November 2013 MLC Solutions

1.

Key: B
A x:1n = n E x

A x = Ax1:n + n E x A x + n
0.3 = A1x:n + (0.35)(0.4) A1x:n = 0.16
A x :n = A 1x :n + n E x = 0.16 + 0.35 = 0.51

a x:n

2.

1 A x:n

1 0.51
= 10.29
d
(0.05 /1.05)
= ax:n 1 + n E x = 10.29 0.65 = 9.64

ax:n =

Key: C
a xy = a x + a y a xy = 10.06 + 11.95 12.59 = 9.42
a xy =

1 A xy

1 A xy

A xy = 0.34
0.07
A xy = A 1xy + A xy1

9.42 =

0.34 = A1xy + 0.09 A1xy = 0.25

3.

Key: E
2.2

q[51]+ 0.5 =

l[51]+ 0.5 l53.7

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
= 0.1074
95, 000
10, 0002.2 q[51]+ 0.5 = 1, 074
2.2

q[51]+ 0.5 =

Page 1 of 13

4.

Key: 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 arent needed.
Let D be the number of deaths within 2 years 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

5.

Key: A

e 40 =

= 50 So receive K for 50 years guaranteed and for life thereafter.

10, 000 = K a50 + 50| a40

50

a 50 = e t =
0

50|

a40 =

K=

50

1 e 50

1 e50(0.01)
= 39.35
0.01

E40 a40+50 = e ( + )50

1
1
= e1.5
= 7.44
+
0.03

10, 000
= 213.7
39.35 + 7.44

Page 2 of 13

6.

Key: C
Simplest solution is retrospective:

q [55] = (0.7)(0.00896) = 0.006272

V=

(24.453)(1.06) (1000)(0.006272)
= 19.77
1 0.006272

Prospectively, q [55]+1 = (0.8)(0.00975) = 0.0078; q [55]+ 2 = (0.9)(0.01062) = 0.009558

A[55]+1 = (1000)(0.0078)v + (1000)(1 0.0078)(0.009558)v 2

+ (1 0.0078)(1 0.009558)(342.65)v 2 = 315.49

a[55]+1 = 1 A[55]+1 / d = (1 0.31549) / (0.06 /1.06) = 12.093

V = 315.49 (12.093)(24.453) = 19.78

7.

Key: A
Let P = 0.00258 be the monthly benefit premium per 1 of insurance.
i 1

A55:10 + A55:101 12 Pa(12)

10V = 100, 000
55:10

= 100, 000 [1.02971(0.09102) + 0.48686 (12 0.00258)(7.21928) ]

35, 700
Where
1
= A55 10 E 55 A65 = 0.30514 (0.48686)(0.43980) = 0.09102
A55:10

A55:101 = 10 E 55 = 0.48686
a55:10 = a55 10 E 55 a65 = 12.2758 (0.48686)(9.8969) = 7.45740
a(12)
= (12)a55:10 (12) 1 10 E 55
55:10
= 1.00028(7.45740) 0.46812(1 0.48686) = 7.21928

Page 3 of 13

8.

Key: C
Use superscript g for gross premiums and gross premium reserves.
Use superscript n (representing net) for benefit premiums and benefit reserves.
Use superscript e for expense premiums and expense reserves.
P g = 1, 605.72 (given)
e

P =

0.58P g + 450 + ( 0.02 P g + 50 ) a45

a45

0.58(1, 605.72) + 450 + [0.02(1, 605.72) + 50]14.1121

= 180.00
14.1121
Alternatively,
100, 000 A45
Pn =
= 1425.73
P e = P g P n = 180
a45
=

V e = ( 0.02 P g + 50 ) a50 P e a50 = [0.02(1, 605.72) + 50](13.2668) 180(13.2668) = 1, 298.63

Alternatively,
n
= 100, 000 A50 P n a50
5V
= 100, 000(0.24905) 1, 425.73(13.2668) = 5,990.13

V g = 100, 000 A50 + ( 50 + 0.02 P g P g ) a50

= 100, 000(0.24905) + [50 + 0.02(1, 605.72) 1, 605.72](13.2668) = 4, 691.63

V e = 5V g 5V n = 1298.51

9.

Key: D
a50:10 = a50 10 E 50 a60 = 13.2668 0.51081(11.1454) = 7.5736
1
A50:20
= A50 20 E 50 A70 = 0.24905 0.23047(0.51495) = 0.13037

a50:20 = a50 20 E 50 a70 = 13.2668 0.23047(8.5693) = 11.2918

APV of Premiums = APV Death Benefit + APV Commission and Taxes + APV
Maintenance
1
Ga50:10 = 100, 000 A50:20
+ 0.12Ga50:10 + 0.3G + 25a50:20 + 50

7.5736G = 13, 037 + 1.2088G + 332.30

6.3648G = 13,369
G = 2,100
Page 4 of 13

10.

Key: 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
10
10
( 01 + 02 ) ds
(0.05) ds
00
0
0
P ( H ) = 10 p = e
=e
= e 0.5 = 0.607
And
u
10
01
02

12 ds
10 ( + ) ds
01
01 u
0
P (Disabled) = 10 p = e
e
du
0

10

= e 0.05u (0.02)e 0.05u 0.5 du

0

10

= (0.02)e 0.5 du
0

= (0.02)e 0.5 = 0.121

Then
P( H A) =

11.

P( H )
0.607
=
= 0.83
P( H ) + P(Disabled) 0.607 + 0.121

Key: A
We need to adjust the cash flows at time 4 and time 5.
a80:5 = 4.3868 +

870 1
1

= 4.3589
4
1, 000 1.05 1.044

1
= 0.1655 +
A80:5

50 1
1 60 1
1

= 0.1594
4
4
5
1000 1.05 1.04 1000 1.06 1.04 5

Benefit Premium = 100, 000

0.1594
= 3657
4.3589

Page 5 of 13

12.

Key: B
The probability that the endowment payment will be made for a given contract is:
15

15

p x = exp 0.02t dt

= exp 0.01t 2

15
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 )

= 1,942,329, 000

15

p x )(1 15 p x )

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

13.

Key: B
Time

Age

q xILT

0
1
2

70
71
72

0.03318
0.03626
0.03962

Improvement
factor
100.00%
95.00%
90.25%

qx

0.03318
0.03445
0.03576

v = 1/1.06 = 0.943396
EPV = 1, 000[0.03318v + 0.96682(0.03445)v 2 + 0.96682(0.96555)(0.03576)v 3 ]
= 88.97

Page 6 of 13

14.

Key: D
Under the Equivalence Principle

) (

1
Pa62:10 = 50, 000 a62 a62:10 + P ( IA) 62:10

10

1
1
1
where ( IA) 62:10
= 11A62:10
A62:
= 11(0.091) 0.4891 = 0.5119
k

So

15.

P=

k =1

50, 000 a62 a62:10

1
a62:10 ( IA)62:10

) = 50, 000(12.2758 7.4574) = 34, 687

7.4574 0.5119

Key: D
ax :3 =

Actuarial PV of the benefit 152.85

=
= 2.727
Level Annual Premium
56.05

ax:3 = 1 +

0.975 0.975 ( p x +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) 2
(1.06)3
1.06

q x + 2 = 0.09 px + 2 = 0.91

16.

Key: C
For calculating P
A50 = vq 50 + vp 50 A51 = v (0.0048) + v (1 0.0048)(0.39788) = 0.38536
a50 = (1 A50 ) / d = 15.981
P = A50 / a50 = 0.02411

For this particular life,

A50 = vq50 + vp50 A51 = v (0.048) + (1 0.048)(0.39788) = 0.41037
a50 = (1 A50 ) / d = 15.330

Expected PV of loss = A50 Pa50 = 0.41037 0.02411(15.330) = 0.0408

Page 7 of 13

17.

Key: B
L = 10, 000v

K 45 +1

PaK

= 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 da55 = 1 (0.05 / 1.05)(13.4205) = 0.36093

V = 10, 000 A55 Pa55 = (10, 000)(0.36093) (160.15)(13.4205) = 1, 460

10

18.

Key: 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

G=

1, 020 A x + 8 + 2ax
ax 0.65 0.10ax

1, 020(0.320755) + 8 + 2(12.0)
= 35.38622
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, 020 Z + (2 0.9G )Y + 0.65G + 8
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 +
+
+ 0.65G + 8
v
d
d

K x +1

0.9G 2

Var ( L) = 2 Ax ( Ax ) 2 1, 020 +

0.9(35.38622) 2

= (0.14 0.320755 ) 1, 020 +

= 0.037116(2,394,161)
2

= 88,861

Page 8 of 13

19.

Key: D
If T45 = 10.5 , then K 45 = 10 and K 45 + 1 = 11.
0

L = 10, 000v

K 45 +1

G (1 0.10)aK

45 +1

+ G (0.80 0.10) = 10, 000v 11 0.9Ga11 + 0.7G

3, 767 = 10, 000(0.52679) 0.9G (8.3601) + 0.7G

G = (5, 267.9 3767) / (6.8241) = 219.94
E ( 0 L) = 10, 000 A45 (1 0.1)Ga45 + (0.8 0.1)G

= (10, 000)(0.20120) (0.9)(219.94)(14.1121) + (0.7)(219.94)

E ( 0 L) = 627.48

20.

Key: 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 at65:
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

Page 9 of 13

21.

Key: A
t

t
t
p x00 = exp ( x01+ s + x02+ s ) ds = exp ( 0.20 + 0.10s + 0.05 + 0.05s ) ds
0

= exp ( 0.25s + 0.075s 2 ) = exp ( 0.25t + 0.075t 2 )

0

p x00 = exp ( 0.25 3 + 0.075 9 ) = exp(1.425) = 0.2405

t
dt
EPV = g (t )dt , where g (t ) = 10, 000 ( t p x00 x02+ t + t p x01 12
x+t ) e

g (3) = 10, 000 0.2405 ( 0.05 + 0.05 3) + 0.4174 ( 0.15 + 0.01 3 2 ) e 30.02 = 1, 400

22.

Key: B
AV11 = 1500

10, 000(0.003)
= 29.88
1.004
AV12 = (1, 500 + 100(1 0.15) 10 29.88)(1.004) = 1, 551.3

COI 12 =

SV12 = 1551.3 400 = 1151.3

Then
1,151.3 = X a10 + 10 E 61 a71 = X (7.8017 + 0.44231(8.2988)) = 11.4723 X

X = 100.35

Page 10 of 13

23.

Key: E
AV 0 = 0

150, 000(0.00122)

AV1 = 3, 000(1 0.7) 75

(1.04) = 675
1.04

150, 000(0.00127)

AV 2 = 675 + 3, 000(1 0.1) R

(1.04)
1.04

= [ (3375 R ) 183.17 ] (1.04)

= 3319.50 R(1.04)

150, 000(0.00133)
AV 3 = 6, 028.95 = 3,319.50 R(1.04) + 3, 000(1 0.1) R
(1.04)
1.04

[ 6, 019.50 2.04 R 191.83] (1.04)

6060.78 2.12 R = 6028.95

R = 15

Page 11 of 13

24.

Key: B
Let S denote the number of survivors.
This is a binomial random variable with n = 4000 and success probability
2,358, 246
= 0.24655
9,565, 017
E ( S ) = 4, 000(0.24655) = 986.2

The variance is Var ( S ) = (0.24655)(1 0.24655)(4, 000) = 743.05

StdDev ( S ) = 743.05 = 27.259
The 90% percentile of the standard normal is 1.282

Let S* denote the normal distribution with mean 986.2 and standard deviation 27.259.
Since S is discrete and integer-valued, for any integer s,
Pr( S s ) = Pr( S > s 0.5) Pr( S * > 0.5)
S * 986.2 s 0.5 986.2
=
>

27.259
27.259

For 90%,

s 0.5 986.2
< 1.282
27.259

s < 951.754
So

s = 951 is the largest integer that works

s = 950 is the largest from the list

Page 12 of 13

25.

Key: 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
q =
3.4 2.5 60

l 63.4 l 65.9
l 60

62, 221.6 34, 444.1

= 0.277778
99,999

(a)

Using constant force

l 63.4

l 64
= l 63
l 63

0.4

= l 630.6 l 640.4

= ( 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

3.4 2.5

61,977.2 34,305.9
99.999
= 0.276716

q 60 =

(b)

100,000(a b) = 100,000(0.277778 0.276716) = 106

Page 13 of 13