2023/4/18 13:03 4 of 7 - Assignment - Practice

4 of 7 Finish Assignment

For a 20-year endowment insurance of 1,000 on (45) payable at the end of the year of death,
you are given:

I. Mortality follows the Standard Ultimate Life Table.

i = 0.05
II.

III. Z is the present value random variable for this insurance.

Calculate Pr[Z ≤ 600].

7% A 0.984

20% B 0.986

Exhibit

Solution

Written Solution
Pr[Z ≤ z] Z Z
Tx Z=z
Recall that to calculate for continuous , we first draw a graph of as a function of

Tx Tx
, and then identify the parts of the graph that are below the horizontal line as well as
the corresponding values of . We then calculate the probability of being in those range(s).

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 Pr[Z ≤ z] Z
2023/4/18 13:03 4 of 7 - Assignment - Practice

Tx Z Kx + 1
To calculate for discrete , we follow the same process. We first identify the

Tx
appropriate by following the same process for a continuous , and then determine
that corresponds to that .

The PV random variable for a corresponding continuous Z is:

1000vT45 , T45 ≤ 20
Z = 1000v20 , T45 > 20
{

1 T45 , T45 ≤ 20
1000 1.05
⎧

= ⎪
⎨
1 20
( )

1000 1.05 , T45 > 20

⎪
⎩ ( )

1 T45
= 1000 1.05 , T45 ≤ 20
⎧
⎪

376.89 , T45 > 20

⎨ ( )
⎪
⎩

Here is a graph of Z vs. T45. From the graph, identify the parts of the curve where Z ≤ 600.

Notice Z ≤ 600 occurs when T45 > h. Determine the value of h:

1 h
1000 1.05 = 600 ⇒ h = 10.4698
( )

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 Z is continuous, Z ≤ 600 occurs when T45 > 10.4698. For a discrete Z, this means:
2023/4/18 13:03 4 of 7 - Assignment - Practice

Thus, if

K45 + 1 > 10.4698

K45 > 9.4698
K45 ≥ 10
Thus, the desired probability is:

Pr[Z ≤ 600] = Pr[K45 ≥ 10] = 10 p45 = 97,846.2

99,033.9= 0.988

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