SUNWAY UNIVERSITY 38 SUNWAY UNIVERSITY BUSINESS SCHOOL FINAL EXAMINATION FOR B SC (HONS) IN ACTUARIAL STUDIES ACADEMIC SESSION : AUGUST 2014 SEMESTER SUBJECT : ASC2014 LIFE CONTINGENCIES | EXAMINATION : DECEMBER 2014 TIME ALLOWED : 3 HOURS + 10 MINUTES READING TIME, INSTRUCTIONS TO CANDIDATES There are FIVE (5) questions printed on FIVE (5) pages excluding the cover page. ANSWER ALL QUESTIONS. All answers must be written in the answer booklets provided using blue or black INK (except for diagrams). At the end of the exam, answer booklets and answer sheets must be fastened together. IMPORTANT NOTES TO CANDIDATES Materials Allowed Standard Items : Pen, Pencil, Ruler, Eraser or Correction Fluid Special Items: Non Programmable Calculators It is your responsibility to ensure that you do NOT have in your possession any unauthorized notes or any other means that would improperly help you in your work. If you have any unauthorized materials with you, hand it to the invigilator BEFORE reading any further. DO NOT REMOVE THIS QUESTION PAPER FROM THE EXAMINATION HALL‘Sunway University Business Schoo! ASC2014/ December 2014 Examination Question 1 (Total: 20 marks) (2) Let T denote a continuous random variable with probability density function f(¢) and survival function S(¢). (@ Define and deseribe in the actuarial context, the hazard function h(t). (3 marks) is £0 Pi that h(t)=— Gi) rove that HO) = (4 marks) (iii) Use part (i) to show that S@) =e" where H(®) = A(e)ade is the cumulative hazard function. (4 marks) (b) Show that the function A(t) = Be' where B > 0, ¢>1, qualifies to be a hazard function. Determine the corresponding survival function, (5 marks) (©) Let e, denote the mean of the curtate future lifetime of (x). Prove that Di Pe (4 marks) Page LofS‘Sunway University Business Schoo! ‘A8C2014 / December 2014 Examination Question 2 (Total: 20 marks) @ Prove that 4.4.5, emery » Interpret the result, (4 marks) (&) Prove that under the UDD assumption for fractional ages, @ Osrsi. (3 marks) @ Osstesi. (4 marks) (© Consider a select and ultimate table with a 2-year select period shown below. Bl ha Fat ba 50 70,625 69,954 68,839 51 63,137 68,402 67,252 52 67,575 66,770 65,578 Using the UDD assumption for fractional ages, obtain the value of asdsapce (9 marks) Page 2 of 5Sunway University Business School ‘ASC2014 / December 2014 Examination Question 3 (Total: 20 marks) @ ) © Assume a constant force of mortality zand constant force of interest S > 41. Let Z denote the present value random variable for a special whole life insurance with benefit of e* payable at the moment of death. Determine Var[Z]. (7 marks) Consider a special whole life insurance issued to a newborn with death benefits b, payable at the moment of death. You are given that 100 Ost<55 200 1255 0.02 Os 4<55 0.01 £255 Halt) = 0.04 Obtain the actuarial present value of this insurance. (7 marks) You are given the following information 06 aq = 0.00278, Gq, =0.00298, 4, =0.00320, and i= Find the variance of the present value random variable for a 3-year term insurance issued to a life age 40 with death benefit payable at the end of the year of death. (6 marks) Page 3 of S‘Sunway University Business Schoo! ‘AS02014 / December 2014 Examination Question 4 (Total: 20 marks) @ ) © Show algebraically that the actuarial present value of a temporary n-year life annuity due is given by Sut. 8 (8 marks) Let W denote the present value random variable for a special life annuity on (x) which provides a benefit of 2 per year payable continuously while (x) survives and 10 payable at the moment of death of (x), Assume a constant force of mortality gr and a force of interest 5 . Calculate Var [W] (6 marks) ‘The Woolhouse’s three-term approximation formula for the m-thly whole life annuity immediate is given by (3 marks) (i) Deduce the Woolhouse's two-term approximation formula for the m-thly » year deferred whole life annuity due in terms of an 1-year deferred whole life annuity due and the actuarial present value of an n-year pure endowment insurance. (@ marks) Page 4 of S‘Sunway University Business School ‘AS02014 / December 2014 Examination Question 5 (Total: 20 marks) @ () ‘An n-year deferred whole life annuity due with annual payment of 10,000 is issued to (), with net annual premiums © payable during the deferred period. In addition to the annuity payments, the policy also provides for the refund of net annual premiums paid, without interest, if death occurs during the deferred period. Determine Q by the Equivalence Principle. (5 marks) Consider a fully continuous whole life insurance of 1 issued to (x). Let Z and L denote, respectively, the present value random variable of death benefit and future Joss random variable. Premiums are determined by the Equivalence Principle, You are given that Var[Z]=4‘ Var[L] and @, =1+k. Determine P(A,) in terms of k. (7 marks) Consider a homogeneous Markov Chain model with transition probability matrix 04 06 08 0.2 1 for a transition from State 2 to State 1 any time in the next 3 years. The process is now at State 1. Calculate the actuarial present value of the cash flows at time 0 assuming effective annual interest rates of ) Changes in state occur only at the end of the year. There is a cash flow of (25% throughout the 3 year period. (5 marks) Gi) 10% in the first year, 15% in the second year, and 20% in the third year, (G marks) ~ END OF PAPER ~ Page 5 of 5BLANK PAGEBLANK PAGE