03

 k 1
v k 1 k | qx  1000 Ax*

Which implies that

110 1  vpx ax 1   1000 1.03vqx  1.03vpx Ax*1 

Solving for Ax*1 , we get

110
1  v  0.95  7    1.03v  0.05 
Ax*1  1000  0.8141032
1.03v  0.95 

Thus, we have

1000  0.8141032 
P  116.3005
7

Question # 6.41
Answer: B

Let P be the net premium for year 1.

Then:

P  1.01Pvpx  100, 000vqx  (1.01)(100, 000)v 2 px qx 1

 1.01   0.01 (1.01)(0.99)(0.02) 

P 1  0.99   100, 000     P  1416.93
 1.05   1.05 (1.05) 2 

May 7, 2020 Page 48

Question # 6.42
Answer: D

The policy is fully discrete, so all cash flows occur at the start or end of a year.

Die Year 1 ==> L0  1000v  315.80  625.96

Die Year 2 ==> L0  1000v 2  315.80(1  v)  273.71

Survive Year 2 ==> L0  1000v3  315.80(1  v  v 2 )  58.03

There is a loss if death occurs in year 1 or year 2, otherwise the policy was profitable.

Pr  death in year 1 or 2   1  e 2   0.113

Question # 6.43
Answer: C

APV  expenses   0.35G  8  0.15Ga30:4  4a30:9

 0.20G  4  0.15G a30:5  4a30:10
G a30:5  0.20G  4  0.15G a30:5  4a30:10  200,000 A30:10
1

200,000 A30:10
1  4  4a30:10
G
0.85a30:5  0.20
200, 000 A30:10
1  200, 000  A30:10  10 E30 
 200,000(0.61447  0.61152)  590

590  4  4  8.0961
G  171.07
0.85  4.5431  0.20

May 7, 2020 Page 49

Question # 6.44
Answer: D

Let P be the premium per 1 of insurance.

Pa50:10  P  I A 50:10
1
 10 E50 A60

a50:10  a50  10 E50 a60  17.0  0.60  15.0  8

 0.05 
A60  1  da60  1   15  0.285714
 1.05 


P a50:10   I A 50:10
1

 10 E50 A60

E50 A60 0.6  0.285714

P 10
  0.021838
a50:10   I A 501 :10 8  0.15

100 P  2.18

May 7, 2020 Page 50

Question # 6.45
Answer: E

 560   T 560
L0  100,000vT  560aT  100,000  e 
   
Since L0 is a decreasing function of T , the 75th percentile of L0 is L0 (t) where t is such that
Pr[T35 > t] = 0.75 .

35t
 0.75
35

35t  0.75 35  0.75  99,556.7  74,667.5

81  74,667.5  80

t  (80  35)  s
80 s  s 81  (1  s ) 80

74,667.5  73,186.3s  75,657.2(1  s )

s  0.40054
t  45.40054
L0 (45.40054)  100,000  ln(1.05)
560
 e45.40054 ln(1.05)  ln(1.05)
560
 689.25

Question # 6.46
Answer: E

Let P be the premium per 1 of insurance.

Pa55:10  0.51213P  v10 10 p55 a65

a55  a55:10  v10 10 p55 a65  v10 10 p55 a65  12.2758  7.4575  4.8183

7.4575 P  0.51213P  4.8183  P  0.693742738

300 P  208.12

May 7, 2020 Page 51

Question # 6.47
Answer: D

Ga70:10  100, 00010 E70 a80  0.05Ga70:10  0.7G

7.6491G  (100, 000)(0.50994)(8.5484)  0.05G(7.6491)  0.7G

 G  66,383.54

Question # 6.48
Answer: A

Actuarial present value of insured benefits:

 0.95  0.02 0.95  0.98  0.03 0.95  0.98  0.97  0.04 

100, 000  6
    5, 463.32
 1.06 1.067 1.068

 0.95 
 P 1  5 
 5, 463.32  P  3,195.12
 1.06 

Question # 6.49
Answer: C

(12) i  (12)
Ga40:20  100, 000   A40  200  0.04Ga40:20
 

(12)
a40:20   (12)a40:20  (1  20 E40 )  (12)
 1.00020 12.9935  (1  0.36663)  0.46651  12.700625

(100, 000)(1.02480)(0.12106)+200
G  1033.92
0.96 12.700625

 G/12 = 86.16

May 7, 2020 Page 52

Question # 6.50
Answer: A

A35 96.53
1, 000 P  1, 000   5.0878
a35 18.9728

Benefits paid during July 2018:

10,000 1,000  q35  10, 000  0.391  3910

Premiums payable during July 2018:

10,000  (1  q35 )  5.0878  9,996.09  5.0878  50,858.10

Cash flow during July 2018:

3910  50,858  46,948

Question # 6.51
Answer: D

Under the Equivalence Principle

  
Pa 62:10  50, 000 a 62  a 62:10  P ( IA) 62:10
1

10
where ( IA) 62:10
1
 11A62:10
1  A
k 1
1
62: k
 11(0.091)  0.4891  0.5119

So P

50, 000 a 62  a 62:10   50, 000(12.2758  7.4574)  34, 687
a 62:10  ( IA)62:10
1 7.4574  0.5119

Question # 7.1
Answer: C

V  50, 000  A50  10 E50 A60   (875)  a 50:10 

10  
 50, 000[0.18931  (0.60182)(0.29028)]  875[8.0550]
 11,152

May 7, 2020 Page 53

Question # 7.2
Answer: C

0V 0
2V  2000

Year 1:  V  P  1  i   q  2000  V   p
0 x 1 x 1V
P(1.1)  0.15(2000  1V )  0.85( 1V )
1.1P  300  1V

Year 2:  V  P  1  i   q
1 x 1 (2000  2V )  px 1 (2000)
(1.1P  300  P)(1.1)  0.165(2000  2000)  0.835(2000)
2.31P  330  2330

2330  330
P  1152
2.31

May 7, 2020 Page 54

Question # 7.3
Answer: E

i (4)  0.08 means an interest rate of j  0.02 per quarter. This problem can be done with
two quarterly recursions or a single calculation.

Using two recursions:

800  706
[10.5V  60(1  0.1)](1.02)  (1000)
V 800
10.75
706
800

[10.5V  54](1.02)  117.50

753.72  10.5 V  713.31
0.8825

898  800
[10.25V ](1.02)  (1000)
898 [ V ](1.02)  109.13
V  713.31  10.25
10.5
800 0.8909
898

10.25 V  730.02

Using a single step, 10.25V is the EPV of cash flows through time 10.75 plus 0.5 E80.25 times
the EPV of cash flows thereafter (that is, 10.75V ).

 898  800 800  706   800   706 

10.25 V  (1000)   2
 (60)(1  0.1)   2
(753.72)  730
 898(1.02) 898(1.02)   898(1.02)   898(1.02) 

May 7, 2020 Page 55

Question # 7.4
Answer: B

EPV of benefits at issue  1000 A40  4 11 E40 (1000 A51 )

 121.06  (4)(0.57949)(197.80)  579.55
EPV of expenses at issue  100  10(a40  1)  100  10(17.4578)  274.58

  (579.55  274.58) / a40  854.13 /18.4578  46.27

G  1.02  47.20

EPV of benefits at time 1  1000 A41  4 10 E 41  1000 A51

 126.65  (4)(0.60879)(197.80)  608.32
EPV of expenses at time 1  10( a 41 )  10(18.3403)  183.40
Gross Prem Reserve  608.32  183.40  Ga 41  791.72  47.20(18.3403)  73.94

Question # 7.5
Answer: A

Net Amount at Risk = 1000 3 V  996.52

Expected Deaths = (10, 000  10)q47  9990(0.000916)  9.15

Actual Deaths = 6

Mortality Gain/Loss = (Expected Deaths  Actual Deaths)(Net Amount At Risk)

 (9.15  6)(996.52)  3139

May 7, 2020 Page 56

Question # 7.6
Answer: B

d
(t V )  G  E  S   9.6 V (    ) where G, E , S and  are evaluated at t  9.6 and
dt t 9.6

where S includes claims-related expenses.

d
(t V )  450  (0.02)(450)  (106, 000  200)(0.01)  9.6 V (0.01  0.05)  621  0.069.6 V
dt t 9.6

d 
9.6 V 9.8 V  0.2  (t V )   126.68  (0.2)[621  0.069.6 V ]  250.88  0.0129.6 V
 dt t 9.6 

250.88
9.6 V  247.91
1.012

Question # 7.7
Answer: E

4.5V  v 0.5 0.5 p x  4.5 5V  v 0.5 0.5 q x  4.5 b, where b  10, 000 is the death benefit during year 5
0.5 q x4 0.5(0.04561)
0.5 q x  4.5    0.02334
1  0.5 q x  4 1  0.5(0.04561)
0.5 p x  4.5  0.97666
( 4V  P) (1.03)  q x  4b
5 V
p x4
(1, 405.08  647.46) (1.03)  0.04561(10, 000)
5 V  1, 737.25
0.95439
 0.5
4.5V  (1.03) (0.97666) (1, 737.25)  (1.03) 0.5 (0.02334) (10, 000)
 1, 671.81  229.98  1,902

V can also be calculated recursively:

4.5

0.5 qx  4  0.5(0.04561)  0.02281

(1, 405.08  647.16)(1.03)0.5  0.02281(10, 000) / (1.03)0.5
4.5V   1,902
1  0.02281
The interest adjustment on the death benefit term is needed because the death benefit will not be paid
for another one-half year.

May 7, 2020 Page 57

Question # 7.8
Answer: B

Net Premium  10, 000 A62 / a 62  10, 000(0.31495) /14.3861  218.93

G  218.93(1.03)  225.50

*
Let 0 L be the present value of future loss at issue for one policy.

0 L*  10, 000v K 1  (G  5)aK 1  0.05G

1  v K 1
 10, 000v K 1  (225.50  5)  0.05(225.50)
d
 10, 000  4630.50  v K 1  4630.50  11.28
 14, 630.50v K 1  4619.22

E ( 0 L* )  14, 630.50 A62  4619.22  14, 630.50(0.31495)  4619.22  11.34

Var ( 0 L* )  (14, 630.50) 2  2 A62  A622   (14, 630.50) 2  0.12506  0.31495 2   5, 536, 763

Let 0 L be the aggregate loss for 600 such policies.

E ( 0 L)  600 E ( 0 L* )  600(11.34)  6804
Var ( 0 L)  600Var ( 0 L* )  600(5,536, 763)  3,322, 057,800
StdDev( 0 L)  3,322, 057,8000.5  57, 637

 40, 000  6804 

Pr  0 L  40, 000         0.81  0.7910
 57, 637 

Question # 7.9
Answer: E

Gross premium = G
  2000     2000  
Ga 45  2000 A45  1   20    0.5    10  a 45  0.20G  0.05Ga 45
  1000     1000  
22 11

 0.95a 45  0.20  G  2000 A45  22  11a 45

May 7, 2020 Page 58

 2000 A45  22  11a 45 2000(0.15161)  22  11(17.8162)
G   31.16
0.95a 45  0.20 0.95(17.8162)  0.20

There are two ways to proceed. The first is to calculate the expense-augmented reserve and the net
premium reserve and take the difference.

2000 A45 2000(0.15161)

The net premium is   17.02
a45 17.8162
The net premium reserve is 2000 A55  17.02a55  2000(0.23524) 17.02(16.0599)  197.14

The expense-augmented reserve, which is the gross premium reserve, is

2000 A55  [0.05(31.16)  0.5(2000 /1000)  10]a55  31.16a55
 2000(0.23524)  (12.56  31.16)(16.0599)  171.77
Expense reserve is 171.77 – 197.14 = –25

The second is to calculate the expense reserve directly based on the pattern of expenses. The first step
is to determine the expense premium.

The present value of expenses is

[0.05G  0.5(2000 /1000)  10]a45  0.20G  1.0(2000 /1000)  20

 12.558(17.8162)  28.232  251.97

The expense premium is 251.97/17.8162=14.14

The expense reserve is the expected present value of future expenses less future expense premiums,
that is,
[0.05G  0.5(2000 /1000)  10]a55 14.14a55  1.582(16.0599)  25

There is a shortcut with the second approach based on recognizing that expenses that are level
throughout create no expense reserve (the level expense premium equals the actual expenses).
Therefore, the expense reserve in this case is created entirely from the extra first year expenses. They
occur only at issue so the expected present value is 0.20(31.16)+1.0(2000/1000)+20 = 28.232. The
expense premium for those expenses is then 28.232/17.8162 = 1.585 and the expense reserve is the
present value of future non-level expenses (0) less the present value of those future expense premiums,
which is 1.585(16.0599) = 25 for a reserve of –25.

May 7, 2020 Page 59

Question # 7.10
Answer: A

q xNS  q xNS
1  1  e
 0.1
 0.095
Then the annual premium for the non-smoker policies is P NS , where
P NS 1  vp xNS   100, 000vq xNS  100, 000v 2 p xNSq xNS1  30, 000v 2 p xNS p xNS1
100, 000(0.926) (0.095)  100, 000(0.857) (0.905) (0.095)  30, 000(0.857) (0.905) 2
P NS 
1  (0.926) (0.905)
P NS  20, 251

And then P S  40,502.

qxS  qxS1  1.5(1  e 0.1 )  0.143

EPV ( LS )  100, 000vq xS  100, 000v 2 p xS q xS1  30, 000v 2 p xS p xS1  P S  P Svp xS
 100, 000(0.926)(0.143)  100, 000(0.857)(0.857)(0.143)
 30, 000(0.857)(0.857) 2  40,502  40,502(0.926)(0.857)
 30, 017

Question # 7.11
Answer: D

a x 10  (1  Ax 10 ) / d  (1  0.4) / (0.05 /1.05)  12.6

a x(12)
10  12.6  11/ 24  12.142

V  10, 000 A x 10  100a x 10  12a x(12)

10 10 (30)(1  0.05)

V  10, 000(0.4)  100(12.6)  12(12.142)(28.50)

10

V  1107
10

May 7, 2020 Page 60

Question # 7.12
Answer: C

Simplest solution is recursive:

0 V  0 since the reserves are net premium reserves.

q 70  (0.7)(0.010413)  0.007289

(0  35.168)(1.05)  (1000)(0.007289)
V
1  29.86
1  0.007289

Prospectively, q 701  (0.8)(0.011670)  0.009336; q 70 2  (0.9)(0.013081)  0.011773

A701  (0.009336)v  (1  0.009336)(0.011773)v 2

 (1  0.009336)(1  0.011773)(0.47580)v 2  0.44197
 
a 701  1  A701 / d  (1  0.44197) / (0.05 /1.05)  11.7186
V  (1000)(0.44197)  (11.7186)(35.168)  29.85
1

Question # 7.13
Answer: A

Let P = 0.00253 be the monthly net premium per 1 of insurance.

i 1 
10 V  100, 000  A55:10  A55:101  12 Pa (12)
55:10 
 
 100, 000 1.02480(0.02471)  0.59342  (12)(0.00253)(7.8311)
 38,100

Where
1
A55:10  A55:10  10 E 55  0.61813  0.59342  0.02471
A55:101  10 E 55  0.59342
a 55:10  8.0192
a (12)
55:10
  (12)a 55:10   (12) 1  10 E 55 
 1.00020(8.0192)  0.46651(1  0.59342)  7.8311

May 7, 2020 Page 61

Question # 7.14
Answer: C

Use superscript g for gross premiums and gross premium reserves.

Use superscript n (representing “net”) for net premiums and net premium reserves.
Use superscript e for expense premiums and expense reserves.

P g  977.60 (given)

0.58P g  450   0.02 P g  50  a 45

Pe 
a 45
0.58(977.60)  450  [0.02(977.60)  50]17.8162
  126.64
17.8162
Alternatively,
100, 000 A45
Pn   850.97 P e  P g  P n  126.63
a 45

5V e   0.02 P g  50  a 50  P e a 50  [0.02(977.60)  50](17.0245)  126.64(17.0245)  972

Alternatively,
5 V n  100, 000 A50  P n a 50
 100, 000(0.18931)  850.97(17.0245)  4443.66
5 V g  100, 000 A50   50  0.02 P g  P g  a 50
 100, 000(0.18931)  [50  0.02(977.60)  977.60](17.0245)  3471.93
5 V  5V g  5V n  972
e

Question # 7.15
Answer: B

K 45 1
L  10, 000v  Pa K  10, 000v 11  Pa11
45 1

4450  10,000(0.58468)  8.7217P

P  (5,846.8  4, 450) / 8.7217  160.15
A55  1  da 55  1  (0.05 /1.05)(13.4205)  0.36093
10 V  10, 000 A55  Pa 55  (10, 000)(0.36093)  (160.15)(13.4205)  1, 460

May 7, 2020 Page 62

Question # 7.16
Answer: B

 10  10
L A  v T  0.10a T  1   v T 
 6 6
2
 10 
Var[ LA ]  1   Var[vT ]  0.455  Var[vT ]  0.06398
 6
 16  16
L B  2v T  0.16a T   2   v T 
 6 6
2 2
 16   16 
Var[ LB ]   2   Var[vT ]   2   (0.06398)  1.39
 6  6

Question # 7.17
Answer: E

In the final year: ( 24V  P )(1  i)  b 25 ( q 68 )  1( p 68 )

Since b 25  1, this reduces to ( 24V  P )(1  i )  1  (0.6  P)(1.04)  1  P  0.36154

Looking back to the 12th year: ( 11V  P )(1  i )  b12 (q 55 )  12V ( p 55 )

 (5.36154)(1.04)  14(0.15)  12V (0.85)  12V  4.089

Question # 7.18
Answer: A

This first solution recognizes that the full preliminary term reserve at the end of year 10 for a 30 year
endowment insurance on (40) is the same as the net premium reserve at the end of year 9 for a 29 year
endowment insurance on (41). Then, using superscripts of FPT for full preliminary term reserve and NLP
for net premium reserve to distinguish the reserves, we have

1000 10V FPT  1000 9V NLP  1000( A50:20  P41:29 a 50:20 )

 1000[0.38844  0.01622(12.8428)]  180
 a 50:20   12.8428 
or  1000 1    1000 1    180
 a 41:29   15.6640 
 

May 7, 2020 Page 63

where
a 41:29  a 41  29 E 41 a 70
 18.3403  (0.2228726)(12.0083)
 15.6640
A41:29  1  d (15.6640)  0.254095
 l 70   91, 082.4 
E 41  v 29    (0.242946)    0.2228726
29  l 41   99, 285.9 
 
0.254095
P41:29   0.01622
15.6640

Alternatively, working from the definition of full preliminary term reserves as having 1V FPT  0 and the
discussion of modified reserves in the Notation and Terminology Study Note, let  be the valuation
premium in year 1 and  be the valuation premium thereafter. Then (with some of the values taken
from above),

  1000vq40  0.5019
APV (valuation premiums)  APV (benefits)
  1 E40 (a41:29 )   1000 A40:30
0.5019  0.95188(15.6640)   242.37
242.37  0.5019
  16.22
14.9102

Where

1 E40  (1  0.000527)v  0.95188

A40:30  A40  20 E40 ( 10 E60 )(1  A70 )
 0.12106  0.36663(0.57864)(1  0.42818)  0.24237
10 V FPT  1000 A50:20   a50:20  1000(0.38844)  16.22(12.8427)  180

May 7, 2020 Page 64

Question # 7.19
Answer: E

No cash flow beginning of year, the one item earning interest is the reserve at the end of the previous
year

Gain due to interest = (reserves at the beginning of year)(actual interest – anticipated interest)
 1000(8929.18)(0.04  0.03)  89292 .

Question # 7.20
Answer: A

 V  0.96G  50 (1.05)  q

5 50 (100, 200)  p 50 6V
 5500  0.96G  50  (1.05)  (0.009)(100, 200)  (1  0.009)(7100)
(1.05)(0.96)G  5722.5  7937.9
(1.05)(0.96)G  2215.4
G  2197.8

Question # 7.21
Answer: E

V 1  i 
0.4
15.6  0.4 px 15.6 V  0.4 qx 15.6 100
16

V (1.05)0.4  0.957447(49.78)  0.042553(100)

15.6

V  50.91
15.6

Question # 7.22
Answer: D

APV future benefits  1000 0.04v  0.05  0.96v 2  0.96  0.95  (0.06  0.94  0.683)v 3   630.25
APV future premiums  130(1  0.96v)  248.56
E[ 3 L]  630.25  248.56  381.69

May 7, 2020 Page 65

Question # 7.23
Answer: D

2
 p 2
V  10 L  1  d   A x 10  A x 10 
2


V  11 L   p 2
2

  A x 11  A x 11 
2
 1 
 d
Ax 10  vqx 10  vp x 10 Ax 11
1 1
 (0.90703) 2 (0.02067)  (0.90703) 2 (1  0.02067)(0.52536)  0.50969
2
Ax 10  v 2 q x 10  v 2 p x 10 2 A x 11
 (0.90703)(0.02067)  (0.90703)(1  0.02067)(0.30783)  0.29219
Var  k L  (0.29219)  (0.50969) 2 0.03241
    1.018
Var  k 1 L  (0.30783)  (0.52536) 2 0.03183

Question # 7.24
Answer: A

V  Ax 1  Px a x 1  1  da x 1  Px a x 1
1 x

 1   Px  d  a x 1  1  a x 1 a
x

 
 a x 1  1Vx  a x 1

Since ax  1  vpx ax 1 substituting we get

ax  1
a x 1  1Vx    a x 1  1Vx  vpx  a x  1
vpx
1 1
Solving for ax , we get a x  
1  1  1Vx  vpx  1 
1  (1  0.012)   1  0.009 
 1.04 
 17.07942

May 7, 2020 Page 66

Question # 7.25
Answer: D

Let G be the annual gross premium.

Using the equivalence principle, 0.90Ga 40  0.40G  100, 000 A40  300

100, 000(0.12106)  300

So G   765.2347
0.90(18.4578)  0.40

The gross premium reserve after the first year and immediately after the second premium and
associated expenses are paid is

100,000 A41  0.90G  a 41  1

 12,665  0.90(765.2347)(17.3403)

 723

Question # 7.26
Answer: C

The expected end of the year profit B  722   20V  G  WG  60 1.08 

(0.004736)(150000)
(1  0.004736)( 21V )

Plug in given values, we have

722   24, 496  1  W 1212   60  1.08   0.004736 150, 000   0.995264  26, 261
722  852.8121  1308.96W

852.8121  722
Solving W, W   10%
1308.96

May 7, 2020 Page 67

Question # 7.27
Answer: E

We assume that we have assets equal to reserves at the beginning of the year. We collect premiums,
earn interest, and pay the claims which gives us the assets at the end of the year:

(980) 19.9  8.8 1  j    500  7   24, 626  28,126 j

Actual total reserve at the end of the year = (980  7)(27.77)  27,020.21

Since there is no gain or loss that means that the assets must equal the reserves, so:

27, 218.27  24, 626

j  8.512%
28,126

Question # 7.28
Answer: A

If G denotes the gross premium, then

1000 A35  30a 35  270 1000(0.09653)  30(18.9728)  270

G   52.12
0.96a 35  0.26 0.96(18.9728)  0.26
So that,

R  1000 A36  (30  0.96G)a 36

 1000(0.10101)  (30  0.96  52.12)(18.8788)  277.23

Note that S  0 as per definition of FPT reserve.

May 7, 2020 Page 68

Question # 7.29
Answer: D

1000 10 a55 1000  0.59342 13.5498 

 1
  1021.46
a55:10   IA55:10 8.0192  0.14743

1
9V  1000 1 a64  10 A64:1   a64:1

1  94,579.7  1
 1000   13.5498  10 1021.46  0.005288  1021.46
1.05  95, 082.5  1.05

 11,866

Question # 7.30
Answer: C

2 2
 P1   1.25(1.06) 
V  L 0 #1   B1    2
A x  A   20.55
2
x   8 
 0.06 
  2
A x  Ax2   20.55
 d 

2 20.55
A x  Ax2  2
 0.0227
 1.25(1.06) 
8  
 0.06 

2 2
 1.875(1.06)   1.875(1.06) 
V  L0 # 2  12 
 0.06


 2
A x  A   12 
2
x
 0.06
  0.0227   46.24


May 7, 2020 Page 69

Question # 7.31
Answer: D

We have Present Value of Modified Premiums = Present Value of level net premiums
vqx    a25:20  1  P  20 E25  a45:20  Pa25:40

P  a25:40   P  20 E25  a45:20  vqx P a25:20  vqx

  
a25:20  1 a25:20  1

We are given that P  0.0216

0.0216(11.087)  (1.04) 1  0.005 

   0.023265
11.087  1

For insurance of 10,000,   233.

Question # 7.32
Answer: C

P g  Pn  Pe where P e is the expense loading

A50  0.18931 
P n  1, 000, 000  1, 000, 000    11,119.86
a50  17.0245 

P e  P g  P n  11,800  11,120  680

May 7, 2020 Page 70

Question # 7.33
Answer: B

V FPT  100,000 A553  100,000 P551 a553

3

A551
 100,000 A58  100,000 a58
a551

 
 0.24 1  0.27 
 100,000  0.27  
1  0.24 d 

 d 
 3947.37

Question # 7.34
Answer: D

V   0V  P 1  i    25, 000  1V  1V  qx  P(1  i )  (25, 000) q x

1

V   1V  P 1  i    50,000  2V  2V  qx1  50,000

2

 P 1  i   25,000q   P  1  i   50,000q  50,000

x x 1

 P 1.05  25,000  0.15  P  1.05  50,000  0.15  50,000

Solving for P, we get

61,437.50
P  28,542.39
2.1525

May 7, 2020 Page 71

Question # 7.35
Answer: C

V
 505  220  30 1.05  10,000q53  666.2807
4
1  q53

The easiest way to calculate the profit is to calculate the assets at the end of the period using actual
experience and the reserves at the end of the period using the reserve assumptions. The difference is
the profit.

Ending assets  4885(505  220  34)(1.06)  42(10,000)  3,158,067.10

Ending reserves  (4885  42)(666.2807)  3, 226,797.43

Profit = 3,158,067.10  3, 226,797.43  68,730.33

Alternatively, we can calculate the profit by source of profit. For example, if we calculated the gain by
source calculation, done in the order of interest, expense, and mortality, the profit for policy year 4 is

(4885)[(505  220  30)(0.01)  (30  34)(1.06)  (10,000  666.2807)(0.0068  42 / 4885)]

 68,730.37

Question # 7.36
Answer: B

Since G is determined using the equivalence principle, 0V  0

 
e
P

 0  G  187  0.25G  10  1.03

 
Then, 1V e     38.7
0.992

38.7  0.992 
 0.75G   187  10  159.72
1.03
 G  212.97

May 7, 2020 Page 72

Question # 7.37
Answer: D

d
V   tV  Pt  et  ( S t  Et  tV )  x  t
t
dt

At t  30.5,

292  0.05 30.5V  100  0  (10, 000  0  V )  0.038

30.5

572  V (0.05  0.038)

30.5

V  6500
30.5

Question # 7.38
Answer: E

HA45  80  10  a45  a45:10 

G
0.95a45:10  1

HA45  80  10 17.8162  8.0751

G
(0.95  8.0751)  1

A45 80  10 17.8162  8.0751

G H
(0.95  8.0751)  1 (0.95  8.0751)  1

A45
g
(0.95  8.0751)  1

80  10 17.8162  8.0751
f   50.80
(0.95  8.0751)  1

May 7, 2020 Page 73

Question # 7.39

Answer: D

æ 0.1 0.9 ´ 0.1 0.9 ´ 0.9 ´ 0.1ö

G = 0.35G + 2000 ç + + ÷
è 1.08 1.082 1.083 ø
0.65G = 468.107
G = 720.16

Question # 7.40
Answer: C

Expected expense financial impact = Expected expenses + Foregone interest

100  0.07 100  107

Actual expense financial impact = Actual expenses + Foregone interest

75  0.07  75  80.25

Gain from expenses:

107 - 80.25 = 26.75

May 7, 2020 Page 74

Question # 7.41
Answer: A

2 2
 P  A 
On a unit basis, Var ( L0 )  1    2 A45  ( A45 ) 2   1  45   2 A45  ( A45 ) 2 
 d  da45 

2
 da  1  da45  2 2
A45  ( A45 ) 2
  45 
  45
A  ( A45 ) 2

 
 da45  (da) 2

0.03463  0.151612
 2
 0.016178038
 0.05 
 17.8162 
 1.05 

The standard deviation of L0  0.127193

(200, 000)(The standard deviation of L0 )  25, 439

Question # 7.42
Answer: D

20 V  0  1000 A65  ( P  W )  a65

At issue, present value of benefits must equal present value of premium, so:
1000 A45  Pa45  W 20 E45  a65

354.77  ( P  W )(13.5498)  P  W  26.182674  P  26.182674  W

151.61  17.8162 P  W (0.35994)(13.5498)

151.61  17.8162(26.182674  W )  W (0.35994)(13.5498)

 W  24.33447

May 7, 2020 Page 75

Question # 7.43
Answer: E

 a   11.4 
V10  2, 290  B 1  x 10   B 1    B  9,968.24
 ax   14.8 
Gax  25  5ax  B  Ax
 0.04 
Ax  1  dax  1   14.8   0.430769231
 1.04 
G 14.8  25  5 14.8  9,968.24  0.430769231
 G  296.82

V g  9,968.24 Ax 10  5ax 10  296.82ax 10

10

 0.04 
Ax 10  1  dax 10  1   11.4   0.561538462
 1.04 
10V  9,968.24  0.561538462  5  11.4  296.82  11.4
g

 10V g  2, 270.80

Alternatively, the expense net premium is based on the extra expenses in year 1, so

P e  (30  5) /14.8  1.68919

10 V e  0  1.68919(11.4)  19.26

10 V g 10 V n 10 V e  2290  19.26  2270.74

Question # 7.44
Answer: E

L10  10, 000 A35  965.30

L*10  10, 000
L*10  L10  10, 000  965.30  9034.70

May 7, 2020 Page 76

Question # 7.45
Answer: E

Future expenses at x  2  0.08G  5

Expense load at x  2  P
e

23.64  (0.08G  5)  Pe

 Pe  58.08

1000 Px:3  368.05  58.08  309.97

Question # 8.1
Answer: B

Because it is impossible to return to state 0, t p000 and t p000 are the same, so
  1
 0.03(2t )  
 1 2   1
0.015 0.03(2 ) dt   0.015t   
 0 0j  
t
ds 
   ln 2  
j 1 0  s 0  
1 p000  1 p000  e  
e  
e 0


exp[(0.015  0.08656  0  0.04328)]  exp(0.05828)  0.943

Note: The sum of  x t   x t  0.015  0.03(2 )  is a form of Makeham’s law and 1 p0 could be
01 02 t 00

calculated using the formula provided in the tables instead of integrating.

May 7, 2020 Page 77

Question # 8.2
Answer: D

For t  0 and h  0.5,

0.5 p10  0 p10  0.5  0 p10   01   02   0 p1110  0 p12  20 

 0  0.5  0  1 10  0   0.5 10  0.03

Similarly 0.5 p12  0.5 12  0.05

Then, 0.5 p11  1  0.03  0.05  0.92

For t  0.5 and h  0.5,

1 p10  0.5 p10  0.5  0.5 p10   01   02   0.5 p11 10  0.5 p12  20 
 0.03  0.5[0.03(0.02)  0.92(0.06)  0]  0.0573

Question # 8.3
Answer: D

possible transitions probability discounted benefits APV

H Z 0.05 250v 11.904762
H L 0.04 250v 9.523810
H Z D 0.05(0.7)  0.035 1000 v 2
31.746032
H LD 0.04(0.6)  0.024 1000 v 2
21.768707
H H Z 0.90(0.05)  0.045 250 v 2 10.204082
H H L 0.90(0.04)  0.036 250 v 2 8.163265

Sum of these gives total APV =93.31066

May 7, 2020 Page 78

Question # 8.4
Answer: D

00 l51( ) 90,365
p 50  ( )   0.90365
l50 100, 000

03 (3) ( )
p 50 d 50 /l50
0
p 50
00
1 p 50
1100/100,000
 (3)  q50
q51  (3)  1  p50
 (3)  1  p 50
00 00
 1  p 50  1  0.90365 1 0.90365
 0.0115

ln p51(3) ln(1  0.0115)  l52( ) 

d 5130  l51( ) p 51
03
 l51( ) 00
0
p 51  l51( )   1  ( ) 
ln p 51  l52( )   l51 
ln  ( ) 
 l51 

ln(1  0.0115)
 90,365   (1  80, 000 / 90,365)  984
ln(80, 000 / 90,365)

d 51(1)  l51( )  l52( )  d 51(2)  d 51(3)  90,365  80, 000  8200  984  1181

01 (1) ( )
p 51 d 51 /l51
0 00 1181/90,365
p 51 1 p 51

q51(1)  1  p51(1)  1  p 51
00
 1 p 00
51  1  80, 000 / 90,365 180,000/90,365
 0.0138

10, 000  q51(1)  10, 000  0.0138  138

Note: This solution uses multi-state notation for dependent probabilities. There is
alternative notation for these when the context is strictly multiple decrement, as it is here.

May 7, 2020 Page 79

Question # 8.5
Answer: C

There are four career paths Joe could follow. Each has probability of the form:
p35 ( p36 )( p37 )(transition probability 1)(transition probability 2)
where the survival probabilities depend on each year’s employment type. For example, the first entry
below corresponds to Joe being an actuary for all three years.

The probability that Joe is alive on January 1, 2016 is:

(0.9)(0.85)(0.8)(0.4)(0.4)
(0.9)(0.85)(0.65)(0.4)(0.6)
(0.9)(0.7)(0.8)(0.6)(0.8)
(0.9)(0.7)(0.65)(0.6)(0.2)  0.50832

The expected present value of the endowment is (100,000)0.50832 / (1.08) 3  40,352

Question # 8.6
Answer: E

This is an application of Thiele’s differential equation for a multi-state model.

d (s)
The components of tV are
dt
Interest on the current reserve:  tV
(s)

Rate of premiums received while in state s: 0

Rate of benefits paid while in state s: B
Transition intensity for transition to state h, times the change in reserve upon transition (hold reserve
for h and release reserve for s):   x t ( tV  tV )
sh (h) (s)

Similar to previous, noting that the reserve if dead is 0:   x t (0  tV )

sd (s)

Adding these terms yields the solution.

May 7, 2020 Page 80

Question # 8.7
Answer: A

0.7 0.3 0.0  0.55 0.33 0.12 

Q  0.2 0.4 0.4  Q  0.22 0.22 0.56 
2

0.0 0.0 1.0  0.00 0.00 1.00 

Let p = 0.75 be the probability of renewing.

PV costs for Medium Risk:

 300 v 0.5  100(0.2)  300(0.4)  600(0.4)  pv 1.5  100(0.22)  300(0.22)  600(0.56)  p 2v 2.5
 291.4  261.1  206.2  759

The present value of costs for the new portfolio is (0.9)317 + (0.1)759 = 361.2. The increase is
(361.2/317) – 1 = 0.14, or 14%.

Question # 8.8
Answer: B
 0.05 
 
Prob( H  D in 2 months)  (0.75 0.2 0.05)  0.20   0.1275
1 
 
You could do more extensive matrix multiplication and also obtain the probability that it is H after 2 or it
is S after 2, but those aren’t needed.

Let D be the number of deaths within 2 months out of 10 lives

Then D~binomial with n  10, p  0.1275

10 
P( D  4)    (0.1275) 4 (1  0.1275) 6  0.0245
4 

May 7, 2020 Page 81

Question # 8.9
Answer: E

Let A denote Alive, which is equivalent to not Dead. It is also equivalent to Healthy or Disabled. Let H
denote Healthy. The conditional probability is:
P( H and A) P( H )
P( H A)   ,
P( A) P( H )  P(Disabled)
Where
 0     ds
10 10
0
01 02
  (0.05) ds
00
P( H )  10 p  e e  e 0.5  0.607
And
0  
u 10
u
01
10    02 ds  12 ds
P(Disabled)  10 p   e 01
 e
01
du
0
10
  e 0.05u (0.02)e 0.05u 0.5 du
0
10
  (0.02)e 0.5 du
0

 (0.2)e 0.5  0.121

Then
P( H ) 0.607
P( H A)    0.83
P( H )  P(Disabled) 0.607  0.121

Question # 8.10
Answer: A

p x00  exp      x01 s   x02 s  ds   exp     0.20  0.10 s  0.05  0.05s  ds 

t t
t
 0   0 
 t
 exp    0.25s  0.075s 2    exp  0.25t  0.075t 2 
 0

3 p x00  exp  0.25  3  0.075  9   exp(1.425)  0.2405

EPV , through time n,   g (t )dt , where g (t )  10, 000   t p x00  x02t  t p x01 12
x t  e
n
 t
dt
0

g (3)  10, 000  0.2405   0.05  0.05  3   0.4174   0.15  0.01 3 2    e 30.02  1, 400

May 7, 2020 Page 82

Question # 8.11
Answer: B

Let x be the person’s age.

x  exp    0   x  s   x  s  ds 
p11  15 10 12 
15
 
15
 exp    (0.10  0.05) ds 
 0 
 exp[ 15(0.15)]
 exp[2.25]  0.1054

Question # 8.12
Answer: D

Let P be the annual premium

 945 895 
APV(premium)  P 1  v v2   2.711791P
 1000 1000 

 20 25 895 
APV(benefits)  100  v v2  v3   81.4858
 1000 1000 1000 

81.4858
P  30.05
2.711791

895 30 895  30
Note: The term v 3 is the sum of v 3 for death benefits and v3 for maturity
1000 1000 1000
benefits.

May 7, 2020 Page 83

Question # 8.13
Answer: A

By U.D.D.:
 1 
0.2  q x(2)  qx(2) 1  qx(1) 
 2 
 1 
 qx(2) 1   0.1   0.95 qx(2)
 2 
 qx(2)  0.2105
p x( )  px(1) px(2)  (0.90)(1  0.2105)  0.71055
q x(1)  q x( )  q x(2)  1  p x( )  q (2)
 1  0.71055  0.2  0.08945

Question # 8.14
Answer: C

Path Probability
S S S S 0.216
S S  C S 0.012
S  C S S 0.012
S  C  C S 0.010
Total across all paths: 0.250

Question # 8.15
Answer: D

Intuitively:

(A) A lower interest rate increases premium, but a higher recovery rate decreases premium,
because there are lower projected benefits and more policyholders paying premiums.

(B) A lower death rate of healthy lives  more pay premium  lower premium

(C) A higher death rate of sick lives  fewer benefits  lower premium

(D) A lower recovery rate  higher sickness benefits  higher premium

A lower death rate of sick lives  higher sickness benefits  higher premium

(E) A higher rate of interest  lower premium

A lower mortality rate for healthy lives may result in lower premium because more healthy lives
are paying premium.

May 7, 2020 Page 84

Question # 8.16
Answer: C

The desired probability is:

14
  exp  
0  u

0
 01
  1

0 
  02  ds   01  exp    12 ds du
14
  e 0.05u  (0.02)  e 0.11du
0
14
 (0.02)  e 0.11  e 0.05u du
0

0.02 0.11

0.05
e 1  e0.7 
 0.18

The limits of the outer integral are 0 to 14 because you must be disabled by 64 if you are to have been
disabled for at least one year by 65.

Question # 8.17
Answer: C

The probabilities are:

Sick t  1  0.025
Sick t  2  (0.95)(0.025)  (0.025)(0.6)  0.03875
Sick t  3  (0.95)(0.95)(0.025)  (0.95)(0.025)(0.6)  (0.025)(0.6)(0.6)
(0.025)(0.3)(0.025)  0.046

EPV  20,000  0.025v  0.03875v 2  0.046v 3   1934

May 7, 2020 Page 85

Question # 8.18
Answer: A

The probability that Johnny will not have any accidents in the next year is:

0   s 
1
01
   s02 ds
00
p 1 e , where

t01  t02  3.718t01  3.718  0.03  0.06  2t 

So that
3.718  0.06 
 
1
 3.718 0.03  0.06  etln 2 dt  3.718  0.03    0.4333764
0 ln  2 
and
p 001  e 0.4333764  0.6483164
The probability Johnny will have at least one accident is therefore

1  0.6483164  0.3516836 .

Note: The sum of  x t   x t is a form of Makeham’s law and p 00

01 02
1
could be calculated using the formula
provided in the tables instead of integrating.

Question # 8.19
Answer: A

The probability of being fully functional after two years for a single television is:

 0.82 
 0.82 0.10 0.08  0.60   (0.82)(0.82)  (0.10)(0.60)  (0.08)(0.00)  0.7324
 0.00 
 

The number of the five televisions being fully functional has a binomial distribution with parameters of
n  5 and p  0.7324. The probability that there will be exactly two televisions that are fully
functioning is therefore:

5
  (0.7324) 1  0.7324   (10)(0.53641)(0.019163)  0.10279
2 3

 2

May 7, 2020 Page 86

Question # 8.20
Answer: E

5
Probability  t p 00  01 5t p11dt
0

5 5
  e 0.06t 0.05e0.08(5t ) dt   e 0.06t 0.05e0.40e0.08t dt 
0 0

 0.05  0.10
  e  1  0.1762
5
 e 0.40 (0.05)  e0.02t dt  e 0.40 
0
 0.02 

Question # 8.21
Answer: C

5 5
5 p x   t p x  x t 5t p x dt   e
01
(    03 ) t 12
 13 )
01 00 11
 01e (5t )(  dt
0 0
5 5
  e  (0.010.02)t (0.01)e  (5t )(0.300.40) dt   e (0.03)t (0.01)e (5t )(0.7) dt
0 0

5 e 1 0.67(5)
 (0.01)e3.5  e0.67t dt  (0.01)e 3.5    0.01239568
0
 0.67 

May 7, 2020 Page 87

Question # 8.22
Answer: D

Healthy lives’ probabilities:

Probability of a Healthy life at time 0 being Healthy at:

Time 1: 0.9

Time 2: (0.9)(0.9) = 0.81

Probability of a Healthy life at time 0 is Sick at time 1 and then Healthy at:

Time 2: (0.05)(0.30) = 0.015

Probability of being Healthy at time 1: 0.9

Probability of being Healthy at time 2: 0.81 + 0.015 = 0.825

Sick lives’ probabilities:

Probability of a Healthy life at time 0 being Sick at:

Time 1: 0.05

Probability of a Healthy life at time zero is Sick at time 1 and then Sick at:

Time 2: (0.05)(0.60) = 0.03

Probability of a Healthy life at time 0 is Healthy at time 1 and thenSick at:

Time 2: (0.90)(0.05) = 0.045

Probability of being Sick at time 1: 0.05

Probability of being Sick at time 2: 0.03 + 0.045 = 0.075

APV (Healthy): 500(e 0.50.04  0.9e 1.50.04  0.825e2.50.04 )  1287.138812

APV (Sick):
5000(0.05e 1.50.04  0.075e 2.50.04 )  574.755165

Total APV: 1287.14 + 574.76 = 1861.90

May 7, 2020 Page 88

Question # 8.23
Answer: C

(1)
2 53 q  q53(1)  p53( )  q54(1)

 4625 
q54(1)  q54( )  q54(2)  (1  p54( ) )  q54(2)  1    0.040  0.035
 5000 

p53(t ) = 1- q53(1) - q53(2) = 1- 0.025 - 0.030 = 0.945

(1)
2 53 q  0.025  0.945  0.035  0.058

Question # 8.24
Answer: A

The probability of death by year 3:

0.2  0.64  0.20  0.16  0.4  0.392

Expected number of deaths = 1000  0.392  392

Variance of the number of deaths = 1000  0.392  0.608  238.336

æ X - 392 375 - 392 ö

Pr( X < 375) = Pr ç < ÷ = Pr(Z < -1.10) = F(-1.10) = 0.1357
è 238.336 238.336 ø

Question # 8.25
Answer: B

d41(3) = ℓ (41t ) q41

(3)

ℓ (41t ) = ℓ (40t ) (1- q40

(1) (2)
- q40 (3)
- q40 )

(1) (t ) (t )
If q40 increases by 0.01, then the change in ℓ 41 = -0.01ℓ 40 .
( ) (3)
The change in d 41(3)  0.01 q
40 41  0.01  15,000  0.10  15

May 7, 2020 Page 89

Question # 8.26
Answer: B

Outcome (z) Prob (p) p z p  z2

1000v  943.40 0.04 37.74 35,603.92
Fv 0.20 0.20Fv 0.20 ( Fv)2
0 0.76 0 0

E(Z )  37.74  0.1887 F

E  Z 2   35, 603.92  0.1780 F 2
Var ( Z )  35, 603.92  0.1780 F 2  (37.74  0.1887 F )2
 34,174.61  14.243F  0.1424 F 2
Take derivative with respect to F.
Derivative  0.2848F  14.243
Set = 0 and solve; get F = 14.243 / 0.2848 = 50

It should be obvious that this is a minimum rather than a maximum; you could prove it by noting that
the second derivative = 0.2848 > 0.

Note: the result does not depend on v. If you carry v symbolically through all steps, all instances cancel.

Question # 8.27
Answer: A

Expected Present Value of Benefits:

5000(10 /1000) /1.06  7500(15 /1000) /1.06 2  10, 000(18 /1000) /1.063
 47.17  100.12  151.13  298.42.

Expected Present Value of Premiums:

[1  (870 /1000) /1.06  (701/1000) /1.062 ]P  2.4446 P.

The annual premium is P = 298.42/2.4446 = 122

May 7, 2020 Page 90

Question # 9.1
Answer: E

Pr(last survivor dies in the third year) =

2 p 80:90  3 p 80:90

  2 p 80  2 p 90  2 p 80:90    3 p 80  3 p 90  3 p 80:90 
 [(0.9)(0.8)  (0.6)(0.5)  (0.9)(0.8)(0.6)(0.5)]
 [(0.9)(0.8)(0.7)  (0.6)(0.5)(0.4)  (0.9)(0.8)(0.7)(0.6)(0.5)(0.4)]
 (0.72  0.30  0.216)  (0.504  0.12  0.06048)
 0.804  0.56352
 0.24048

Question # 9.2
Answer: E

1, 000, 000  APV(benefits)  100, 000 A65  Ra 65:65  0.60 Ra 65 65  0.70 Ra 65 65

 where a 65 65
 a 65  a 65:65 
 100, 000 A65  R 1.3a 65  0.3a 65:65 

A65  0.35477
1, 000, 000  100, 000 A65
R a65  13.5498
1.3a 65  0.3a 65:65
a 65:65  11.6831

964,523
R  68,358
14.10981

Question # 9.3
Answer: A

10
10
02
p 65:60  t
00
p 65:60  02 10  t p 6522 t :60  t dt
0
10
  e 0.01t (0.005)e 0.008(10t ) dt
0
10
 0.005e 0.08  e 0.002t dt
0

1  e0.02
 0.005e 0.08  0.0457
0.002

May 7, 2020 Page 91

Question # 9.4
Answer: A


APV(insurance)  1000 e 0.05t t p xy00  03 dt
0

 1000(0.005)  e 0.05t e 0.045t dt
0

(0.005)
 1000  52.63158
0.095
Question # 9.5
Answer: D

P

10, 000 vq 30:30  v12 q 30:30 
1  vp 30:30
q30:30  (q30 ) 2  0.0016
p30:30  1  q 30:30  1  0.0016  0.9984

1
q30:30  2 q30:30  q30:30  ( 2 q30 ) 2  0.0016  [0.04  0.96(0.06)]2  0.0016  0.00793

 0.0016 0.00793 
APV of Benefits  10, 000     87.17
 1.05 1.05 2 

87.17
P  44.68
0.9984
1
1.05

Question # 9.6
Answer: C

1000 5 q 60:70  1000  5 p 60 5 p 70 q 65 q 75  5 q 60 5 p 60 q 65 

p 70 q 75  5 q 70 5

1000[ 0.92  0.88 0.02132  0.05169   1  0.92  0.88 0.05169 

 1  0.88 0.92  0.02132 ]
  0.0008922  0.00363898  0.002353731000  6.8849

May 7, 2020 Page 92

Question # 9.7
Answer: B

  30 t:30t  30t:30t dt

10

 e 0
01 02
00
10 p 30:30
 0.006 0.014 0.00071.07530t dt
10

 e 0


 0.02 0.00071.075 dt

10

 e 0
30t


 10 p 30 under Makeham's law with A  0.02; B  0.0007; and c  1.075

  0.0007  
 exp  0.02(10)    (1.075 30 ) 1.075 10  1   0.748
  ln(1.075)  

Note: The above is what candidates would have needed to do in Spring 2015. Candidates could have
solved the integral even without recognizing the distribution as Makeham. In LTAM, solving the integral
without recognition is still valid, but if candidates recognize it as Makeham they could plug into the
formula given in the tables.

Question # 9.8
Answer: B

APV(Premiums)  APV(Benefits)
APV(Benefits)  60, 000a45 45  3Pa45 45
where a45|45  a 45 a45:45
 17.8162  16.8122
 1.0040
APV(Premiums)  Pa45:45
P(16.8122)  60, 000(1.0040)  3P(1.004)
P  4365

Question # 9.9
Answer: B

APV  30,000 A50:50  70,000 A50:50

 30,000 A50:50  70,000  A50  A50  A50:50 
 70,000  2  A50  40,000 A50:50
 140, 000  0.18931  40, 000  0.24669 
 16,635.80

May 7, 2020 Page 93

Question # 9.10
Answer: B

 t 
p 50  1   , 0  t  50
 50 
t

t p 55  e 0.04t , t  0
 t  0.04t
1   e , 0  t  50
t p 50:55  Pr(T50:55  t )   50 
0, t  50

where T50:55  min(T50 , T55 ) is the time until the first death.
0.05T 50:55
L  100e  60  0  e 0.05T50:55  0.6  T50:55  20 ln(0.6)

Pr( L  0)  Pr T50:55  20 ln(0.60) 

 1  Pr T50:55  20 ln(0.60) 
 1  Pr T50  20 ln(0.60)  Pr T55  20 ln(0.60) 
 20 ln(0.60)  0.04[ 20ln(0.60)]
 1  1  e
 50 
 0.4712

Question # 9.11
Answer: A

1
100, 000 A50:60:10  100, 000  A50:10
1 1
 A60:10  A50:60:10
1 
 
 100, 000 0.01461  0.04252  0.05636  77.00

where
1
A50:10  A50:10  10 E50  0.61643  0.60182  0.01461
1
A60:10  A60:10  10 E 60  0.62116  0.57864  0.04252
1
A50:60:10  A 50:60  (1.05)10 10 E 50 10 E 60 A60:70
 0.32048  (1.628895)(0.60182)(0.57864)(0.46562)  0.05636

May 7, 2020 Page 94

Question # 9.12
Answer: B

Pa40:40:10  1,000,000 35 E40:40 a75:75

2
l 
35 E40:40   75  (1.05) 35  0.13337
 l40 

8.0649 P  (1,000,000)(0.13337)(8.2085)

P  135,745

Question # 9.13
Answer: B

The expected present value of the premiums is:

Pa55:55:10  7.9321P

The benefit is 6,000 per year to each of them while they are alive, but while they are both alive they
must, between them, return 2,000 since the benefit is only 10,000.

The expected present value of benefits is therefore:

 2  6, 000  10 E55  a65  2, 000  10 E55  1.05  a65:65

2 10

2 10
 2  6, 000  0.59342  13.5498  2, 000  0.59342  1.05  11.6831
 83, 085.56

Using the equivalence principle, we get

83, 085.56
P  10, 474.60
7.9321

May 7, 2020 Page 95

Question # 9.14
Answer: C

a xy  a x  a y  a xy  10.06  11.95  12.59  9.42

1  A xy
a xy 

1  A xy
9.42   A xy  0.34
0.07
A xy  A xy
1  A 1
xy

0.34  A1xy  0.09  A xy

1  0.25

Question # 9.15
Answer: B

a50:60:20  a50:60  v 20 20 p50:60 a70:80

 a50:60  v 20 20 p50 20 p60 a70:80

  a50:60  1  20 E50 80
 a70:80  1
60

 75, 657.2 
 13.2699  0.34824    6.7208 
 96, 634.1 
 11.4375

May 7, 2020 Page 96

Question # 10.1
Answer: B

Final average salary

50, 000
(1.04) 26  (1.04) 25  (1.04) 24   133,360.2

3

Annual retirement benefit

 0.017(27)(final average salary)(0.85)  52, 030

Note that the factor of 0.85 is based on an interpretation of the 5% reduction as producing a factor of 1
– 3(0.05) = 0.85. The Notation and Terminology Study Note states that this is the method to be used.

Question # 10.2
Answer: E

Defined Benefit:
0.015  Final Average Earnings  Years of Service

 
 0.015  50, 000  1.05 19  1.05 18  1.05 17  / 3  20  36,128 per year
APV at 65 of Defined Benefit = 36,128a65  36,1268(10.0)  361, 280.

Defined Contribution accumulated value at 65:

X %  50, 000 1.05 20  X %  (50, 000  1.05)  1.05 19   X %   50, 000  1.05 19   1.05
 X %  50,000 1.05 20  20  X %(2,653, 298)

Therefore,
361, 280  X %(2, 653, 298)
X %  0.136
X  13.6

May 7, 2020 Page 97

Question # 10.3
Answer: E

Defined benefit plan projected benefit

 1.02 22  1.02 23  1.02 24 

 50, 000   (30)(0.005)
 3 
 50, 000(1.5771054)(30)(0.005)
 11,828

The additional income desired = 42,000 – 11,828 = 30,172.

The necessary defined contribution accumulation at age 65 is
30,172a 65  30,172(9.9)  298, 703.

Question # 10.4
Answer: C

1  (1.04)   (1.04) 29 
Annual pension at age 65  45, 000   (0.02)(30)
 30 
(1.04) 30  1
 45, 000(0.02)  50, 476.44
0.04

Question # 10.5
Answer: E

Annual Retirement Benefit

 9

(0.0175) 525, 000   (50, 000)(1.03) K   19, 218.39
 K 0 

APV at age 65
(12)
(19, 218.39) 10 a 55  19, 218.39(1.04) 10  10 p55  a65
(12)

 19, 218.39(0.6756)(0.925)(12.60)  151,328

May 7, 2020 Page 98

Question # 10.6
Answer: E

 1.035 32  1.035 33  1.035 34 

Final average salary before retirement  40, 000  
 3 
 124,526.80

Retirement Pension  35  0.016  124,526.80

 69,735.01

Salary in final year  40,000 1.035 34

 128,834.41

69,735.01
Replacement Ratio   54.13%
128,834.41

Question # 10.7
Answer: C

Fred gets: (120,000)(1  5  0.04)(0.02)(35)  67, 200

Glenn gets: 120,000  5(4800)   0.02  40  115, 200

Fred gets his for 5 years more, so he is 336,000 ahead of Glenn.

Once Glenn starts drawing he gets 48,000 more per year. It takes him 336,000 / 48,000  7 years to
catch up to Fred.

May 7, 2020 Page 99

Question # 10.8
Answer: E

Retirement Age 63 64 65
Years of
33 34 35
Service (K)
v K 20 0.414964 0.387817 0.362446
Probability of Retirement 0.4 (0.6)(0.2) (0.6)(0.8)(1.0)
Benefit (33)(12)(25) (34)(12)(25) (35)(12)(25)
Annuity Factor 12 11.5 11
Benefit Reduction Factor 0.856 0.928 1.0
Contribution to Actuarial Present
16,879.56 5,065.87 20,094.01
Value of Retirement Benefit

The actuarial present value of the retirement benefit is therefore:

16,879.56  5,065.87  20,094.01  42,039.44

Question # 10.9
Answer: C

Let S35 be Colton’s starting salary which is the annual salary from age 35 to age 36.

career average salary find average salary

S35 S35
1  1.025  1.025 2 
  1.025 29   1.025 29  1.025 28   1.025 25 

30 5
0.02  30 R%  30

1.025 30  1 1.025 5  1
0.02  6( R%) 1.025 25 
0.025 0.025

0.02 1.025 30  1
R%  1.025  25  0.1501727  1.5%
6 1.025 5  1

May 7, 2020 Page 100

Question # 10.10
Answer: D

Let S35 be the employee’s starting salary which is the annual salary from age 35 to age 36.

For Plan I, the accumulated contributions are:

(0.15) S 35 (1.03) 30  (0.15) S 35 (1.03)(1.03) 29
(0.15) S 35 (1.03) 2 (1.03) 28  ...
 (0.15) S 35 (1.03) 30 (30)  10.923S 35
(12)
 (12 B)a 65
10.923S 35
B  0.096 S 35
12(9.44)

For Plan II, we have:

1
2
 S 35 (1.03) 28  S 35 (1.03) 29   2.322S 35

1
B   30  0.015  S 35  2.322   0.087 S 35
12
0.096
  1.107
0.087

May 7, 2020 Page 101

Question # 10.11
Answer: B

Under the Traditional Unit Credit cost method the actuarial accrued liability (AAL) is the actuarial
present value of the accrued benefit on the valuation date.

The formula for the accrued benefit, B, is

B  (0.02)( FAS )(SVC)

Where FAS is the final average salary and SVC is years of service.

FAS is the average of the salaries in the years 2013, 2014, and 2015, which is 35,000 x (1.032 + 1.033 +
1.034)/3 = 38,257. Therefore

B  (0.02)(38, 257)(5.0)  3826 .

The AAL is the actuarial present value (as of the valuation date) of the accrued benefit and is given by
(r ) ( )
AAL  B  a65  q65  6535 p35  v30
 (3826)(11.0)(1.00)(0.95)30 1.04 
30

 2785

May 7, 2020 Page 102

Question # 10.12
Answer: D

We know that:

t V  Ct  EPV of benefits for mid-year exits  v 1 px( ) t 1 V where:

Ct  Normal Cost for year t to t  1 and tV is the Actuarial Accrued Liability at time t

Average Salary at 12-31-2015 35,000 x (1.032 + 1.033 + 1.034)/3 = 38,257

Accrued Benefit at 12-31-2015 (0.02)(38, 257)(5.0)  3826
(3826)(11.0)(1.00)(0.95)30 1.04 
30
Actuarial Accrued Liability 12-31-2015, t V  2785

If you do not understand the above numbers, you can look at the solution to Number 10.11 for more
details.

Average Salary at 12-31-2016 35,000 x (1.033 + 1.034 + 1.035)/3 = 39,404

Accrued Benefit at 12-31-2016 (0.02)(39, 404)(6.0)  4728
(4728)(11.0)(1.00)(0.95)29 1.04 
29
Actuarial Accrued Liability 12-31-2016, V
t 1  3768

Note that EPV of benefits for mid-year exit is zero. Then:

t V  Ct  EPV of benefits for mid-year exits  v 1 px( ) t 1 V

2785  Ct  0  (1.04) 1 (0.95)(3768)

Ct  657

May 7, 2020 Page 103

Question # 10.13
Answer: B

Under the Projected Unit Credit cost method, the actuarial liability is the actuarial present value of the
accrued benefit. The accrued benefit is equal to the projected benefit at the decrement date multiplied
by service as of the valuation date and by the accrual rate.

We have the following information.

Projected Final Average Salary at 65 (35,000)(1.0332 + 1.0333 +1.0334)/3 = 92,859

Service at valuation date 5
Accrual Rate 0.02
Projected Benefit (92,859)(0.02)(5) = 9286

The actuarial liability is the actuarial present value (as of the valuation date) of the projected benefit and
is given by
(r ) ( )
Actuarial Liability  (Projected Benefit)  a65  q65  6535 p35  v30
 (9286)(11.0)(1.00)(0.95)30 (1.04)30
 6760

May 7, 2020 Page 104

Question # 10.14
Answer: D

We know that:

t V  Ct  EPV of benefits for mid-year exits  v 1 px( ) t 1 V where:

Ct  Normal Cost for year t to t  1 and tV is the Actuarial Liability at time t

We have the following information.

Projected Final Average Salary at 65 (35,000)(1.0332 + 1.0333 +1.0334)/3 = 92,859

Projected Benefit at 12-31-2015 (92,859)(0.02)(5) = 9286
Accrued Liability 12-31-2015, t V (9286)(11.0)(1.00)(0.95)30 (1.04)30  6760

If you do not understand the above numbers, you can look at the solution to Number 10.13 for more
details.

Projected Final Average Salary at 65 (35,000)(1.0332 + 1.0333 +1.0334)/3 = 92,859

Projected Benefit at 12-31-2016 (92,859)(0.02)(6) = 11,143
Accrued Liability 12-31-2016, t 1V (11,143)(11.0)(1.00)(0.95)29 (1.04)29  8880

Note that EPV of benefits for mid-year exit is zero. Then:

t V  Ct  EPV of benefits for mid-year exits  v 1 px( ) t 1 V

6760  Ct  0  (1.04) 1 (0.95)(8880)

Ct  1352

May 7, 2020 Page 105

Question # 10.15
Answer: C

t V  Ct  EPV of benefits for mid-year exits  v1 px00 t 1 V

For this problem, EPV of benefits for mid-year exits  0

00
 C35  v1 p60 36 V 35 V

Since the pension plan has only a retirement benefit at Normal Retirement, under PUC:

t V  accrual rate × years of past service × probability of survival to retirement × discount to

retirement × APV at time of retirement of the retirement benefit

00
35 V  accrual rate  35  v R R p60  APV of retirement benefit

36 V  accrual rate  36  v R 1 R 1 p61

00
 APV of retirement benefit

00 00 36
 v1 p60 36 V  accrual rate  36  v R R p60  APV of retirement benefit  35 V
35

00 36 V
C35  v1 p60 36 V 35 V  35 V 35 V  35
35 35

Question # 10.16
Answer: A

By age 65, member would have served total of 35 years in which case, benefit would be
35  0.02  70%. Thus, set it at 60%.

 1   l 65  (12)
( )

EPV(benefits)  (0.60)(50, 000)(1.03) 19  20   ( )  65

a
 1.05   l 45 
20
 1   3000 
  7.8   92, 787.29
19
 (0.60)(50, 000)(1.03)   
 1.05   5000 

May 7, 2020 Page 106

Question # 10.17
Answer: E

Replacement ratios

(Pension Benefit)(Years of Service) (1250)(25)

Plan 1: R  
Salary at Retirement S0 (1.04)24

Plan 2:
(Career Average Salary)(Benefit Rate Per Year)(Years of Service)
R
Salary at Retirement

 1.0425  1   1   1.0425  1 
S0    (0.02)(25)   (0.02)
 0.04   25   0.04 
   0.324934
S0 (1.04) 24 (1.04) 24

The two are equal, so that

(1250)(25)
 0.32494
S0 (1.04)24

(1250)(25)
 S0   37,519
0.32494(1.04) 24

Question # 10.18
Answer: E

At 66, the total retirement fund is 1,500,000 1.08  and is to be used to purchase a quarterly annuity
  4
equal to Xa66 so that:

1,500, 000 1.08  1, 620, 000

X   125, 769.56
3 3
a66  13.2557 
8 8

X 125, 769.56
Replacement Ratio    0.50
250, 000 250, 000

May 7, 2020 Page 107

Question # 10.19
Answer: A

There is no projected salary for traditional unit credit method:

12 
V  (0.02)(10)(150, 000)v 20
0 20 p45 a65  127,157.50

12 
V  (0.02)(11)(150, 000)v19
1 19 p46 a65

Let C = normal contribution

1
V  C  vp45 1V  C 
0 0V  12,715.75
10
11
 0V
10

Question # 10.20
Answer: D

Kaitlyn’s annual retirement benefit is

(Final Average Salary)(Number of Years)(Accrual Rate)(Reduction Factor)

50, 000(1.02526  1.02527  1.02528  1.02529  1.02530 )

= (31)(0.02) 1  0.07  3   48,923.98
5

Question # 10.21
Answer: A

64 (r )
dx
APV   Bx
x  0.5  50
v
x  62 50

5017.5 12.5 4515.2 13.5 4061.0 14.5

 20, 000   1.05  25, 000   1.05  30, 000   1.05
117,145.5 117,145.5 117,145.5

 1477

May 7, 2020 Page 108

Question # 10.22
Answer: A

Question # 10.23
Answer: A

14 (12 )
V0  0.02  YOS 0  S 0  65
 (1  i )  a65
51

94, 579.7 14

 0.02  10  68, 700   1.05  13.0915  87, 272.30
98, 457.2

The normal contribution is:

S YOS1   70, 400  11  1 

NC  V0  1
  1   87, 272.30  
S 0
YOS 0   68, 700 10 
 11,103

May 7, 2020 Page 109

Question # 10.24
Answer: E

Years of service at age 65: 15+ (65- 45) = 35

Final one-year salary: (120,000)(1.0420 ) = 262,935

Projected pension: (262,935)(35)(0.015) = 138,041

Actuarial present value of projected pension:

(138,041)(0.552)(10.60)
= 304,415.7
1.0520

æ 15 ö
( )
Actuarial liability: ç ÷ 304,415.7 = 130,464
è 35 ø

Normal cost under projected unit credit with no benefits paid on next year’s terminations is:

130,464
= 8,697.6
15

Question # 12.1
Answer: E

 a   11.6803 
1V 70  (10, 000) 1  71   (10, 000) 1    273.14
 a70   12.0083 
 a72   11.3468 
2V 70  (10, 000)  1    (10, 000) 1    550.87
 a70   12.0083 
Expected Profit   273.14  800 1  0.10   1.07  10, 000(0.03)  550.87 1  0.03  0.04   250.35

May 7, 2020 Page 110

Question # 12.2
Answer: B

Pr2  1V  P  E  I  EDB  E2V

 (400  1500  100)1.072  (100, 000)(0.012)  (0.988)(700)
 38.00

Question # 12.3
Answer: E


EPV of Premium  250 1  vp 50 
EPV of Profit  165  100v  125v 2 p50
165  100v  125v 2 p50
Profit Margin   0.06
250 1  vp50 

Solving for p50 , we get:

165  100v  0.06(250) 89.09091

p 50  
0.06(250)v  125v 2 89.66942
 0.9935484

 where v  1.10 1

Question # 12.4
Answer: C

245  p40 274 and 300  2 p40 395

Present value of expected premiums:

1000[1  (245 / 274)(1/1.12)  (300 / 395)(1/1.122 )]  2403.821.

Present value of expected profits:

400  150 /1.12  245 /1.122  300 /1.123  142.775.

PV Profit / PV premium = 5.94%

May 7, 2020 Page 111

Question # 12.5
Answer: D

DPP  min t : NPV  t   0

NPV  0    0  550
300
NPV 1   0   1v  550   282.14
1.12
275
NPV  2   NPV 1   2 v  282.14   62.91
1.122
75
NPV  3  NPV  2    3v3  62.91   9.53
1.123
150
NPV  4   NPV  3   4v 4  9.53   85.80
1.124
NPV  4   0  DPP  4

Question # 12.6
Answer: B

3
NPV  PreContractExp    Prk  v k k 1 p55
k 1

NPV  PreContractExp 
3

 StartingRes
k 1
k  GPk  Ek  InvEarn k  ExpDeathBenefits k  ExpReserveCosts k  v k k 1 p55

PreContractExp  100
Pr1  75  20  2.80  10.0  64.35  16.55
Pr2  65  75  20  6.00  15.0  123.13  12.13
Pr3  125  75  20  9.00  21.0  168.00
NPV  100  16.55  1.11  1  12.13  1.12  0.99  168  1.13  0.99  0.985
 100  15.05  9.92  123.08
 1.89

Question # LM.1
Answer: E

 600  200  100 

Sˆ (12)  Sˆ (10)   0.6
 600  200 

May 7, 2020 Page 112

Question # LM.2
Answer: D

Sˆ (1)  0.8
S (1)(1  S (1) (0.8)(0.2)
V [ S (1)]    0.012652
n 1000
 95% CI is approx (0.8  1.96(0.01265))  (0.775,0.825)

Question # LM.3
Answer: D
1 3
Hˆ (1.5)    0.048148
90 81

Sˆ (1.5)  e  H (1.5)  0.9530

ˆ

Question # LM.4
Answer: B

55 42 28 15 4
Sˆ (21)       0.1833
60 48 35 21 10
 5 6 7 6 6 
V [ S (21)]  0.18332      
 60 55 48 42 35 28 2115 10 4 
 0.00607  0.0779 2
 Upper 80% Confidence limit is 0.1833+1.282  0.0779
=0.283

May 7, 2020 Page 113

Question # LM.5
Answer: B

28  19 28  19  15
Fˆ (10)   0.47 Fˆ (20)   0.62
100 100

Use linear interpolation to find Fˆ (12)

 20  12  ˆ  12  10  ˆ
Fˆ (12)    F (10)    F (20)  0.8(0.47)  0.2(0.62)  0.50
 20  10   20  10 

Question # LM.6
Answer: C

Exposure is T0  3  0.35  0.25  0.45  4.05

Number of 0-1 transitions is d 01  2

d 01 2
Variance of the estimator for ˆ x01 is 2
  0.12193  0.352 .
(T0 ) (4.05) 2

Standard Deviation  0.35

Question # S1.1
Answer: C

Alice is sick for 5 months from July-November 2018; of this 2 months is eliminated through the waiting
period, giving three months benefit. She is not sick for three months and then sick again for 8 months.
Because the recovery period is less than the off period of the benefit, the payments start again as soon as
she becomes ill the second time, with 8 months of benefit payable. That gives a total of 11 months of
sickness benefit during the two years 2018-2019.

May 7, 2020 Page 114

Question # S2.1
Answer: C

01 01
a50:10
 a50  v10 10 p50
00 01
a60  v10 10 p50
01 11
a60

Note that
axij  axij for i  j Because under either annuity, there is no payment at t  0
a  a  1 Because axii includes a payment at t  0 but axii does not
ii
x
ii
x

So
01
a50:10 01
 a50  v10 10 p50
00 01
a60  v10 10 p50
01
 a6011  1
 1.9618  (1.05) 10 (0.83936)(2.6283)  (1.05) 10 (0.06554)(10.7144  1)
 0.2166

Question # S3.1
Answer: B

 10 V (0)  0.95P  (1.06)  p60

00
11V
(0) 01
 p60 30, 000(1.05)  11V (1)  
 5946  0.95(2360)  (1.06)  (0.97026) 11V (0)  (0.01467)  30, 000(1.05)  11V (1) 
 8217.175  0.97026 11V (0)  0.01467 11V (1) (A)

V (1) (1.06)  p60 60  30000(1.05)  11V 

10 (0)
Also 10 11V  p11 (1)

(200, 640)(1.06)  (0.00313) 11V (0)  (0.97590)  30000(1.05)  11V (1) 

 181,937.55  0.00313 11V (0)  0.97590 11V (1)

 8217.175  0.9702611V (0) 

181,937.55  0.00313 11V (0)  0.97590 
 0.01467 

11 V (0)  5650.5

May 7, 2020 Page 115

Question # S4.1
Answer: C

3 p0,0  [1  q(0, 0)][1  q(1,1)][1  q(2, 2)]

 [1  q(0, 0)][1  {1   (1,1)}q(1, 0)][1  {1   (2,1)}{1   (2, 2)}q(2, 0)]

 [1  0.4][1  {1  0.08}(0.5)][1  {1  0.06}{1  0.04}(0.6)]

(0.6)(1  0.92  0.5)(1  0.94  0.96  0.6)  0.149

Question # S4.2
Answer: D

3 2
Set 2017 to be t  0 . The spline function is C ( x, t )  at  bt  ct  d and the first derivative is
C( x, t )  3at 2  2bt  c . Then
C (35, 0)  d  0.037 C (35, 0)  (0.037  0.035)  0.002  c
C (35,10)  1000a  100b  10c  d  0.015  0.042  1000a  100b
C (35,10)  300a  20b  c  0  0.002  300a  20b
 a  0.000064 b  0.00106
 C (35,5)  125a  25b  5c  d  0.0285

Question # S4.3
Answer: D

lm(60, 2020)  log(m(60, 2020)   60   60 K 2020

K 2020  K 2018  c   K Z 2018  c   K Z 2019  K 2018  2c   K  Z 2018  Z 2019 
where (Z2018 , Z 2019 ) are i.i.d. N(0,1)  ( Z 2018  Z 2019 ) ~ N (0, 2)
 lm(60, 2020)  4.0  0.25  3.0  0.1  0.9( Z 2018  Z 2019 )   4.775  0.225( Z 2018  Z 2019 )
 lm(60, 2020) ~ N (4.775, [(0.225) 2 V ( Z 2018  Z 2019 )])
 lm(60, 2020) ~ N (4.775, 0.10125)
 m(60, 2020) ~ log N (4.775, 0.10125 )
 E[m(60, 2020)]  e 4.7750.10125/2  0.00888

May 7, 2020 Page 116

Question # S4.4
Answer: A

lm(60, 2020)  log(m(60, 2020)   60   60 K 2020

K 2020  K 2018  c   K Z 2018  c   K Z 2019  K 2018  2c   K  Z 2018  Z 2019 
where (Z2018 , Z 2019 ) are i.i.d. N(0,1)  ( Z 2018  Z 2019 ) ~ N (0, 2)
 lm(60, 2020)  4.0  0.25  3.0  0.1  0.9( Z 2018  Z 2019 )   4.775  0.225( Z 2018  Z 2019 )
 lm(60, 2020) ~ N ( 4.775, [(0.225) 2 V ( Z 2018  Z 2019 )])
 lm(60, 2020) ~ N ( 4.775, 0.10125)
 m(60, 2020) ~ log N ( 4.775, 0.10125 )
 E[m(60, 2020)]  e4.775 0.10125/2  0.00888
 V [m(60, 2020)]   e 4.775 0.10125/2   e0.10125  1  0.002897 2
2

 Standard Deviation  0.002897

Question # S4.5
Answer: B

Let Q ( X ) denote the   quantile of a random variable X .

lm(60, 2020)  log(m(60, 2020)   60   60 K 2020

K 2020  K 2018  c   K Z 2018  c   K Z 2019  K 2018  2c   K  Z 2018  Z 2019 
where (Z2018 , Z 2019 ) are i.i.d. N(0,1)  ( Z 2018  Z 2019 ) ~ N (0, 2)
 lm(60, 2020)  4.0  0.25  3.0  0.1  0.9( Z 2018  Z 2019 )   4.775  0.225( Z 2018  Z 2019 )
 lm(60, 2020) ~ N (4.775, [(0.225) 2 V ( Z 2018  Z 2019 )])
 lm(60, 2020) ~ N (4.775, 0.10125)
 m(60, 2020) ~ log N (4.775, 0.10125 )
 Q0.95 (m(60, 2020))  e4.7751.645 0.10125
 0.01424

May 7, 2020 Page 117

Question # S4.6
Answer: E

lm(60, 2020) ~ N ( 4.775, 0.10125)

 m(60, 2020) ~ log N ( 4.775, 0.10125 )
1  mx / 2
Under UDD we have px  which is a decreasing function of mx .
1  mx / 2
Let Q ( X ) denote the   quantile of X . Then
1  Q0.05 (m(60, 2020)) / 2
Q0.95 ( p(60, 2020)) 
1  Q0.05 (m(60, 2020)) / 2

Q0.05 (m(60, 2020))  e 4.7751.645( 0.10125 )

 0.0050

 Q0.95 ( p(60, 2020))  0.99501

Note: Since px is a decreasing function, to find the 95th quantile of px ,

we must use the 5th quantile of mx .

May 7, 2020 Page 118

Question # S5.1
Answer: A

ax00  ax01  ax02  ax  0.52  3.24  5.60  9.36

Ax03  Ax  1   ax  1  (0.04)(9.36)  0.6256

10, 000 Ax03  6256

Alternative Solution:

1
First note that ax00  ax01  ax02  ax03  a   25.00  ax03  15.64

Also, we have that

a 03
x    t px00  x03t ax33t e t  t px01 13 33
x t ax t e
 t
 t px02  x23t ax33t e  t  dt
0

1
Note that ax33t  since state 3 is an absorbing state – the annuity payable while the life is in

state 3 given that they are already in state 3 is a perpetuity.

So


1
ax03 

 t px00  x03t e  t  t px01 13
x t e
 t
 t px02  x23t e  t  dt
0

1
 Ax03  Ax03   15.64  0.6256


May 7, 2020 Page 119

Question # S6.1
Answer: E
Note that as the premium inflation rate is constant,

aB (65, t )  1  vi* p65  vi2* 2 p65  vi3* 3 p65  which is not a function of t
1 i
where i*   1  0.010456
(1.04)(1.03)

 aB (65, 4)  aB (65, 2)  26.708

 aB (63, 2)  1  vi* p63  vi2* 2 p63  vi3* 3 p63   1  vi* p63  vi2* 2 p63 aB (65, 4)

 1  (1  0.010456) 1 (1  0.004730)  (1  0.010456)2 (1  0.004730)(1  0.005288)(26.708)

 29.01

Question # S6.2
Answer: B
Normal cost (NC) assuming retirement at age 60 is
AVTHB p50 v10 5000(1  j )10 aB (60)
 10

Projected Years of Service 30

p50 v11 5000(1  j )11 c aB (61)

And for age 61 is, similarly, 11

31
1 i 1.05
Where aB ( x)  ax |i* i*  1   0.0
(1  j )c (1.03)(1.0194)
 aB ( x)  ex  1

 96, 634.1  10 10

 98,576.4  (1.05) (5000)(1.03) (26.71  1)
So the NC assuming age 60 retirement is    3735.3
30
 96,305.8  11 11
 98,576.4  (1.05) (5000)(1.03) (1.0194)(25.80  1)
And for age 61 retirement is,    3484.1
31

So the NC is 0.5  3735.3  0.5  3484.1  3609.7

May 7, 2020 Page 120