Professional Documents
Culture Documents
SAGE
ENDOWMENT FUND
THE GIFT OF
Henrg W. Sag*
1891
A-i-Wli
ttfck.
HG8781.R65
Actuarial theorymotes for students
on
The
original of this
book
is in
restrictions
text.
in
http://www.archive.org/details/cu31924001546161
0661
^dW
ACTUARIAL THEORY
ACTUARIAL THEORY
NOTES FOR STUDENTS ON THE SUBJECT-MATTER REQUIRED IN THE SECOND EXAMINATIONS OF THE INSTITUTE OF ACTUARIES AND THE FACULTY OF ACTUARIES IN SCOTLAND, WITH NUMEROUS PRACTICAL EXAMPLES AND EXERCISES
BY WILLIAM
A.
ROBERTSON
FREDERICK
Member of
the Society of
A.
ROSS
BY THOMAS
G.
ACKLAND
Fellow of the Institute of Actuaries ; Hon. Fellow of the Faculty of Actuaries in Scotland
JV2-(,13M
PREFATORY NOTE
The
work consulted me, about two years of compiling and publishing a volume, much on the lines of Graduated Exercises and Examples, issued by Mr G. F. Hardy and myself in 1889, which work, owing to the material advance in actuarial science and in assurance practice since that date, has now become insufficient foA the full needs of actuarial students. Being in entire agreement with the authors as to the demand for such a work, brought up to date, I encouraged them in their project, and now welcome the result of their labours.
joint authors of this
since,
as
to the
desirability
The
authors have
kindly given
;
me an
it is its
opportunity of
and
and
successful
experience
in
them
me
to form a
me
the
first,
and independent thought, and a too slavish dependence upon the demonstrations and conclusions set out in the approved text books and, secondly, a considerable failure in the power to apply, in practice, the results deduced theoretically; these two deficiencies being closely associated with one
lack of original
;
another.
its
examples (which deal not only with the fundamental bases of our Science, but also with its later practical developments), will prove most useful to students, by stimulating original thought
and research, and thus enabling them to secure a firmer both of the Theory and Practice of Actuarial Science.
grip,
THOMAS
Qctoher 1907,
G.
ACKLAND,
Fellow of the Institute of Actuaries, Hon. Fellow of the Faculty of Actuaries in Scotland,
INTRODUCTION
preparing for the Second Examinations of the of Actuaries and of the Faculty of Actuaries in Scotland have, to assist them at this stage of their studies, the Text Booh of the Institute and Mr George King's Theory of Finance, combined with the Graduated Exercises and Examples of Messrs Ackland and Hardy. But there is good reason for believing that, with the extension of the purely actuarial part of the examinations, these works are no longer sufficient to enable even a careful student to take his examination with confidence. To supply a lack so important is therefore the intention of the authors in compiling this book for students ; of whom even those preparing for the later examinations will find some parts of it not unworthy of study. As explained below, however, it is not a substitute for, but merely a supplement to, the works already mentioned, which, it must be urged, there is no intention to disparage in any way. Encouragement to proceed has come to the authors from various directions from those whom they have had the privilege of assisting in their preparation for examinations, from their contemporaries in the profession, and, above all, from Mr Thomas G. Ackland, whose Prefatory Note they value very highly, as well as his kindly advice on many points. Strictly speaking, the book is a compilation of notes on numerous points which are not disposed of in the text books so thoroughly as present-day exigencies require. No claim is made to originality, for that were futile the matter consists of extracts from contributions to the Journal of the Institute and other professional records, or of explanations and elaborations of problems and statements contained in the text books. The effort throughout has been to simplify the obscure and to introduce only the essential. In the authors opinion, no student can hope to become proficient if he confines himself to reading the various books it is necessary that he should deduce every formula for himself at least so often that he shall be confident that his own result will correspond with that of the text book, and confidence is It may be essential in the working out of actuarial problems. true that in such work memory is all important ; the true use of memory, however, will be found, not in learning results by
Institute
: :
Students
viii
INTRODUCTION
methods
ot
heart, but rather in the application of the proper deduction, and this will only come by practice.
inspection of the contents of the book will show that based upon The Theory of Finance and the Institute of' These fundamental works must Actuaries' Text Booh, Part II. of course be read side by side with this ; otherwise it will in Ample references are made throughgreat part lose its force. out to enable the student to follow with a minimum of trouble. The authors have been accustomed, both in studying and in teaching the subject of interest and annuities- certain, to the use of Mr King's book rather than the Text Book, Part I. But the student will find it advantageous also to follow closely the demonstrations and practical applications given by Mr Todhunter in the latter work. No attempt has been made to deal with the purely mathematical side of the work. The three chapters at the close of the Text Book, Part II., and the subject of the calculus scarcely come within the scope of a work such as this. The examples are taken for the most part from the examination papers of the Institute and the Faculty ; and the answers, which follow immediately after the respective questions, have been prepared with care. The student should, of course, work answers to these and other examples independently, though not until the subject-matter of the books has been thoroughly grasped and mastered. It will frequently happen that the answer obtained by him will vary from that given ; in which case it will be a useful exercise to prove the two identical, or, if they are clearly not so, to find where and how the difference arises. The authors will be glad if any errors which are discovered are pointed out to them. It should be mentioned that, following the Text Book, they have preferred the more familiar to the more officially t qx correct Q x Further, in the discussion of policy-values they have used the symbols ^V^ and XJ n t x to represent the ordinary
it is
\
An
and special reserves after n years for whole-life policies with premiums limited to t years. Otherwise they conform to
Institute notation.
Their grateful thanks are due to Mr John H. Imrie, M.A., F.F.A., and Mr Thomas Frazer, jun., F.F.A., who have read the proofs, and made many valuable suggestions.
W.
Edinbuegh, October
1907.
A.
ROBERTSON.
ROSS.
F. A.
TABLE OF CONTENTS
Prefatory Note by T. G. Ackland
Authors' Introduction
........
CHAPTER
Interest (Pages
I
1 to 9)
PAGE
THEORY OF FINANCE
1. 2. 3. 4.
Nominal and
Force of interest
.
Amount
Number
of
at the
Discount.
Force of discount
of years in which
interest
5.
Examples
money
will
double
itself at
compound
4
5 7
CHAPTER
II
to 39)
Annuities-Certain (Pages 10
1.
Amount and
value of an annuity-due
.10
.10
.
2.
Value of an annuity-due payable at fractional from those of the conversion of the interest
intervals the
intervals different
. .
3.
interest
.
10
4.
5. 6. 7.
.......
.
interest differs
from the
x
S.
CONTENTS
PAGE
General rule for finding the value of any series of payments, where the accumulative rate of interest differs from the remunerative .
.
...
.
.
19
9.
Approximation to the value of an annuity at a rate of interest intermediate between given rates
.
.19
.
10.
20
Annual premium
for
a deferred annuity-due
.
.
12.
13.
Sinking-fund assurances
Purchase-price of an annuity-certain
Examples
.....-
.
CHAPTER
III
40 to 48)
1.
in
.
the construction of a
.
scheme of
.
2.
Proof by induction of the value of a ^\\ Proof by general reasoning of the values of
.40 .41
.
3.
a^i^rr
4.
Examples
........
finite differences
.
and a 1^|
.
42
.44
45
CHAPTER IV
Loans Repayable by Instalments (Pages 49
1.
Definitions
2.
Makeham's formula
Formulas
Examples
........ ........
for finding the value, at rate
.
to 63)
49
i,
of a loan,
.
by a loan
.49 .49
02
CHAPTER V
Interest Tables (Pages 64
to 66)
1.
2.
3.
..... ......
.
.
.64
64
64
CONTENTS
xi
INSTITUTE OF ACTUARIES'
II.
{Pages 67 to 70)
PAGE
.......
CHAPTER
II
to 86)
67
deduced
in Text
Booh, Chapter
II.
71
2. 3.
Value of
JV--W
72
4.
Examples
....
CHAPTER
III
to 91)
. . . .
72
72 79
Definitions
2.
Examples
........ ........
CHAPTER IV
suit select tables
.
87
.87
90
1.
Value of
Q^
for
92 92 93
t
2.
3.
4.
Formula
Value of
Q* adapted to
QJ^
years after the death of (y)
t
93
93
5. 6.
will
succeeding that in
year
94
xn
7.
CONTENTS
PAGE
Value of e Value of
y
8.
ej]
x
i
94
95
.^jj 95
9.
Value of
Q^
for
10.
Formula
Q*
adapted to
11.
12. Probabilities of
Examples
......
death of two
lives within
....
suit select tables
97 97
varying terms
97
CHAPTER V
Statistical Applications of the Mortality Table
1.
2.
3. 4.
Average age at death of stationary population Average present age of existing population
.
Average future
5.
and 4
.
Examples
CHAPTER
VI
Formulas or De Moivre, Gompertz, and Makeham, for the Law of Mortality (Pages 113 to 119)
Values of
1.
/*
gression
2.
3.
ll y
4.
Makeham's Examples
first
....... .......
e^ and a x
if
column of
in
geometrical pro
113 114 115
115
Q-l y
1 xy
118
CHAPTER
VII
to 177)
1.
Discussion of formuk, a.
2.
columns
3.
........
, .
= vpjl + a. +1 )
.120
121
121
Proof that
A^
> 4
and that
^P
> Vf x
CONTENTS
4.
xiii
PAQE
Value of
in
and P
5.
123
-;
123
in
6.
Values of
A^ and P^
P(m)
124
124
7.
Value of
8.
Value of A-wxyz
Extension
of
125
,,
9.
formula,
Awxyz
(m)
10.
^1
v + Ly
to
In
.(2
2L
and
126
(to)
11.
12.
.......
interest until all of I
.....
.
. . .
126
127
13.
....
128
129 129
14.
a..^
.
15.
Value of an annuity to (a;), the first payment to be made at the end of the <th year succeeding the year in which (y) dies
16.
Value of an annuity for t years certain after the death of (y) and for the remainder of the life of (x)
Value of an annuity payable so long as (x) lives with (y), and for n years after the death of (y), but no payment to be made after m years from the present time, m being greater than n
.
....
P^,
.
129
130
17.
131 131
18. 19.
Value of
Value of
a^-^ a,.^
.
132
20.
21.
22.
.132
.
Axy
133
23.
24.
AL A i_
L
)(
and
P
(
^^
)(
....
.
.
.135
135
i_ and
Pi_
i_
.136
.
(an\)(xm\)
(an|)(xm|)
.
25.
26.
136 138
Forms of various
Formation of
benefits,
interest
.
27.
28.
29.
Damaged
lives
..... ........
.140
141
142
CONTENTS
30.
Single
premium to permit of (re) effecting, n years hence without fresh medical examination, a whole-life assurance by annual
premiums
143
31.
Annual premium
for a short-term assurance upon the assumption that all healthy lives withdraw at the end of the first year
32.
Annual premium for a " Half Premium" policy upon the assumption that all healthy lives withdraw at the end of the halfpremium term
Addition to the annual premium for the insurance of (x) against (y), in order that (x) may, in the event of surviving (y), have the option to effect a new whole-life assurance by annual premiums without fresh medical examination .
....... .......
144
148
33.
146
34.
Annual premium for a policy under which the sum assured payable by instalments over a period of n years
is
147
35.
Annual premium for an endowment assurance where the instalments are to commence at death or maturity, and to be payable for n years with continuance thereafter so long as (x) survives Annual premium for a whole-life policy, the sum assured to be retained, and interest thereon at rate j paid, for n years
after the death of (x)
148
36.
37.
Annual premium
Value of Value of
P, xyn\
for
a double-endowment assurance
38. 39.
Pxyn\
40.
Annual premium
Value of
deferred n years
41.
Examples
...... F^ .......
for
an annuity
and (y)
151
152
153
CHAPTER
VIII
to 189)
178
.
2.
3.
17S
4.
5.
6.
Values of
A^j
and
P^^
....
tables
180
181 1S1
by conversion
182
CONTENTS
7. 8.
Examples
.......
,
PAGE 183
18-1
1S5
CHAPTER IX
Annuities and Premiums Payable Fractionally throughout the Year {Pages 190 to 207)
m) and Values of
1.
a
.
2.
Value of
aW
more exactly
3.
4.
xvi
CONTENTS
PAGE
5.
and
6.
Value of
A^,
by the
integral calculus
211, 212
7.
Value of Value of
213
8.
213
213
9.
Distinctions between
Px ?x
and
^P,
Examples
214
CHAPTER
XI
to 227)
1.
219
221
2.
Value of
a^"
',
3.
221
4.
Value of
a*-),
223
224
5.
Examples
....,
d<->
xn\
'
'
'
'
224
CHAPTER
XII
1.
Value of axyz-
228
2.
Value of axyz-
(m)
under Makeham's
facilitate
first
formula
229
3.
Formation of tables to
229
231
4.
(m)
under Makeham's
formula
5.
Effect of a constant addition to the force of mortality Effect of increasing the constant
232
6.
in
Makeham's
first
first
formula
233 233
7.
Value of axyz-
(m)
under Makeham's
.
formula
8.
Value of ax:x+i:x+t
Examples
...
. .
.
(m)
234
236
CONTENTS
CHAPTER
XIII
to 266)
1.
Formula
for
A* adapted
2.
3.
Values of
....... ....
.....
....
joint-life
4.
Another value of L A*
5.
6.
commutation
7.
Value of
AJ.^
PJ.^
in the
.
8.
Value of
9.
event of
(x)
dying within
10.
Value of A*
Values of
11.
A2
1
2
,
A3
A 1 A^
,
and
A
3
12.
Value of
Values of
P^
P^, P^,
i
13.
PJ,,,
P -.
:
P~ :z
and
P- :f
s
14.
A*
and
15.
Values of
A___l__
\an,\l\xm\):r
and
P
\an\l \xm\) :i
16.
AlA 2^
17.
18.
19.
A^ A^
A^
and
20.
A^
by the
integral calculus
21
and
22.
CONTENTS
23
and
24.
formula
25.
.......
'
\ub)
under Makeham's
first
251, 252
Value of
Value of
x\jz
(m)l
abc
<
(n)
252 253
26.
AJ.^
.
Examples
254
CHAPTER XIV
Reversionary Annuities (Pages 267
to 287)
1.
Distinctions
2.
Annual premium
an endowment assurance to
(
(x),
to be doubled
3.
term
268 26S
Proportions of price of
payable by
{x)
and
(y)
4.
....
(x)
and
( y) to be reduced
by
268
5.
2^(1 to
.
l+j^+'-i p y ) = 2V
x
y
(1
+ %+t )
269
6.
be
.
269
.....
.... .... .... ....
270
271
Value of
Value of
10.
%)
|d$
271
Value of Value
272
11.
of,
|
%>
y x
\
273 274
12.
Value of Va
Value of ar
13.
(an\Xxm\)
274
275 275
14.
Value of a -\ Vh
15.
On endowment
Examples
.....
276
CONTENTS
CHAPTER XV
Compound Survivorship Annuities and Assurances
{Pages 288
to 294)
xix
PAGE
1.
Values of
flj,],,
|.
and
I
A^
i
288
2S9
2.
Values of PaLL, Pa 2
and P 3
1
3.
Interpretation of the
symbols
fl-
I'lfj'j
(TO)
2/m
1
a'
':ll M'
A&
Examples
and a x
290
1:8
291
CHAPTER XVI
Commutation Columns, Varying Benefits, and Returns of Premiums (Pages 295 to 338)
1.
....
(1^
.
295
2.
(v^,
(v^A)x
.
(V^^W^WC^kl-^CIA)^
3.
296 297
Mr Lidstone's
Use of
approximate formula
.
for (IB),,.
.
4.
Dx
.298
.
5.
6.
Other values of
miums
7.
8.
Annual premiums
policies
H^,
(v-A^
298
299
300
9.
306
10.
Annual premium
for
an endowment
.....
;
Same
interest
309 310
12.
Annual premium
xx
13.
CONTENTS
Annual premium
for
Annual premium
returnable.
for
.......
a deferred assurance
; . . .
.
.....
interest
.
PAGE
311
premiums received
311
15.
Value of an annuity with guarantee that the excess of premiums over the amount of the annuity payments will be paid at
death
. .
.314
315
16.
Annual premium
for an endowment; premiums payable during the joint lifetime of the assurant and another, and returnable
;
17.
18.
Same
Same premiums
;
compound
interest
.315 .316
19.
Annual premium
life,
a deferred assurance ; premiums during the period of deferment dependent on the survivance of a second
and returnable
20. Single
21.
Examples
........
CHAPTER XVII
Successive Lives {Pages 339 to 341)
.....
.
.316
317 318 318
Examples
339
CHAPTER
XVIII
to 413)
1.
retrospective
2.
....
i
.
methods of valuation
342
345
345
3.
Proof that n
4.
5.
Relation between reserve- values at the beginning and the end of the policy-year
......
profit or loss
346
347 349
6.
from mortality
7.
-A l-A
L
350
CONTENTS
8.
xxi
FAGS
351
.....
if
9.
351
10. 11.
on reserves of changes
% < ax+1
m times a year
Negative policy-values
with premiums payable
15. Policy-values
16.
361
Value of ,V, +
362 362
364
365
17.
Value of . t V(>
Value of M+ ,V_
18.
19.
20.
366 367
d,uu and n+f.r
21.
Value of n+:r
Values of n+f.r
Ux
UW
x
Same Same
interest
370
371
26.
27.
372
and^V^.
374, 375
schemes
376
81.
32. 33. 34.
Reserve
Same
endowment assurance
....
premiums
.
377 377
378 378
35. 86.
Same
premium returnable
.....
premium
379
379
CONTENTS
37.
Reserves for whole-life and endowment assurance policies with uniform reversionary bonus
....
.
PAGE
380
381
38.
Same
Paid-up policies
...... ......
.
.
Paid-up policy under a contract with premiums returnable Paid-up policy under a last-survivor assurance
Guaranteed paid-up
policies
under whole-life
limited-payment
385 387
endowment assurance
46.
Application of bonus to limit future premiums or to alter policy from whole-life to endowment assurance
390
391
Examples
'
CHAPTER XIX
Life Interests and Reversions {Pages 414
to 422)
1.
Value of complete
life
interest
interest
414 415
1
2.
Value of temporary
life
3.
by payment of
416
417 41S
4.
Value of reversionary
life
interest
.
5. 6.
419
421
421
7.
Methods of book-keeping
Examples
.....
CHAPTER XX
Examples
423
CONTENTS
CHAPTER XXI
Construction of Tables {Pages 425
to 431)
PAGE
1.
Use of a
;'
to
42 j
2.
Formation of a table of A^
.425
3.
Formation of a table of
Px
.426
.426
.427 .427
4.
Formation of a table of
Formation of a table of
A^
Vx
.
5.
6.
Formation of a table of
^^
.V x r
t
7.
Formation of a table of
.428
429
Examples
ACTUARIAL THEORY
THEORY OF FINANCE
CHAPTER
Interest
1.
The
first
is
difference
In explanation of Article 12, it may be pointed out that, where is made at 5 per cent, (for example), the interest is, in the ordinary case, payable half-yearly. Now the theory of compound interest is that interest earns interest, and therefore
a
loan
the interest paid at the end of six months earns interest to the
In this
way the
is
interest
actually earned
is
always nominally a 5 per The amount of a unit at the end of six months is
is
-025.
months with 1-025 of principal we have the interest thereon for the second six months 1-025 x '025, and the amount of principal and interest at the end of that time will be
second
six
1-025 x 1-025
= (l-025) 2 =
1
is
1-050625,
which
cent.
is
therefore the
1
actual interest on
By
end of a year, and the -050625 or 5, Is. 3d. per similar reasoning, the general formula (14) follows:
amount of
at the
j(m)
{(l
where i is the nominal rate of interest convertible m times a year, and t(m) is the corresponding effective rate of interest.
From the above we arrive at the following statements The Nominal Rate of Interest is the rate per annum at which interest is quoted, no matter how often within the year that
:
interest
is
convertible.
ACTUARIAL THEORY
[chap.
i.
The Effective Rate of Interest is the total interest realised by the investment of a unit for a year. Now interest may be convertible half-yearly, quarterly, monthly, And these intervals may be or at the close of any fixed intervals. reduced in length, until at last we have interest convertible at infinitely short periods, i.e., momently. In this case, in formula (14),
we
write
for
m >and
8 for
i
;
f
I
A
(
+
of
S\ m
~Z"
)
\
t
(S
1-1
by the theory
and we have
logarithms
in the limit
becomes
in/
and
log c (l
i)
It takes the place of the 8 is called the Force of Interest. nominal rate of interest only when interest is convertible momently. We therefore define the Force of Interest as the nominal yearly rate of interest when interest is convertible momently, or the annual rate per unit at which a sum of money is increasing by interest at any moment of time.
2.
To
find the
amount of
is
at the
The amount
1
of
the
unit
at
\9 + =
i
(1
+ W).
at
+i)f
and therefore
is (1
i<i>)P
)p
is
3.
Articles
17-21.
Discount
defined
as
the
difference
between a sum due at the end of a given term and the present
value thereof.
it is
calculated by
Commercial Discount. In trade transactions, as in discountthe discount is calculated like simple interest at the quoted rate for the currency of the bill. That is to say, the discount is ni for each unit of the bill, n usually being fractional.
(a)
ing a
bill,
If n
bill
to be
handed
chap,
i.]
THEORY OF FINANCE
seller,
over to the
is
B(l -
ni),
absurd.
(b) Simple Discount. The present value of a bill, B, due at the end of n years, where n may be fractional or integral, is
.
:,
assuming simple
interest.
its
The
discount, or
is
by
definition
B and
present value,
*
therefore
B
1
_ B (l + ni \
+ ni,
bill,
(c)
Compound Discount.
Again, the
interest
present value of a
B,
may be
fractional or
is
by compound
-,
_,
accordingly,
B -
-^
B-f 1
The formula
nirz
may be
V-
l+m'
.,
and that
for
){l+iy
>.,
^-
from both of which it will be seen that discount is really interest for the whole period on the present value of the sum, not, as is assumed in commercial discount, on the sum itself. Discount may, in similar manner to interest, be convertible at any fixed intervals, and as is shown in Article 22, the value of 1 at the end of a year, where discount at nominal rate d is converted
(d
1
\
)
m
.
Now,
is,
may
discount
may be
convertible
where
is
u is written for v,
and
8 for d.
J
infinitely great (1
J
In the limit
when m
e- $, whence
and
Here, then, S
for the
is
It
is
substituted
nominal rate of discount when it is converted momently, and we may define it as the nominal rate of discount when
ACTUARIAL THEORY
is
[chap.
i.
discount
of time.
converted momently, or the annual rate per unit at is decreasing by discount at any moment
4.
In Article 26
will
it is
in
which money
assumed, in finding the number of years double itself, that interest is convertible once
By a similar method it might be shown that, if interest were convertible m times a year, the number of ?thly periods in which money would double itself would, by the first formula, be
a year.
69 r-,
and to
find
from
this the
number of
years,
it is
necessary to
m
divide
making no alteration in the length of however, that the length of time will be
shorter the oftener interest is converted, and therefore it is necessary in this formula to use the effective rate of interest always. Thus
:
i)~ 8C))n
iKf
i.
(1
where
i(
>
is
From
this
we
get n
= -_
69
approximately.
n
i.e.,
=
i
+ -35 on
if
not found.
We
have
interest
be convertible
number
of mthly periods
= -j- +
'35.
Dividing by m, as before,
we
get the
number
of years
J-
chap.
i.J
THEORY OF FINANCE
693
i
If,
years
J
Km)
-35.
=
=
693 ^l
-35
111
A and
v
'
693
j(m)
'35
give results almost equal for ordinary rates of interest and periods of conversion, and this is a further proof of the superiority of the
nominal rate may be used however, necessary to note that the addition to be made to the result of dividing by the nominal
first,
as the
It
is,
rate
is
of
is
payable yearly.
5.
n, as
With regard to the equated time of payment, the proof that found from
>i
wi
Sx
is
+ >2n2+ + S.2 +
+S r +S r
?i
too great,
is
as follows
n S 2 quantities each v i in amount, etc., and S r quantities each v nr in amount, is equal to the total of the quantities divided by the
number
of quantities, or
S 1 p"i + S 2 D' a +
t
Sj
S.4-
+S T +S r
v"-r
while their Geometric Mean is equal to the product of quantities to the root of the number of quantities, or
S 1 i 1 +S a +ii
all
the
+S r 7t r
iq
S!+S2 +-
+8,
Now,
as
is
quantities
is
shown below, the Arithmetic Mean of any set of (pwk greater than their Geometric Mean. Therefore
S,t)i
+ S 2"2 + Sj + S 2 + + S2
u m 2+
or
(S 1 i."i
+S > v +S r +S r u"-)>
r i>%
Si7ii+ 2,l2
t
+
.
"
'
.
'
s i+ 2+
.-+S7
nr + Sr-
S1 i 1 +Sa n+-
+S r it r
'
(Sj + S 2 +-
+S r
+^+
'
+ar
ACTUARIAL THEORY
[chap.
i.
That is to say, the present value of S x due at the end of n x years, S 2 due at the end of n 2 years, etc., and S r due at the end of +S r ) n r years, is greater than the present value of (Sj + S 2 +
+S
+S
''
nr
"
'
"
Therefore
Vi + S
Sj
is
2 2 + + S2 +
+ S rn r + Sr
Mean
of n positive
quantities
is
of the n quantities
a, b, c,
Ic,
is
a+b+c+
n
while their Geometric
+k
Mean
is
{abc
k) n
Now,
in
place of each
and
k,
put
It
may be
easily
proved that
("47 >
ak,
result has
+k =
,
+ ^k
a
+k -
now
the greatest
put their Arithmetic Mean as before. The result is again to increase the Geometric Mean of the n quantities, while their Arithmetic Mean remains the same. This process may be repeated until the quantities are all, as nearly as possible, of equal
and the
least,
value, in
is
to
c factors)" J
,
(r n ) n
K
'
+ r + ;+
n
to n
terms
But we have seen that the Arithmetic Mean remains the same throughout, while the Geometric Mean has been increased at each step until it equals the Arithmetic Mean. Consequently the first
CHAP.
I.]
THEORY OF FINANCE
Geometric Mean (of the n original quantities) must be less than the Geometric Mean (of the n equalised quantities), that is, less than the Arithmetic Mean of the n original quantities, and we have
final
{abc
k) n
<
EXAMPLES
1.
A sum
of
500 payable
8s. lid.
Here we have
239-446
Hence
u 20
g "
=
= =
log -478892
whence and
v
i
20 -96386
-0375.
The
2.
rate realised
is
Nominal Rate.
ACTUARIAL THEORY
present value of
[chap.
I.
250 due
at the
Answers:
(a)
(b)
100 x
(1-0225) 1 *
= 136,
lis. nearly.
250 x Tj^La
= l55
>
ls
3d nearJ y-
There are two sums of money, A and B, due at the end (a) Find p the equated time of of n and m years respectively, If this equated time of payment be extended to payment. (6) r years, to what sum will the amount due fall to be increased? Interest to be at rate i.
4.
()
By
we have
+ ?B
P
(b)
~A~+lT
A+B
if
the time
inen
and
A+B+C
ri)
A
re
B
(i+7"
B(l - mi) approximately,
"(l+iy ~ (i+o
(A + B + C)(l -
= A(l - ni) +
Ai(r
whence
n)
1
Bi(r
ri
- m)
'-
approximately.
is
distributed
Premiums due
in
chap.
i.J
THEORY OF FINANCE
+ (6000xll|) + (1 100 xl|) + (1250x2V)+ 1000 + 1100+1250+ + 600~0 = 7-768 months approximately.
Here we have
"
_ ~
(1000 x ~
-|)
"
If a sum of money at a given rate of interest accumulate times its original amount in n years, and to p' times its p original amount in ri years, show that ri = n log p.
6.
to
CHAPTER
1.
II
Annuities- Certain
The amount
i
of an annuity-due of
is
per
annum
:
for n years,
interest at rate
convertible yearly,
as follows
(l-M) +
=
The
(l V
+ i)s'
71
+(1+2")
is
as follows
= =
+ +u
i;
-(-
+J)-
(1+1)0, or
1+c
2.
The
value of an annuity-due of
per
2
annum
for n years,
is
convertible q times,
(Tip
l {l + (l+i
,
p
V
q J_
2q 2?
- 1)8 ^ -v
+(l+
r+
..
+(l+
.)-
(1 V
<i
p
1
- (1 +
-^
<1
!L
- (1
+
</
-('!)
I i
i)
That is, the value of an annuity-due is equal to the value of an ordinary annuity of this nature with all the payments advanced by
of a year, which
is
obviously correct.
P
3.
in the
form
-( +T
;
chap,
ii.]
THEORY OF FINANCE
it is
11
from which
lent of an or
more
the equiva-
we may
a,
n\
(q)
a q
1
at rate
i
(
mi\
If
be the
we have
l-(l+i)-
q{(l+i)"-l}
l-(l+t)- i
I
g{(l+0 8 -l}
q{(\+if -
1}
The
may be
offered in
If
the q payments of
each, payable at the end of each qth part of the year, were to
this single
end of
the q payments of
each
that
is,
equal to
-{i + (i +
i
i
y+
(i
+(i +
9
i)
-i
(l+O -l
fl
We
value of an annuity of
per annum,
1 q{(l+^y -l}
ACTUARIAL THEORY
12
[chap.
II.
J =
a,
9 {(i+,y-i} In formula (13) as modified at the beginning of this section, if n be increased indefinitely the annuity is changed to a perpetuity, and the term involving n in the numerator disappears we have
;
l
i_
(
(
1 l
<?
a, a.,
* at
* rate
'\
i 8
I
r-
1
as the value of a perpetuity at nominal rate of interest
i,
perpetuity
payable and interest convertible q times a year. The value of such a perpetuity may also be found as follows
The
value of the
i
first
instalment is
1 v
qJ
of the second
1 /
(
\ ~2
I
and so
on.
We
,
therefore have
W{(
,+
t)"
+
(
t)"'
t)"
"*}
t)"*
+
1-1
1
That
this value
is
correct
may be shown
it
thus
If
be
will
provide
at the
end of
if it
each
of a year (which
at rate
is
be invested
will yield
-L at the
q
chap,
ii.]
THEORY OF FINANCE
period),
will
13
and therefore,
yield
if
-^-
be invested, by
it
at
which
the perpetuity
in
we
desire.
let
Similarly
indefinitely,
formula (13a),
p = q and
then have
1
j
let
n be increased
and
term
We
where
year.
ite)
is
This perpetuity
first
may
also
be valued thus
!
instalment
is
(l+ili))
l
'
value of the
-9
(1 +i<))
,and so
<T
on.
We therefore
have
>
= 1/(1 + wrf
1
(i
+ iw)"
,J
+ (i + i
(B
(J
/}
"7
1
(1 +,-<))
-l-(l+i<a>)
1
i
(1 +<>)"
is
-1
the value of a perpetuity at effective rate of This, then, times a interest (>, perpetuity payable and interest convertible 5 at this rate of year, and may be explained thus : If 1 be invested
interest, it will yield at the
of a year
1 1
and therefore
^
{(l+,-( 5 ))
produce
at the
T -l}
{(l+iW) s -l}
ACTUARIAL THEORY
14
[chap.
ii.
will
produce
at the
is
the perpetuity
required.
4.
The
(l+i) m+ "
(1+J) m x (1+0"
,t-
m+n]
a m|
+ (l+z>.y + vm a-
Tables.
These formulas are of importance in connection with Interest It may be desired to obtain the value in respect of (m + n) intervals, where the values in the tables are tabulated in respect of intervals up to m only.
5.
The
or, in
them
of an equal annual
:
payment
in perpetuity
may be
considered
as follows
at the
all
end of every
value of
the payments of
in perpetuity
is
F(l +!> + d 2( +
d 3(
ad
inf.)
= F
r^r<
Now
let
P be
to
be due now,
is
(l +
+ v2 + v3 +
adinf.)
= P
_L
1
= pi+i
I
J!
the present values of these two series of payments must be equal to one another, and we therefore have
Now
P^1
= F
1
-=
vl
whence
P = F
-v'
-F-iL
chap,
ii.]
THEORY OF FINANCE
in
is
15
advance for
years
^
Our
result
is
(1-M>-
'
.
l+l-u
d F1-d'
Suppose now the first payment of the duplicand be due hence the present value of all the payments is then
;
years
F(v t + v-
+v^ +
ad
inf.)
= F = F
1-D*
1
(i+O*
And the present value of all the annual payments of P, the being assumed to be payable a year hence, is
P( u + 2 + l,s +
.
.
first
ad
inf.)
- P-i
i
We
way
l
as before
PI=F,
i
(1
+ if -
(i+iy-i
Now the annual payment which requires to be accumulate to the sum F due at the end of t years is
set
aside
to
F =F-(l+.-y-i s1
tion of a
is
The schedule given in Article 39 illustrating the redempsum by equal payments including principal and interest very instructive. It is shown how the capital contained in the
6.
is
-m +
i.
We also
is
know
and
that
contained
in
the
first
payment
in the
"
16
ACTUARIAL THEORY
is
[chap.
ir.
second
K
Vj
(1 +i),
first
repayment
payment.
instalment
the
capital
is
is
That
For
K (l+t)s
n\
(1-M')m-1
K =
(1
ct
7i
I
(1
+ i)
2
,
and generally
1
.
mth
+i) m
v n-m+i
js
easily proved.
'-
By
the
t
first
way
capital in
years amount to
a_
n|
( \
-i
vn
~f
!) '
K
ft|
(a-. V
rt|
- a,.) = K
n-tV
K
a
i|
a, n-t\
And by
years
is
71
identical, for
K n=
*
7t
|
-K
a*l
71
re
Vi
=
1
K {l+(l+i)+ +(l + n
71
|
-1
}
( K
t!
+
\
...
+ Vn - +
'
1) '
K
|
= If K
K a
7l|
-*l
first
payment
is
is
Jj",in
the second
a- 1
,
in the last it
v.
Now
chap, n.]
THEORY OF FINANCE
value
of
17
first
the
v
present
v 71
the
capital
in
the
v"
payment
is
=
in
a
K
vn
1
,
a
K
v 71
'1
K
a,
vn + 1 '
of that
the
last
vn
a,
n\
K a
ru+l.
Therefore
the
total
n\
value of
all
is
vn + 1
This expression is of use in ascertaining the value to be paid for an annuity-certain allowing for income-tax, when tax is deducted from the whole annual payments without regard being had to the
proportions of capital contained therein.
It is
annuity of
1
,
not pay
at
t
a but
will
be a lnv n + l
This result
an adjustment should now be made for the reduction of interest following on the reduction of capital invested, and for the consequent increase of capital returned in the successive payments of
as
the annuity.
In making up a schedule such as that given in Article 39, it should be carefully noticed that it is only necessary to work out The first value in this column is the figures in column (3).
The succeeding
'SI
by continued
multipli-
by (1 + 1). The figures in all the other columns are obtained from those in column (3). In forming the schedule in this way, however, a periodical check should be applied, the figure in column
cation
(3) opposite
being
(1
+t) m_1.
When
the annuity
is is
bearing in mind
a =
n|
aml q
i
at rate of interest
ACTUARIAL THEORY
7.
18
[chap.
ii.
Jn the circumstances
given rate of interest, say z, sinking fund returned to him annually at a lower rate only, say
it
mentioned in Article 40, where an by an annuity and yielding a but where he is able to accumulate the
i'
be seen that for an advance of 1, the borrower must pay interest amounting to i per annum, and also the sinking fund at
will
rate
i'
or
In
other
words,
**l
1
is
the value
of
an
annuity
of
and by proportion
s'
1
+ tY-. n\
To
is
per annum.
amount of
end of
If
years.
'si
i'
to
K
ii.
i
the borrower be asked to repay the capital outstanding for the convenience of the lender, he should pay only
in
t
3'ears.
Now,
if
is,
s'.
'I
s,
If, on the contrary, it be to the borrower's convenience that he should repay the balance of capital, the lender must receive such
sum
as will enable
him
to purchase an annuity of
+ '
ni
the
for
that
is,
K|
i',
\a
is
as that
the rate
The third case may, however, arise where both parties desire end the contract, and in such circumstances it will be sufficient
the lender get such a
sum
as will enable
him
to set
up a
similar
chap, n.]
THEORY OF FINANCE
That
is,
19
he should get
period
Kf
+ -
on the same terms as the original annuity was calculated. We saw that the value of an annuity of 1 for the whole n years was
1
-',
-\
for
(n-t) years as
( V
+ _j_\
'
s-Jl+ts
j^L_.
8.
The general
made
at
any
remunerative rate,
accumulative rate,
nature.
i,
him
in-
know the first part of the rule namely, may be found by multiplying the amount
;
accumulated at rate
'
to the
series of
payments by
50
it
is
9. In Article
shown how
interest
by means of
Finite
By the same means an approximation may be made to the value of an annuity at a rate intermediate between the rates in a given table of values.
annuity and the term.
I'nx+h
Unx
;1
b +
1(4
^,
&Unx+
'
'
For example, if tables of values at 3 per cent., 3| per cent., 4 per cent., etc., be given, and it is desired to find the value at, say, 3J per cent, we have
a (3j%)
a (3%)
S Aa (3%).
--
a\:j
20
ACTUARIAL THEORY
For a term of 20 years, = 14-87748 + f(- -66508) + fx -04301 0(8jx) = 14-87748 --99762 + -01613 = 13-89599
10.
[chap.
ii.
With reference
i
to Article 65,
a, it
years, interest
during the
first
thereafter, can
be
(l+i)'
It
.,,
l-(l+i)" v JJ
.
TO
id! |
= a a t\ n+t\
t
11.
To
is
find the
years
payment
years.
is
The
vt
'
,.
The
made
is
1
?(l+v + v 2 +
...
-l-i'*- )
= Pa-,
Now
payments made
whence we have
Pa
t\
=
=
(-1 fl_
n\
and
If the
benefit side
as before the
=iM i+ ir+(>
a where
interest
is
ir--+(>+ir"}
at rate
chap,
ii.]
THEORY OF FINANCE
p 2
c'
21
-1
Therefore
=
1
a
'lL
.
2(-l|
and the
other
functions
at
12.
as
sums required
for the
They
their
sum
payment of a sum of whatever nature at the end of a term certain. The present value of such a sum, that is, the single premium
to secure
it, is
vn
Putting
for
the annua]
premium
is
to secure
this
benefit,
whence
and
If the
P-,(l+rt
ri )
= =
vn
P-,
I
1+a^n
a year,
side equal to
P<p> [
|[-(-r
where
a
7'J)
\-i
+
(
i+
r-i
/, (
i+
\-(p-D
i
+
a
p(p>
=
calculated at rate
JTjfl
r.)
p
is
From
this
we
get
p(3>)
ml
Vn
1
p
1
+ a1ip~l\
?l
a simple application of the formulas being assumed to remain constant already obtained, interest throughout the whole terra of n years. It is, however, the case that the rate of interest has shown a tendency to decline for many
We
have so
far
made but
22
years,
ACTUARIAL THEORY
[chap.
ii.
though of late this tendency appears to have received a It effect. check, which however is probably of only temporary be prudent to make allowance for such a fall, will in any event and we must seek formulas to give effect to this consideration. Suppose the rate of 3 per cent, to hold for 10 years, thereafter falling
cent,
is
per
10)
is
till
minimum
of 2 per
reached.
Then the
v
(H)
value of
.
years (m
<
l>
(3J)
<
x
is
V)
At the end of (60 +
in
io
V
is
'
in
"m
where
x v
x v
10
10
")
'<>
x v
10
V
m
sum
is
<
a
10),
is
P (a fi|M) +
and
Similar
values
"(Si)
m|(3i))
10
P =
a i0| of
w)
x v
(Si)
w
"(Si)
m
a
m|
is
(3i)
+ m), (40 + m), and (50 + m) years, m in each case being less than 10, may be found. Finally, when the sum is due at the end of (60 + m) years, m being of any value, we have for the value of the annual premiums
(20
+ m),
(30
u /a t
1
ibl(34)
+ \h)
10
io|(3j)
J. +
10
10
"(s "(3
v
10
10
iol(3)
4. + 10
'
m w vm
10
10
10
V}) Vi)
Vd^h^)at
13. To find the value of an annuity-certain of 1 for n years paying the purchaser a desired rate of interest and securing by a Sinking Fund policy the return of his capital with one year's interest at the end of the year following the last payment of the
annuity.
A
of (P
for
is
an annuity-due
for (n
+ 1)
years
d),
where P
chap, n.]
THEORY OF FINANCE
23
charged by an office for a Sinking Fund policy of (n + 1) years term, and d is the interest in advance on 1 at the rate desired. For an annuity for n years of (P^rj-r + d) he would therefore pay
1
(P.-^ttt +
*0> an<^ f r
an annu ity of
1
for n years
he would pay
P
.-TT,
+ +
1.
d) for n years,
we saw
that
was
for
1,
and therefore
,,
be
P
P ^n + d
'
We
(1)
What
(2)
How
;
the total capital invested is each annual payment is divided between interest and
;
end of
(re
+ 1)
years.
(1)
The
But
is,
as above,
n+U
must pay the first premium on the Sinking Fund policy, which is
P,T+T] P
=r
+d
is
(2)
is
1,
whereof there
Interest on
d
of capital
.
p pit+ii
And premium on
policy
P__. + d +i|
Together
24
ACTUARIAL THEORY
The
capital invested
is,
[chap.
ii.
(3)
as before,
-,
One
^
1
<
....
-,
P^rr,
+d
If
d,
1, is
equal to
the value of an
For, since
P+i| =
=-=
(1+0*
1
( l+i\a
.
Tl
& r^r
-d
+ l|
P-rr.+d +i|
a-^
a-
= P-^.+cf +i|
And
~
,
"+H
1
= a^-. -
EXAMPLES
1.
If
an annuity-certain
is
and the
is
i,
what
is
(>
iJ
)'
p
('
CHA1>
-
"]
THEORY OF FINANCE
25
where j
is
+ J-Y = (1+i)
where
= 4.
Also p
2.
Therefore
*
we have
1 (1
+iy -
2(1+0* -1
2.
convertible
Find the amount per annum payable momently, interest momently, for n years, corresponding to a yearly
for n years, interest convertible yearly.
payment of a
Let
of
Then the
value
be
~~ e n^ ,
a,
that
to a
i-
We
therefore have
K
whence
3.
l_ e -m
5
l-(l + i)-
(l
:
K =
1
'-
to
x
1
--
An
annuity-due of
per
annum
is
be allowed to accumulate
payment has doubled itself. Assuming that this occurs at the end of an integral number of years exactly, find what is then the amount of the annuity. Prove the result by general reasoning.
until the first
If n
itself,
it
takes the
first
payment
to double
we have
time equal to
(l+i) + (l+) 2 +
+(l+)*
= (1+0
= (1+0
since (1
(1
+ Q" i
2-1
+ i) n =
1+i
the value of a perpetuity-due of 1 per annum, and our proved to be correct. For, the first payment having accumulated to 2, of this 1 may be paid away and the remaining
This
is
result
is
easily
1 accumulated for n years further, while the second and succeeding payments will accumulate to 2 in succession, yielding 1 per annum
26
to
ACTUARIAL THEORY
[chap.
ii.
lated,
be paid away and 1 per annum to be re-invested and accumuand so on, ad infinitum all which is obviously the value of a
;
perpetuity-due.
4.
payable half-
We must assume here that interest is convertible half-yearly, and then remembering that where both annuity is payable and
interest convertible
times
a year
a_ =
a p
np\
at
rate
of
interest
we have
+
a
(2)
lstJ
J_
2
"(-01579)
_W,
-01579
96
To
evaluate v
+H
,
we have
log
+ -
865
=-.
(96+^) ( + |L)
_ 96 +
(
loffW
S)
lo S
1-01579
" -( 96 + 3l)
x 006804
-
= =
Therefore
a
( 2)
T-345027
log -22132
4S+
m
365|
1-
-22132
-03158
24-657.
is
=
5.
Each payment of
It is
a perpetuity
divisible equally
among
five
arranged that, instead of the perpetuity being shared as at present, four of the funds should for a fixed number of years
funds.
the
each in succession, receive the annual payments in full, and that fifth fund should be entitled to the perpetuity in full
thereafter.
chap,
ii.]
THEOBY OF FINANCE
27
fifth
Find the number of years which must elapse before the fund comes into possession.
deferred
which the fifth fund is procuring and the benefit it is forgoing is a perpetuity, and these two must be equal.
benefit
t
Here the
is
a perpetuity
years,
fifth
part of a
Hence
vl
r-
and
6.
-r^ log v
Find the value at 3 per cent, of an annuity-certain for 30 payment to be reduced by one-half after the end of each period of 10 years. Given v10 at 3 per cent. = -74409.
a
iol
+ T',10 "iol +
t,20a
iol
v Now
and
Therefore
a
a
t-io
l-"10
:
1-
'74409
-03
^-5
8 _ n 8-530
iol
6-347
4-723
=
=
S-530
+ -V
2
x 6-347
x 4-723 4
12-884.
life
7.
shareholder in a
capital,
the dividends on which are increased 10 per cent, every quinquennial valuation. Supposing a valuation to have just taken
place and the dividends for the next five years to be fixed at
100
is
upon a 5 per
cent, basis
is
100x1-1,
for
all
The
present value of
= =
100
S]
{l
+ r3(M) + (M) +
2
100a-:
II
is
-^(M)
equal to 3134-547.
28
8.
ACTUARIAL THEORY
for
[chap.
ii.
25
30
years,
first
10 years, decreasing thereafter by A per cent, per annum each period of 10 years. (Use the Tables given at the end of the
Theory of Finance.}
We
have
a
+ V(4%) ai0|(3i%) + V%)"(3K) aiO|(3%) 8-11090 + (-675564 x 8-31661) + (675564 x -708919 x 8-53020) = 8-11090 + 5-61840 + 4-08528
10
10
10
fl
i0|(4%)
and
= 25xa=
=
17-81458 445-3645
445,
9. In connection with a feu-duty of 20 per annum, a duplicand payable every 21 years, the next being due 7 years hence. Find the present value at 4 per cent, of all future duplicands and the equivalent addition to the feu-duty if all duplicands be
is
dispensed with.
Given
value of
v3
= -88900,
ad
u4
= -85480.
is
The present
20(i> 7
all
future duplicands
+ u 28 + d49 +
7
inf.)
v = 201
u 21
Now
and
j'
d 21
= =
i^xt*
(v-f
= -88900 = -43883.
x -85480
=-75992,
This
If,
may be
side
we have the
payment
=
Equating the two
sides,
P^
=
= 25P.
25
whence
8d.
THEORY OF FINANCE
value of a certain property
29
is 20, and this per cent. The property is subject to a feu-duty of 8 a .year, but the feu-duty payable at the end of every 21st year from the present time is to be, not 8, but the full annual value of the property at that time. Give a formula for the present value of the feu-duty.
10.
The annual
by
in
perpetuitv
is
r-
is
account
is
therefore
8(a + * 2 + 88 +
~ 1
ad
inf.)
_ 21
Instead of the 8, there is receivable the full annual value of the property, at the end of every 21st year, and the present value of this is
20(l-01) 21 21
+ 20(l-01) 4
+20(l-01) 63 t.63+
-01)211)21
ad
inf.
20(1
Therefore the formula
full
1 -(l-01)2ii,2i
is
expressed by the
411.
-8
payable half-
HalfYear.
30
12.
ACTUARIAL THEORY
in 7 years at 3 per cent. J
[chap.
II.
1300
chap,
ii.]
THEORY OF FINANCE
(c)
31
The
total
principal
payment
= = = =
14.
lnnnn 10000
10000
a-,
40]
x a,
20|
10000 - 365-557 x
~ 67397
"
02
10000 4022-595.
5977-405
Given a at 4 per
cent.
15-6221, and
at the
same
rate
payment of
The
payment of
v
:
a.
_ j,25 -15+1 =
the value of which
is
\l
found as follows
l_io
32
ACTUARIAL THEORY
office
[chap. h.
was receiving,
for
5 years at
647-330
(3%)
16.
26-87037,
Given that the amount of an annuity-certain of 1 and that the present value of the same annuity
is
is
_L
s
1
a,
we have
In the present example
~~
a,
n\
n\
14-87748
-067216
-03.
26-87037
= =
17.
- -037216
, 10s. payable yearly, and a composition of payable at the end of the 10th and every 20th year thereafter, are to be redeemed by an annuity payable half-yearly for 30 years. Find the amount of the annuity, taking interest at 4 per cent.
A perpetuity of 7
10s.
Here
it
will
be convenient
is
being given up and for the value its place, equating the two thereafter to ascertain the amount of the annuity.
taking
The
Benefit
Side
= =
7-5
j-L + (u 10 + u 30 + d 50 +
a d inf.)\
,./l 7 5
'
(t + t^o)
\
- 7-5(25 + :^
-543613/
=
Now,
if
196-8205.
P be the
Payment Side
= P
interest being
x 34-7609
at the periods of
assumed
to
be convertible
payment
of the annuity.
chap,
ii.]
THEORY OF FINANCE
Px
and
,
33
Equating, we have
34-7609
196-8205
196-8205 P = 377609
= =
5-662.
5,
18. If a sum of 1,000,000 be borrowed at 4 per cent, interest, payable annually, and 60,000 be applied each year towards paying the interest and reducing the principal, in what time will the loan be finally discharged ?
a,
n\
where n
is
unknown.
To
find n
we proceed
as follows
6al
34
21.
ACTUARIAL THEORY
An
is
[chap.
ii.
25 years,
interest
annuity of 80, payable in half-yearly instalments for bought for 1400. Required the half-yearly rate of
is
which
made on
the investment.
50|
Hence
a,
50
= =
35.
1J
Rate of interest
22.
it
calculated
when
:
same term
as follows
per cent.
17-413
16-482 15-622
31 per cent.
4
per cent.
Theory of Finance,
we have
AnK
- -931+ -0355
=
whence
23.
i
-0025, approximately,
-03
+p =
From the
calculate
20 years.
The formula
to be used
is
i/i-i
where
Aa
\p/
)
and
A2 a 6
\
The
24.
is
14-539.
From the
calculate the
amount
chap,
ii.]
THEORY OF FINANCE
to follow
is
35
The formula
A(A-i)
where
f
,S
A ar^
and and
S
A**
(HX)
m)
represent
the successive
differences
(3J%)'
for a
P eriod of 50 years.
3|-
The
true value of \ s
at
per cent,
is
68-032.
Neither in this question nor in the previous one will the formula function, as second differences
25.
spectively
Assuming one rate of interest throughout, obtain proand retrospectively the value of a Capital-Redemption
1
Policy of
for a period of
annual
identity
of
expressions.
Before attempting this question, the student should know something of prospective and retrospective policy-values, though he will come more in contact with them when discussing lifepolicies at a later period.
When
a capital-redemption policy
is is
of the series of premiums to be paid therefor. As time goes on and the date of payment approaches, the value of the capital sum obviously increases, while on the other hand the premiums to be paid are fewer and their value consequently decreases. Thus the value of the benefit now exceeds the value of the premiums still to be paid. For this difference the office must keep a sum in hand which is called the " policy-value." The policy- value has here been looked at from the " prospective " point of view. But again, after the policy has been in force for a number of years, the premiums which the office has received have been invested and accumulated (at the rate of interest assumed in the calculations). These accumulations constitute the value of the policy, which has here been discussed from a " retrospective " point
of view. In the case in the above question the value of the benefit at
36
ACTUARIAL THEORY
is
[chap.
ii.
l ;
premiums
is
P-,(l
+a
*
),
^
I
whence
P-,
ai
After n years the value of the benefit is increased to '-, while the value of the premiums is reduced to P-;(l +a -). There" t-n-ly t\ y fore prospectively for the value of the policy we have
Again, the
P-pj(l
identical, for
V
(-11-1
'
1 n l+a-t-ii
_l_
-71-1/
TC
r<
r (i+0"{q+o-^L (l + a
x
}-{(i+o-^,)xi y
n
-I
-i|
(1+Q{(1 + )*-!}
= P-(l-M>_
26. Calculate the net level annual premium for a capitalredemption assurance of 100 payable at the expiration of 50 years, assuming 3| per cent, interest for the first 10 years, 3 per cent, for the next 20 years, and 1\ per cent, thereafter.
The
Benefit Side
100 x
^ ^
x
10
20|
s
v
X a
CB%;
+ " x
x
20
"<! x a 20 U 2i%))
20
Therefore
nrv 100 x
1
%%)
x
\
.
20
V)
/ 10
WX)
20
iO|(3J%)
10 / + 1"(8}T)
,
X a
20|(3%))
+ \ V(SW
V>
X a
20|(2J%))
8-6076866 23-954
25-743
+ -7089188(15-3237994 +
-5536758 x 15-9788911)
= =
-931
18s. 8d. nearly.
chap,
ii.]
THEORY OF FINANCE
37
27. Find the annual premium per cent, for a Leasehold Assurance to mature at the end of 30 years,
(a)
(b)
assuming 3 per cent, interest throughout assuming 3 per cent, for the first 20 years and 2i per
thereafter.
cent.
Answers
(a)
(6)
2,
0s.
2s.
2,
desired to have a policy providing 1000 at the end The policy is to be by annual premiums under a special system which provides for the premium being doubled at the end of 5 years. Calculate at 3 per cent, interest the premium
is
28. It
of 30 years.
first
5 years.
Here we may
1000o 30
411-987,
P{(l+^,) + 5(l+^,)}
= Px
or
{2(1
+-)-(!+*_)}
35-660.
Px
whence
35-660
411-987,
P = =
11-553
29. Express in the simplest form for applying to Interest Tables the annual premium required to provide 1000 at the end of Zn years, the premium to be reduced by one-half from the beginning of each n years.
The
premium
1000
"In
| I
is
1' 3
"
11
a + a + 2a Zn
Then the premium
for the first n years
^ >&
H
is
annum each
38
(a)
ACTUARIAL THEORY
The
reserve required
1
is
[chap.
11.
(%l( 2i %)is
450
'
(6)
'
The
reserve here
10
K*uiAn
l)(l- 3 ) 10 (1-0275)10 +
,_^
i) (i.0275yo
31.
insurance
office
calculates
its
Leasehold
Assurance
premiums
of the
and allows as the surrender value of a yearly-premium policy the premiums paid, with the exception
at 3 per cent, interest,
accumulated at 3 per cent, interest, less a deduction of Given u 20 at 3 per cent. = -55368, find (a) The annual premium required to provide a Leasehold Assurance policy for 100 payable at the end of 20 years (b) The surrender value allowed by the office for such a policy at the end of 10 years.
first,
10 per cent.
()
chap,
ii.]
THEORY OF FINANCE
39
being the annual rate per unit at which the funds are increasing by interest at any moment of time, assuming that the increase or decrease in the funds is uniform throughout the year.
year.
is let
An
800,
by
a college at a rent of
may be renewed
money.
at the
on payment of a sum of
the tenant pay on renewing his lease ? Given log 106 log 4-688385 = -6710233, and log 3-118042 = -4938820.
= 2-0253059,
The lease has 13 years to run; the tenant wishes the term extended to 20 years. Therefore, if he is to continue at the same annual rent, he must pay the difference between the full annual value and the rent for the period of extension, or
500 13 |a
=
7l
500( %|
-
i>
lT| )
= = Now
log(l-06)- 13
CAA /l 500
20
- u 13 \
500
i
And
log(l-06)- 20
Therefore
500 13 |
=
=
4688385- -3118042
500 x
1308-619.
is
The sum
to
CHAPTER
III
Varying Annuities
1.
it
is
to
be noted that
first (to
equal to the
sum
of the
1)
terms of the preceding order. Again, from the consideration that the terms of the (r-l)th order are the first differences of the terms of the rth, those of the (r 2)th are the second differences, and so on, and those of the first are the (r- l)th differences of the terms of the rth order, and from the formula
um
u1
2)
A Bl
+ (-!)( -2)
I
(m-r+l) ^_ hi
we have
t-- = m| r
|
*__.
1
[
2) A2<
__
1
1 I
(to
-1)
(to
-2)
(to-
r+l) Ar _i
l| f|
P^T
(all
_/ ~
l
T\T\
)( CT
jjf
2)
a. h\^T\ +
f
(to-1)(to-2)-
(-r+l)
Mil
first
|7^T
But the first terms of all orders except the Therefore term of the first order is 1
.
first
(TO-l)(m-2)
m| r|
(m-r+l)
r-
chap, hi.]
THEORY OF FINANCE
value of a-,
41
is
as follows
<Vm = va^T)7^\ +
which may
of and
/,
^-^,,-tti +
+""- lfl
n^ii
easily
be proved by expressing a-
in simplest terms
and rearranging so
Then we have
Vm
-v n
"
42
ft
ACTUARIAL THEORY"
<i)
[chap. hi.
|r-ll
n+\\T\
',
VlT+il "
+ ^|f+ll _
,
nlT\>
"ii
in
^xi
-v
'
^\
~\
+ (1 + 1)
^ H*r
(fl
a
*i
fg
-^ s+Ti^)-(
<
ff
^T|frr
+^^2|
r n| -
+ ^^3|^+
+^"
"n-
JL { <_
j
|_
u| r-l|
_ + o /| _ - <+l| r|
- 0 <
r|
+l| r+l|
(o-!-i-o"<
8
| r|
+l|
i) r+lK
n| r|
which follows
for a, n
|
the
same
law
as
the
expression
we assumed
,, r
|
nothing but the truth of the equation above premised. Therefore if the expression holds for the rth order it also holds for the (r+l)th. But we have seen that it holds for the third order,
therefore
on, until
it
and so
general
we
reach
when we have
the
expression
a
n
|
*(-!)
|r-l|
(n-r + 2)
|r
i
3.
The
following
may
a.
Suppose one is entitled to a perpetuity of the (r l)th order, but prefers not to spend the payments as they fall due.
chap, in.]
THEORY OP FINANCE
43
is spent. Now for the first (r - 2) years nothing is received and nothing can be invested. At the end of the (r- l)th year a payment of t ^ is received, which is invested, and yields in a
alone
This amount
is
spent at
r\ r
,,
is
1|
which
is
and
is
(* v
r-l\
Ti
T
1|
or '<
ti > r+llrj'
to the
sum of the
i I-
This amount of
first
is
(m -
spent at
The payment
year, J
i(t. v
of
r+l| t -\\
receivable
at
this
time
is
also
r+l| r-l|'
-,)
or
i I
_
,
+ 2)th
r+2|r|
is
spent. r
We therefore
have
a
qo
i I
r- 1|
=
=
ia i col
r
j
and
If,
a-.-,
J^lzzll
however, the payments receivable cease at the end of we have an annuity for n years, and in this case we must take account of the payments of the annuity of the (r - l)th order which have been held back and not spent. The sum of these at
n years,
is
i-|r-l|
which
is
of course equal to ^
r+llr-l|
+t ^
")
n\r-l/
w+l|r|
-,
thus see that the value of an annuity for n years of the (r-l)th order is equal to the value of i times an annuity for n
years of the rth order plus the value of a payment of t years hence.
We
due
In symbols
a
| r 1
= ia
| r\
+
11
vn
whence
-,
-,
nlr ~
+l| v n(
,-,
-;
r\
5liiJ
44
4.
ACTUARIAL THEORY
As explained in
any varying annuity, and
[chap. hi.
is
the use of the values of annuities according to the several orders of figurate numbers comes in. For it will be observed that, in
stating u v u
as the
,
uv
etc., in
terms of k x and
in Theory
its
successive differences,
of Finance, Article
3.
Thus we have
SKj
+ =
V 2U2
1
+
1
V SU $
a,,u. 1 n 1
+ Vn U^ + + a Am. + a- A 2 k, + n g
'
'
+a n
u.
r
|
Ar ~V
p uv
etc.,
be a perpetuity, we have, as
is
shown,
u 2m 2
= a- u, oo|l|i
+ - -A r ~V1
M
=
From
w. "4-
Am.
t
A 2m, -r^J-
A'- 1 ^
this
we may
vhi 2
payments u v u v u^
v M,
un
as follows
3m
+
.
vn u
ft +
+
+
+ +
*,)
-('
n;
This will be found useful where the differences are not numerous, and the number of terms unknown.
As an example, suppose it is required to find the value of the annuity whose payments are 1, 5, 11, 109.
Here
ux
1,
Amj
un
4,
A-u 1
= 2,
and
109
u1
+(-l)Aii 1 + ("zlKlZ^A**,
= l+4(-l) + (/i-l)(-2) = n2 + n - 1
whence
ra=10.
chap, in.]
THEORY OF FINANCE
wX i
45
Also
131,
m 12 = 155,
A n = 24,
Aht n
= A\ = 2.
Therefore
w+5n 2 +lli.8+
/l
+109r 10 2\
../131
24
2\
EXAMPLES
20-year sinking-fund policy is effected on an increasing premiums, beginning at 100 per annum and rising by 3 each year till the end of the term. At the end of the fourth year it is proposed to commute further payments. Determine their value on a 3 per cent, basis.
1.
scale of
The premium due at the beginning of the 5th year is 112, will increase by 3 per annum for each of the succeeding 15 years. Now, assuming for the moment that the premiums will be payable at the end and not the beginning of each year, we have
which
their value equal to
112
^I| + 3a Ia|2|
Adjusting this expression (since the premiums are actualty payable by multiplying it by (1 + i), we
to
(1+0(112^ +
3^)
a i
16i> 16 \
/
1-03(112 x 12-56110 + 3
1-03(1406-8432
12-56110- 16 x-623167\
-03
12-56110-9-97067
3
03
= =
2.
1-03 (1406-8432
+ 259-043)
1715-863.
if
Prove that
a
11
1
jo
r
+ if a
is
equal to the
in
sum
of
the
of
v.
first
(n-r+l) terms
powers
46
ACTUARIAL THEORY
Remembering that
t
[chap. hi.
(m-l)(m-2)
r,
(m-r+l) _
(I K
l
lr-1
and that where
^
m-l r-1
l
m <
T
t = m\r\
T
0, '
we have
' y
l|r|
2|r|
S|r|
.
T
.
= (i+Or C. 1 cr . 1 ^+ r cr _ 1 ^ + i + =
(
+.. 1 cr _ 1 -)
. .
+ iy/,r + ri
I,
,r
+i
+ fc+l}v+2 +
|2
.
.
+(-!) ("-2)|n-r|r-l
2-1
.].
J
+rj)+
is
K^I)^ +
sum
+
first
r(r+l)-
(-!),,,-,
which
of (1
3.
first
the
of the
w)"'' in
powers of
i>.
Find at 4 per cent, the value of the annuity of which the 40, 45, and 52 respectively, and the
last 325.
The
For
this,
first
step necessary
is
to find
we
un
ux
In this case
Awx = 5 and A 2 Kj = 2
16|
16|
16| 3
= =
4.
(40 x 11-652)
1538-558.
+ (5
x 77-744) + (2x341-879)
What
is
the value at 5 per cent, of the annuity whose paysum of all the payments being
Here
it is
necessary to find
n,
w(-l)
n(n-
1)(tz- 2) .
chap, in.]
THEORY OF FINANCE
to apply the formula of varying annuities
47
Then proceed
a
= u,u + Au,a-~ +
is
A'-mo-,--
Ahr.a
The
value required
287998-936, as follows
10
:
40| 4
|
16 a
40|1
+ n
|
+ 22 T 40| 2
,
a
40| 3
|
+ T
12 a
= (16x17-159) + (10x229-545) + (22 x 2374-991) + (12 x 19431-595) = 274-544 + 2295-450 + 52249-802 + 233179-140 =
5.
287998-936.
Find the present value of an annuity of the ?-th order, to yield i per annum on the whole capital for the entire term of the annuity, the capital to be replaced by means of a sinking fund accumulating at the rate j per annum.
interest at the rate
Here we must resort to the general rule given in Article 43a of Chapter II. that the present value of any series of payments, n remaining constant, may be found "by multiplying the amount, accumulated at rate j to the end of the n years, of the series of
payments by J v :
1
."
s -, n|
Now
rate J i
is
down
as
".J
n\
where
n r
|
at rate
/'.
Find the value of an annuity-certain for 20 years whose 20, the value to be so payments are 1, 2, 3 calculated as to yield the purchaser 5 per cent, on his whole
6.
several
investment throughout the whole of the 20 years and to return him his capital at 3 per cent.
we have
(3%)
,
+ A 20l - 05
2] (3%)
%;(3X)
48
since the
ACTUARIAL THEORY
amount of the annuity
at 3 per cent. to
[chap. hi.
the end of
20
years
is
(%|r] + %|Ji)
26-87037
1
+ 229-01248
1-34352
=
7.
109-187.
42,000 has been made with the following Annual instalments of principal for 20 years, the first being 4000, the second 3800, the third 3600, and so on interest at the rate of 4 per cent, being paid annually on the outstanding amounts. Immediately after payment of the fifth instalment, it is arranged to repay the balance of the advance with a premium, the lenders being able to re-invest at only 3 per cent. Show how the premium should be computed.
loan of
condition as to repayment
:
is
and of the
interest
04(24000*-,
myj
- 3000a lT|
3960al5| T|
31 (.'
And
the
premium required
320
396
%H(3%)-
%|2](3%)
+ 8a1 1 T|3
3%)-
24000
CHAPTER
1.
IV
of any discount or
further, that
by the borrower, that is, taking account premium on the par value of the loan, and
this definition of C,
interest bears to C.
in
These two
mind
The
Mr
King,
may be
of a loan, repayable
interest in the
given rate of interest, i. Had the borrower contracted to pay interest at rate i per annum on the capital C, then the required value of the loan would have necessarily been C, since, interest at rate z being payable at the end of each year, with C repayable, the investor would have
The value of the capital at i on the purchase price. being K, the value at rate i of the interest, on the basis assumed, would have been (C - K), which then is the value of the annual payments of interest, if these were made at rate i. But, in
realised rate
rate
i
made
is
at rate j,
proportion
their
value
-4-
(C - K).
Adding to the present value of the interest the present value of the capital as already noted, namely K, we have the whole value
of the loan equal to
K + -4i
(C - K).
3.
by a loan purchased
j
In the converse problem to find the rate of interest yielded at a given price, we have the equation
_ Jv^~
)
}
whence
may be found
as explained in Articles
11 and 12.
50
ACTUARIAL THEORY
Mr Ralph Todhunter
has given (/
[CHAP. TV.
LA.
xxxiii.
356) a very
by bond bought at a premium. In the explanation accompanying the formula, he suggests that the premium might be dealt with in practice bv writing down the book-value out of each dividend by an equal proportionate part of the premium, the remainder of Taking the case of a bond, the dividend being treated as interest. repayable at par at the end of n years, interest meantime at rate j, purchased at a premium of p per unit, Mr Todhunter gives us the
useful formula for approximating to the rate of interest yielded
following schedule
Year.
chap.
iv.J
THEORY OF FINANCE
by
this formula will as a rule
;
51
be sufficiently close for but if greater accuracy be desired, the rate of interest thus found may be used to obtain K in the formula
result
The
practical purposes
"jj
A ^r-s K.
when
be applied as a
Todhunter, however, points out that his formula should only final result when n and j are not large. The reason for this will be readily understood from the following
:
Mr
_ j(C-K)
A-K
Mr
or in the
example submitted by
Todhunter
+p - v n
where
v n is
calculated at rate
i(l
i.
Hence
and
pi
- v n )+pi =
v
j'(l
-v n )
= [/-i)(l -
n
)
j-i = ^{l-ci+o-"}- 1
_
=
pi
ym
j^
^
\3~
1
TV
~-IT +
l
H
n \
.
n+ 1
n-
than the
ra i
first,
we have
/,
l.\ + l.N
whence
~s Zrc
i>
which
is
Mr
52
ACTUARIAL THEORY
EXAMPLES
1. A bond for 775, 15s. 10d., repayable at par in five years, and bearing interest at 3f per cent, payable half-yearly (first payment six months hence), is bought at a price (750) to yield Draw up a schedule the investor 4J per cent, on his investment. showing the amounts that must be added to capital each half-year so as to gradually write up the sum invested to the redemption
value.
The schedule
will
be as follows
THEORY OF FINANCE
five
chap,
rv.]
53
municipality
is
it
3.
The
per
cent,
stock of a colonial
redeemable at par
in order to
in 20 years.
What can
make
A = K + 4we have
(C - K)
i
K =
100i>
(4
%)
j =
-05,
-04,
and C
100.
Therefore
=
4.
113-590.
Two
per
(a)
20,000
(6)
at
4| per
annum
nominal,
half-yearly
20,000
nominal, repayable by 60 equal halfyearly payments of principal, interest being also paid on the balance from time to time remaining outstanding. Find in each
at 4 per cent, per
annum
case the amount of the payment due to-day, and show the amounts of principal and interest included in the payment. Find also the
sum
for
annum
nominal.
payment
x
is
4i
equal to
20000
6C|
whereof
20000
60|
...
principal,
...
and the
.,
(2|%)
remainder, or
20000.,
(1
- vn
>
J,
is
interest.
(U)
consists of (1)
20000
of principal
(20000
-19)
is
-0225.
20000 j-^
(l
^h
-0225
54
ACTUARIAL THEORY
Secondly, as to the redemption price
(a)
[chap.
iv.
to
invested at 3J per cent., the future half-yearly payments must be valued at that rate, that is, the price is
20000
HZ
(6)
(21%)
,,
^
l+a
maix)
instalments
60!
The
1
value
a-Tg.
of
the
of
future
of
capital
is
20000 x
"wo-iX? y 60
r/
is
and
the
future
payments
of
interest
go
(i|%)y
Therefore
the
20000
plus the
5.
{(i + S
- 225
Vo,n%)4
225
<^<uo}
payment due
to-day.
20 years,
How
the rate of interest realised by the purchaser, given that to obtain 5 per cent, he would have paid 112, 9s. 3d. ?
Since
purchaser,
A
K
112-463
= K + ^(100 -K) 05
37-685
For
K(f-l) = 120-112-463
and
But
therefore
K = K =
100
(5%)
*L = "37685. (5/0
Now the question is to find the rate of interest when the purchase price is 107, 10s.
We
have
C~K
j J
A-K
is,
(that
" 6
62-315
69^815
-0536
is
from which we see that 5 per cent, being about 5| per cent.
chap.
iv.J
THEORY OF FINANCE
55
6. A bond of 100, bearing interest at the rate of 4 per cent, per annum, payable half-yearly, and redeemable at the expiration of 30 years at a premium of 10 per cent., is bought for 11-1. Find approximately the rate of interest realised by the investor,
=
,
36-964.
C =j
and j
=
1
-02 x
~
l
'
= ~, C =
110,
E=
110i>>,
and
A =
114.
SinCC
j)
60
^75
~ = =
114-38-8443
'1
x -94678
-01721.
rate of interest or
is
-03472,
7.
A bond
half-yearly,
for 1000, bearing interest at 5 per cent, payable and repayable at par in 30 years, is purchased for
1250.
What
purchaser ?
As
before,
we have
.C-K
A-K
where
We
will
and j
025
Trying
d 60 first at 2
i>8
a 80
per cent,
we
1250-304-782
-0184.
56
ACTUARIAL THEORY
is
[chap.
iv.
too large,
we
and get
i
nnf -025
.
1000-353-130 1250-353-130
-0180.
Now
in the result.
a reduction of \ per cent, makes a change of -04 per cent, Therefore to get the true rate we have 2 - x
=
= =
1-84
-19
- ^lr
25
whence
and
x
i
-0181.
is
-0365,
or
Towards the
close of
coupons for a January and 1st July each year, with first payment on 1st July 1906. Allowing for discount on the instalments the issue-price may be taken as 89J on 1st January Find the rate of interest realised. 1906.
(or in certain circumstances earlier),
January 1931
.C-K
.
Q9
"
100-
100 v m
89-5-1 00 v
= =
at
2-1
per cent.
= =
-29094) -0235
-32873) -0237
whence approximately the half-yearly rate is -0236 and the effective rate is (1-0236) 2 - 1 = -04776 = about 4, 15s. 6d. per cent.
9. A debenture of 100, redeemable at 110 on 1st July 1915, and bearing interest at the rate of 4| per cent, per annum, payable half-yearly on 1st January and 1st July in each year, is purchased on 1st April 1905 for 109. How would you calculate the yield to
the purchaser
Here
per half-year.
must be considered as the rate yielded to the purchaser At 1st July 1905 the value of the capital will be
chap,
iv.]
THEORY OF FINANCE
As
that date
is
57
half
we must
we get
the equation
109(l+i)i=110^ + 2-25(l + - ). |w
i
to,
and
this result
yearly rate
It is
obtain the effective yearly rate from (1 +ifprobably better, however, to proceed in the same
we
way
as
in
Then,
110(1
before,
we have
0225
1
+t>- 110 v2 i
to,
~ "FT*
109-110j>2 *
and the yearly rate found
As
before,
may be approximated
from the
result. result.
100, bearing interest at 6 per cent, per and redeemable at par at the end of 40 years from the date of issue, was issued at par 30 years ago, the present market value being 115.
bond
for
annum payable
half-yearly,
(a)
at the
(b)
now buying
Find the rate of interest obtained by the original holder when his profit on sale is taken into account.
(c) If it were proposed to convert the bond into one for 125 bearing 3 per cent, interest, redeemable at par in 30 years, what gain or loss would there be to the holder of the bond on
conversion
?
.
()
= J*
C-K
JTR
nQ " 3
100-100t> 115-100,20
Trying 2 per
cent.,
'
06x
100-67-297 115-67-297
03
x 32-703 47-703
58
ACTUARIAL THEORY
Also trying 2 per cent.,
1
100-64-082 115-64-082
03x35-9 18
50-918
=
and
Thus a
Therefore
+x =
2-0567
chap,
iv.]
THEORY OF FINANCE
i
59
Where
A =
= =
.aqf;
36
465+
OT2^ 125
- 36 465 )
'
36-465
+ 73-920
4d. to the holder
110-385.
Thus there is a loss of 4-615, or, say, 4, 12s. of the bond on conversion on the terms given.
11.
10,000 at the end of 5 years, 11,000 at the end of 6 years, 12,000 at the end of 7 years, and so on, till the whole is repaid. The issue-price being 94| per cent., what rate of interest is paid by the
corporation
?
Here
is
it is
when the
last
instalment
paid.
We
have
390
10
+ 11 + 12+
+{10 + (-l)}
20 + fra-l)
whence n
20.
is
= j
A lv
CK -
-
cent.,
we have K =
Also
C = 390000
60
12.
ACTUARIAL THEORY
Having given the value of a
cent.
at
[chap.
iv.
4 per cent.
13-0079
and at 5 per
interest yielded
12-4622,
by an annuity
for
approximately the rate of 20 years, in which the payments when purchased for 150.
find
first
The
only,
differences
and consequently
value
may be
20a
nr\ ~ %i2i
Now
at 4| per cent.
a-- = 13-0079,
v
= \-ia- = 1- -585355 =
-414645
and
,__ 2o| 2
^- W
-045
20| 1
20|
|
13-0079
8-2929
-045
Therefore
= =
12-4622.
so
_ ; a_ = 1_ -623110 = -37689
|
Therefore
IQa^^-a-,- =
249-244-98-488
150-756
of 4-624 in
fall
We
means a
fall
of
by
005x5-380
4-624
005g2
Therefore approximately at the price of 150 the rate of interest realised is 5-082 per cent.
13.
yielded
Apply Todhunter's formula to determine the rate of interest by a terminable 6 per cent, debenture, repayable at par at
chap.
iv.J
THEORY OF FINANCE
61
=
1
'
+ -s P
Ofi 06
195
-~2Q'
01
l
+ gx-195
= =
14.
-04558
Twenty years ago a Local Board borrowed 100,000 at Company, such loan being repayable
by 30 equal annual payments, including principal and interest. The Board now offers 3f per cent, debentures, repayable at par
60 years hence, but now issued at 90, in equitable fulfilment of the contract with the Assurance Company. What amount in debentures should the
Company
accept
to
be made. be
30l (5%)
To find the rate of interest now may take the rate yielded by these
have
obtainable on investments
we
debentures as
fair.
Thus we
.C-K
where j =-0375, C = 100,
cent.
A = 90,
and
K = 100i>60
at,
say,
4 per
= 8231
0375(100-8-231)
90-8-231
-0421 approximately.
62
ACTUARIAL THEORY
The value
of the 10 annual payments outstanding
'
[chap.
iv.
is
therefore
will
100000
'
a
30|
,_
(5%)
is
100000
X d
9
"mIto
10|(4 21%)
'
58016-994
15. A Company has an issue of 6 per cent, debentures maturing after 5 years, which are quoted at a price which yields 4 per cent., and it proposes to redeem them by issuing 5 per cent, debentures for the same nominal amount in lieu. Show how to find the number of years for which the 5 per cent, debentures should run so that the holders would still realise 4 per cent, on
their investment.
A = K + i-(C-K)
j
when C = 1, we have
A=
1-(1-K)(l
-)
06\
A =
On
Wi-ix^-S)
1
-Hi^
-( i
-w(
-S)
=
Equating these two
l
I
+ -01o-,
+ -01a-
l(4#)
o/ ,
+ -02a_ 6
|
(4%)
oi(i-;
%)
)= -02(1-4,)
CHAP.
IV.]
CHAPTER V
Interest Tables
1.
In Articles 16 and 17
is
log (1
+ i) n
The column
may be used
further
sponding to the logs. a periodical check is not sufficient. Each value must be separately checked. This may best be done by taking independently the logs of the table last found and comparing the results with the
original logs.
taking the natural numbers correAs this is not done by a Continued Process,
+ i) n by
2. If a column of (1 + i) n has been formed, a column of v n may be obtained from it by the use of a table of reciprocals. By taking the reciprocals of the values thus found the original table of (1 + i) n should be reproduced, and a check put upon the work. Again, a column of log v n might be formed in the same way as a table of log (1 +i) n (in this case there is no need to start at the end of the table as for forming a table of v n directly) and the natural numbers corresponding would be the values of v n , each of which requires to be checked as before.
In view of what has been said about Leasehold Assurances it be well to discuss methods of forming a table of annual premiums for such. It is necessary to note that as the premiums are due at the beginning of the year, we have to deal with
3.
will
annuities-due throughout.
First,
we have
P_
and hence
log P__
P.
v.]
THEORY OF FINANCE
we
from which P
65
obtain
may be
obtained at once.
The
Term
71.
Again,
we have
66
ACTUARIAL THEORY
[chap. v.
It is on this relationship that Orchard's Conversion Tables for annual premiums are founded. By them if one enters with the the result is P They are fully discussed in given value of a
,
Chapter VIII. of the Text Book, Part II., and are only mentioned here to show their use in forming a table of P
In
all
it
has been assumed that one rate of term of the assurance^ but it is not
Mortality Table
is
In
its
If
we
Age.
68
ACTUARIAL THEORY
[chap.
i.
results
mortality table does not give absolute but only relative ov average in other words, it is not intended to be inferred from
;
these figures that 127,283 children were in reality found who were all born at the same moment of time, that 14,358 died before
attaining age one, that 3,962 actually attained age one but died
before attaining age two, and so on. the radix is selected to represent the
initial age,
An
number of
entrants at the
and the figures submitted are only on the average, and relative to one another. Were we asked to form a mortality table representing the experience of Edinburgh during the calendar year 1906, it would not be sufficient to give us merely the deaths that occurred in Edinburgh during that calendar year; arranged according to year of age. The summation of these deaths would have no relation whatever to the / persons out of which the d deaths actually occurred, nor again would the (/ d ) persons have any relation to the /, persons out of which the d x deaths occurred, and so on. It is possible that the deaths column so supplied us might adopt a quite irregular form, for it naturally depends on the number living at each age out of which the deaths occurred. For example, the deaths between twenty and twenty-one might be twice as numerous as those between twenty-one and twenty-two, owing to the fact that the number living between twenty and twenty-one happened to be fully twice as numerous as those living between twenty-one and twenty-two. Again, it would not be sufficient that it be added to our data that the number born in each calendar year for many years past had been equal to the annual deaths. The migration element would require to be kept before us, since people might be emigrating and immigrating in different numbers and at entirely
different ages.
Before a mortality table can be formed in the way here disit is essential that the population be proved to be in every way stationary that is, that the annual births be equal to the deaths, that the births all take place on the same day of the year, say 1st January, and that there be no emigration or
cussed,
;
immigration.
chap,
i.]
II.
EXAMPLES
1.
Prove that
mx =
ry
(a
(a
^3
lifL
l!lL
We
(9)
%
whence
70
3.
ACTUARIAL THEORY
Given the following particulars
x
[chap.
i.
Q%
20
21
22 23 24
find
how many of 10,000 people living at age twenty die during each year of age up to twenty-five.
Here we
are given
/
20
and q 20 and hence we may find d 20 since Also from Text Book (5), l 2Q x q 20 = d 20
, ,
. ,
formula (1), /2 i = ^20 ~~ ^n> anc^ being given q v we may similarly find d 21 , and so on for d.2V d 23 and d., v In the example, rf 20 = 57, d 21 = 60, (/.,o = 64, rf 23 = 66, and <i, 4 =67.
4.
number who
77735
still
alive at
?
= -00865,
Here the
36
= -00889,
step
is
= -00914, s7
p a5
,
3S
= -00942, m 39 = -00975.
from
tw
36 ,
first
to find
;j 3i3 ,
etc.,
30 ,
etc.
By
P,
2+777
2
- -00865
hence
P" = =
-99090,
+ -00865 =
-99030.
I
-99139
Also,
t> 36
= -99115, p 37 =
p 3S = -99062,
(4),
?j 39
we have
= / ,
and
CHAPTER
II
Probabilities of Life
1.
It is
probabilities in
which two
lives
may
be involved, and for that purpose he should practise, till he attains complete proficiency, writing down the values of the following, giving in addition the symbols, where these are possible. The answers should be carefully compared with those given in the
Text Book.
The
1. 2.
probability that
3. 4. 5. 6. 7. 8.
both survive n years. nor {y) will survive n years. At least one of the lives (,r) and (j/) will survive n years. (x) will survive n years and (j/) die within n years.
will
and (^)
Neither
(x)
(x) (x)
and and
( if)
( 7/)
Both
(x)
and (^)
time.
9.
The
first
rath
time.
10.
happen
in the
of the two lives will fail in the nth year. Neither of the two lives will fail in the nth year. 13. One at least of the two lives will fail in the nth year.
11.
12.
One only
14.
(.i)
and Q/)
will survive (n
it is
1) years.
With regard
written
:
may be
, p x g'l n-1* y
p *x
-p ,. n-l'x+1
x -l .p y
72
2.
ACTUARIAL THEORY
To
find the probability that r at least of
[chap.
ii.
n j-ears.
An
p % l xyz
is
L =
(m)
Zr
n +Z)
as follows
exactly
This probability is equal to the sum of the probabilities that r, exactly (r+l), exactly (r + 2), and so on ad inf., will
(though,
survive n years
abilities will
when
+k >
have no value).
(14),
(m)
we have
P
xyz
(i+zy+i
Z'+i
!
Hence
7s
)
Zr + 2
(l+Z)'-+3
xys
(m)
T
|
"
(i
+ zy+H
z>-
Z
(i
+ z)
Z
Z2
(l
+ z) 2
/
i
\-i
(i
+ z)'-+iv
Z''
+z
~ (l+zy
3. In expansion of Text Booh, Articles 34 and 35, it may be asked what are the expected deaths and expected claims respec-
tively
amongst
joint-life policies
on
(x)
and
(j/)
for
each.
Km(l -p
might
).
fairly be argued that it is incompetent to take account of a second death on any one policy in the year, as the lives are not traced be3'ond the first death.
But in last-survivor
expected deaths
are as
).
policies
this
does
not
while
hold,
and
the
before
m (q + q),
if
the
expected
(x)
die before
,
(j/),
the
expected deaths
claims are
may be
(1
considered to be
).
mq
Kmq
^q
4. It is most necessary that a clear perception should be obtained of the nature of the force of mortality, and the following
chap,
ii.]
II.
73
explanation
On
will
be found a table of a
'
x'
the
rate of mortality.
and
equation q
It
__?.
X
must, however, be evident on consideration that the rate of mortality is not constant between ages x and (.r+1), then
suddenly rising to q nor constant between ages (tf+1) and x+l (.r+2), then suddenly rising to g and so on. The probability
;
,
that a person of any age will die within a year obviously depends upon the number who are alive at that age (whether the age may
be expressed by an integer or
after that particular age.
not),
Now it is frequently necessary in actuarial work to have the probability that a person aged x will die at a particular moment. The function, however, that is tabulated is the force of mortality
at
age .r, which is clearly defined in Text Book, Article 38, as " the proportion of persons of that age who would die in a year, if
the intensity of mortality remained constant for a year, and if the number of persons under observation also remained constant, the places of those who die being constantly occupied by fresh lives."
It
may be
idea clear. Let us consider the speed or the " force " of a railway train. This is generally measured by the distance covered in the course of an hour, e.g., the speed is 40 miles
assist in
making the
an hour. Any other function if tabulated would convey but little meaning. For the same reason the force of mortality is always measured as within one year. Suppose now we wish to measure the rate at which a train is travelling at any particular point. We might ascertain precisely the distance covered during the following minute, when simple proportion would give us the distance covered in an hour. It is obvious, however, that a minute is too long a period within which to measure that, in fact, the rate at which the train was travelling
;
may have
result
varied considerably
within
that
interval.
better
would be obtained were we to measure the distance covered during the following second, and resort as before to simple proportion.
74
ACTUARIAL THEORY
[chap.
ii.
which we measure, the more accurately shall we be able to gauge point. the rate at which the train is travelling at any particular that the It will be noticed that our answer gives us the distance which train would cover during one hour, were the speed at infinitely small interval of the train was travelling during the measurement to remain constant for an hour. When now we come to measure the force of mortality at any
of that age x, we might work out the probability that a person the result by 365, we age will die within one day. Multiplying should get an approximation to the force of mortality. In symbols
i-r+
X X
i
fx,
= 365
385
-,
approximately.
day, however, is too long a period within which to measure. better result would be obtained were we to reduce the interval This would give us to one hour.
-IX +
.
=
fj,
24x365
24 x 365
j
approximately.
X
smaller the interval within which we measure, the more Hence we say that accurate will be our result.
The
X X
X+t
where
0. 0,
When
t,
we have
dl
=1X
~\~ Z
-IX
and
written dx.
dl
X
We therefore have
P*~
dl
T~dx~ X
of
I
where
It
dx
is
the
with respect to
x.
mortality
is nearly zero in the case of lives of age at entry .r who have just passed the medical examination for life assurance. It is infinitely great when we come towards the end of the mortality table, say when there is only one person alive, and that one about In the last year it rises from a fraction less than unity to to die.
The value
chap,
ii.]
II.
To
infinity.
may be noted
I
exceed unity.
If the
column
it
would be a
~,
and hence
/
/j.
The
several formulas
will
it
formula for a
At
this point
Differences.
interpolation
we find it useful to resort to the method of Central The ordinary formula of Finite Differences for between two of a number of given values of a
,,
function
u
is
x+t
=
the
t\u
l(t-l)
-A
1
A-u T +
,
^o
-A
t(t-l)(t-2) A3 ^A 1 A3 +
,
'
where
all
known
t
unknown
and 1. In a supposed to lie between we choose values of the function which are distributed more nearly equally on each side of the required value. We have the following
value, for
x-1
Also,
76
ACTUARIAL THEORY
Then
x+t
[chap.
it.
since
x-1
x-1
lo
x+1
we have
j_ X+t
= =
(u V
+ tax +
the
Adopting
writing
I
now
s
notation
of the
mortality
table,
and
for u
we have
I
X+t
,=
+tax +
whence
from which we
-5^
t
=
when
t
i
*
approaches
0,
dl
X
<
dx
a
x-1
+ ax+1
,
chap,
ii.]
II.
77
Al ,
*
2)
a3
when
a
1
0,
a:
Hence, since in
du
this
^ = Anx - iA 2 dx
?(
approximately,
i
approximately.
From
this
we get
as before
dl
1^-1, X~l +
g
1
dx~
~~
and
*-l - x+1
7
{
This formula provides a good working approximation to the value of the force of mortality in almost all cases. Again arguing from the same formula as the preceding result was obtained from, we may obtain a general formula for /x^.
We
have successively
-7-*= -4-( A/ --^ 2/ +IAH u T r* = -4- dx v 7 x x * I I X X
. . .
= =
fi
d)
(stopping at
first
differences)
%
-d
---(</,
- _L
X
-d
= ?,+ K9,-i|0
? x (l+l)-ix
|9,
78
ACTUARIAL THEORY
[chap.
ii.
9,(
|?,
|?,(l
+ l + f + #+.
+,]?.&+*+*+
+*|9(t+
)-.|?^+l+-
)-
etc
The proof that the central death-rate is equal to the value of the force of mortality at an age half a year older is as follows
:
Making the usual assumption of a uniform distribution of deaths throughout each year of age, we have
(I V x-1
^ ^ -
and
Qx -lx+1 ) = dx
But
2(7 ^
x
-/ .) x+Y
whence
also
chap,
ii.]
II.
79
EXAMPLES
1. Write down formulas for all the possible combinations of the probability of dying in or surviving a year among three lives, and
live
live
80
ACTUARIAL THEORY
till
[chap. u.
hs.
(
_
;
hb
'50
'50
'25
^25 '40
40
SO
~
= =
7~"
'25
:
?5
hd
/
_ ~
25^25:
v 50*/
'26
50 '40
'40
4. An annuity society is formed in which members may secure an annuity of m at age x + n by payment of a single sum at age x.
members aged x start the society and / new members of the same age join each subsequent year, find how many members will be entitled to rank for annuities at the end of n + t years and the corresponding amount payable.
If k
Of
entering
now
end of n+t
years,
JE+'izi
X
wjH
+1
years.
Again, of
will
hence
x+n+
X
will survive
and so on
Thus the
entitled to
,
total
number surviving
be
at the
rank
h+n+t j +
,
Each of these gets an annuity of m, and therefore the amount of annuities in force will be
m>K+tPx +
l
xxx
for annuities will
I
j( x+n+t-l
+
,
x+n+t-2
+
,
:c+?l
-j-J
X
total
L+t-lPx + n+t-lP.
+.P,)}
5. Obtain from the Text Book mortality table the numerical values of the probability that out of three lives 30, 35, and 40
(1)
One, at
(2)
20 years.
chap,
ii.]
II.
81
89685A
86137A
82277^
all
equal to
*
~ _
9l?30
39
'30
X v
!>l?35
X v
9 1940
44
'85
*49
'40
=
=
\y)
1
- - x , x
806 89685
924 86137
1101 82277
-9999987.
=
I '30
(*
~"
20^3o) V-
~ 20P35) V- ~ 20P40)
MO ~ ^60 ~~l '40
_ ~ ^30 ~ 4o v
^35 ~ ^55 v
I '35
23435 82277
-01219.
6. There are X persons living aged x, and the number of combinations of them taken 3 together is 35. What is the
number of combinations
By inspection one may see that the number of combinations of seven persons taken 3 together is 35, and of five taken 3 together
is
10.
is
five
Now
Therefore,
"
(1+Z)*-
Z5
82
7.
ACTUARIAL THEORY
Find the probability
life,
[chap. n.
designated
that, out of five lives A, will die in the year and be the
all
first
aged
x,
one
to die.
This
(1)
in several different ways, die in the year, the other four surviving to
The
is
(2)
first),
and the
is
This probability
(3)
first),
(4)
first),
(5) All
(A
first),
K<0 6
The
i x(p x
Y + AKix)Kp x) + AK%)
s
+&Wp +W
x
(p x ?
Find expressions
more
(a)
The
This
1,
probability
(6)
is
sum
2,
exactly
exactly
exactly
4,
and exactly 5
will
die,
and
is
therefore equal to
x
20
(p x
r + vMp t + nWivT
c,(O 3
22
chap. h.J
(c)
II.
83
5 can only be chosen in one way, and therefore the probability is (q )\p ) 20 (d) It is no matter what happens to the remaining 20, and
.
is
simply (q
5 )
.
have each 1,000,000 assured office A, by 10,000 each; B, by 1000 of 1000 each. Assuming all the ages equal, and the rate of mortality to be 2 per cent, per annum, give an expression for the probability in each case that the claims will amount in one year to 30,000 at
9.
Two
offices
100
policies
of
least.
In the case of
occur.
office
less
than 30,000
either 0,
1,
number
or
2.
The
probability required
is
therefore
/49_ys
//49y
/49\"
"lU/
or
+wo AbOj
life's
_1_
50
+ 100
/J_V\
\50)
Uo/
m
98
if
w and
49
of
its
dying
^.
In office B, the deaths must number not less than 30 in 1000^ 30,000 at least is to be claimed and the probability of this happening is, similarly to the above,
;
r/49\iooo
\V507
/49\99 + Cl +1 o p 50 V507
1
,
/49\i/j\29-|
'
"
'
+ iooo^ BO ;
^50;
Pi,
= -930.
(1)
2-9.
(2)
10000(?36 x
= 10000 (-009
x -020)
1-8.
84
1 1
.
ACTUARIAL THEORY
Show approximately
[chap. n.
is
when
after age x
1 is
**.>
approximately as
x-l
X
<%
cha p14.
i'.
TEXT BOOKPART
that,
II.
85
Show
approximately colog p
clg
e
=
fj,
+^(q
3 )
.
Px =-Ig Px
e
Also
,,
= ^ + ^- + ^-+ = m approximately
(O
(O
etc
(!)
9,
+
3
etc.
.(2)
and deducting
(2)
from (1)
15.
Show how
to obtain
an approximation to
//.
//,
J~1
~*
x+1
fails
X
us
for if
we wrote The
/
fn
5f2_
we could
assign no mean-
la;]
ing to
/,,,,.
observation at that age for the first time, and consequently we know nothing of the persons of age x 1, of whom they are the
survivors.
We
Ld Jm
= ~
If
it, '
T A/m-^
(
[*]
r
2/
m+
-J
A8/
W,,
/.
) approximately.
etc., '
If, '
,, fcc]>
I,
, [x]+l>
H+
,
, 2'
and difference
further, these '
we obtain
A : /[ry A 3 /[xy
r
,,
,,
etc.
be divided by
respectively,
by
will give us
an approximation to
/x
86
ACTUARIAL THEORY
Or we may proceed
1
dl..
[chap.
ii.
thus
dlos
I,
dx
= ~
rflogj
(M
~M
dx
- ^(Alog10 /
-. w -|Anog M + l-A31og M
lo
;
10
)approx.
Following a method similar to that indicated above we obtain another approximation to the value of y.
.
CHAPTER
III
Expectations of Life
1.
The
definitions of
the following
functions
and
is
the
dis-
tinctions
carefully noted.
The
the average
The Curtate Expectation of Life at any age is the average number of complete years which will be lived by each person of
that age.
The expectation
tion of
life, is
also
of life, or more properly the complete expectasometimes called the " mean after-lifetime " the
;
"average after-lifetime"; the "mean duration of life"; or the " average duration of life."
The most probable after-lifetime at any age is the difference between that age and the year of age in which the life will most probably fail, that is, the year in which most deaths
occur.
The
that
is,
is the difference between that age which there is an even chance of living, the year in which the number living is reduced to
find a
In Text Book, Article 24, Lubbock's formula is applied bo more exact expression for e than e + i. The deduction of r
XX"
t
may be
presented as follows
To
find the
sum
of the series
+ 1 + 2 +
T
to the
T
may
+'h + u 1 + L + u i +
l+
t
'
represent.
88
ACTUARIAL THEORY
[chap. hi.
We
have then
- 0+
1a
+ iii_
^
_ l)
Ai
.pi
L* Uo+
1(1
u^u.+ lAu, + 1A1_
etc. etc.
1(1 -l)(l^Vj
2)
/AX+ -iAJ
Z A 3 Mo+
And summing
t-i
these
t
S + -g" A
"o
T2T
A2a
<
HT A3
i
"
= 1(1+2+.
coefficient of
+73I ) = lzi) =
td
A2 w
+ 22+
"
i<
12
'
('-
}-^(l + 2+.
_
2 1 "T2T
*
+TTT)
(t-l)*(2f-l) _ /-J.
12i! 2
and so on.
Similarly
2 =
2(
"1
tel
+
+
-1
A% 2
-l
I2
FA Kl +
2
-l f^
/2
2Jl-
and so on.
< 2
-^ A
lp.
in.]
II.
89
Now summing
"o
we get
+ "i + w 2+-
+ u i + u i+l + "i+l +
t
<(/
+ MJ + M2+
)+ --(Au + An + Au,+
1
t-l,
t
fi-l, 2 (A
12<
1
+ A2 m 1 + A2 k2 + + A3 1 + A32 +
1
l"
+
= '(o + i
'i-^ (A3 Wo
<
)2
etc.
+ "2+
-35- A2 "o+
etc.
+n2 +
t
t( Ul
+ u2 +
t-l
-1 _ + -j2fAu
t
-^-A
etc.
this
formula
to
we may proceed
as follows
we were
to say
i =
t
X
(/
*+iH+ 2+/*+3 +
that
'
we should be wrong
complete years lived. better result from
in
we take account
of no more than
We
/
K = 2V( *+jH +1 x
The same
only of complete half-years lived
result only
H hH 2++
we take account
and we
from
where
is
90
[chap. in.
i
*
=L(t(l+i +t l
ir\K X
e *
w +.
i
12/ 2
.)
'
+
: /
A/
*
tzlm
24/
121
r x
+ etc.l
I
= =
+*
2i
+
is
(where
infinitely small) e
+ h + j\r
A/. ^ T
-i
7 A2/_
r^
+
II.
we
A/ -
-|A 2 Z
approximately.
Therefore
1
dl
K =
e*
+^+
TW
approximately
rff
i - ^+2 _
.
a!
, 1
'
,., j:+1
24/
The
process by which e
xy
U +U, 12
and generally
,8
xyz
. .
(m)
=exyz
...1
. . .
u, u pi r% + rv + r ~ +
-to
12
to
terms
(m)
EXAMPLES
Given the following mortality table, deduce, in respect of a aged eighty-two, (a) the curtate expectation of life, (6) the vie probable, (c) the age at which it is most probable that he will die. Find also the average age at death of the 129 lives, aged
1.
life
ninety-five.
II.
91
CHAPTER
IV
Probabilities of Survivorship
1.
3,
is
may be
1
d
7 n-l\^xy
Here then Q*
xy
chap.
iv.J
II.
93
p x 1
,
since e
) y'
and
, -1
y*-
fl+ex
y+l-/
,,)
' y*-
3.
By the
we may
or within
:
i.e
We
have
Q -= =
1
.
(1
,p
+*
1
+t+-i y+-i
n _ J 4{ P* +
t)
t
*+'
/
vd Z ~ x+t+ro-l y+n-j
x y
/J +
X
(
J/
To
find the
more
probability
Tt
y
a:
""'
t/+7t-l
x+n-k _
x+t
i
y-\-n-l
x+n-j-t-%
iix y
^x-y
tt
"
:
ii, y x+t
)
:
x^~x+t y
(1-Qy-A(l-Q_L
x+t
y
Ql _ _Q1
^x
:
x+f.y
1 1)
^-xy
;
which
is
obviously correct
(?/)
for, if
we take the
before
(j/)
or within
years aftei ,
t
we
5.
death of
is
(.i) will be alive t years after the found as follows Taking the th year, the probability of (j/) dying therein d y of (x) being alive at the end of , and the probability
The
(jy) is
94
t
ACTUARIAL THEORY
rath
[chap.
iv.
year (since
is
(y)'s
death
will
*+"+*-*
x
Hence
2d ^
i
J
i
= ,pQ
This probability
die before
(?/)
as above.
is
or within
= i-{i- p.(i-QjL
t
)}
x+t :y
~ x
yjt))
6. The preceding probability must be clearly distinguished from the probability that (x) will be alive at the end of the tth year succeeding that in which (jj) dies, which may be found thus
v +n ~
}
end of the
is
x+n+
.
The
must therefore be
"
"+V
y
(/
1
,
^^ =
, .
u.,P
iP ~
,
P)
2 1 x+t x n 1p) np yJ
,
0r
7.
We may J
find
y\x
as follows
Taking the rath year, the probability of (_!/) dying therein is ,P - /J,), and (x)'s expectation of living to the end of that
= nPj~ l+ex+J-
chap.
iv.J
II.
95
is
The
expectation of
n Px (n-iP y
therefore
after (y), should (y) die in the nth year, and the total expectation nP l +e
y
X
r>
x+J>
ei\x
y
).
That
ei y]x
= Sn paA - n 1p) (1 y*
L
may be shown
\Px(. l
as follows
n Py)
'
'
'
=%(A + A + P.+
'
+ 2 |?
^%' x\n-\" y
8. In finding e %*
X
!/
3?'x(
1+e:C+ 3)+-
y'^~
x+n'
=- we have,
x:y(t\)
as
shown
the expectation.
alone, to the
for
and
is
equal to
must
(t
live to
the end
of one year
count,
that
(x)'s living to
+ 2)th
so on.
year
may
have
must ( y)
live to the
and
We
therefore
e
__
x:y(f\)
" \Cx
|
x+t+l y+l
x+t + 2 j/+2
/ I
'
x
1 .
I
T
4-
_
\t
+ tPx ex+t:y
,
=
9.
- p
(e
,
Coming
96
lives (x),
ACTUARIAL THEORY
(y),
[chap.
iv.
and
(z),
we may proceed
in the
same manner
as
in
lives.
O = ^xyz
1
s+tt-1
I
y+n-h
L
z+n-j
I
_ y "
_
x+n-1
x+n
~7
a?
y+n
y-J-7i
z+w-1
12
*
+n
2/
2/
~tv
.
1 y z
m~
x y
z
__
I
,
a+w-l
,
Jy+w.
/
, g+w,-l
m
i
z
_>.
J
/
i
,
* i
i
x y
2
J
<?
40
a;
y-1
-1
1
x-
y-1
C
a; : ?/
z
_j
x-l:y :z-l
Py-\:z-l
Px-liy-1
6
Py-l
P*-l:-l
a;:y
;g-l
s-1
:y
-:,. smce
-^
" v
ui-) v
'
-i
differs
(\
12 ^
x--v-l:z-l
x-l:y-l:z
x-l:y:z-l
Vl:-1
Px-l:y-l
Px-l:z-l
x:y-\
:z
a:
: 1/
:g-l
x-l:y:z\
which, however,
is
chap,
iv.]
II.
97
10.
tables,
To adapt we have
(.
+ ex
v+1 z+1 )}
:
ShlCe
^
find
11.
simpler
solution of the
problem to
Text Book
1
the
value
of
If,
e\
may be
suggested.
in the equation
yz\x
|
= 2n r x x p
values
q \ntyz
i
it
be assumed
all
of
n, '
I
|
a1 1
yz
= Q1 x ^-yz
at once
i
|
(see q yz < *
Articles 7
\n 1 yz
Also
e
*\
= e = Q 1 (ex - exyz' - (exz - exyz-' ) ) > ^yz^ = (l-Q 1 )^x ~exyz)~(exz -exyz' ) J \ ^ ^yz J ^ = (ex - exz) - Q Hex - exyz) J J ^ ^~yz^
1
Or we may proceed
e
2
thus
x
vz\x
=2px|o nr
n"x\\n
1z
In* vz
'
\n
yz'
= =
12.
1 -eyz\x z\x
\ ]
(e *
) xz J
The
ITiere are
two formulas
T-xy
for q 3 xy
*x
*y
*xy
and
q = *xy
qx x a 7 ?y
We may
98
children, ten
ACTUARIAL THEORY
and
fifteen years
[chap.
iv.
both die
and
|u9io
x |o? 1 5
is
The
-( 1 -|n9ioX 1 -| 6 '?i5)fifty,
Now
we
have analogously
1
11
9 10
60
+
1
9 15
50
M 69ii0:15'
50
"*"
0^10
15
60
X 5^16
1
56-'
and
lll9
1 1 0: 5 o
X
6
|
9i5:50
is
The
- 111? 5oX
:
-Ie<? 1*5:50)
EXAMPLES
married couples, the husbands being all aged x 1. Out of I and the wives aged y, show how the number of husbands who become widowers in the n\h year may be ascertained.
The number
/
is
X n-l\
(7 1 xy
x
I
We
is
do not cancel
is
in the
numerator with
is
-1996
(s) is -1610;
both
(J/)
and
O)
(,y)
0)
:
is
"2990
(s) is -2602;
both 0) and
That the survivor of (x) and (y) will die before (s). That (x) will die before (z), (y) having died first.
chap,
iv.]
II.
99
(1) '
*
= Q2
+Q2 ^xyz^^xyz
11
(2)
Q^
1
= = = =
+ -0388
-0386
3.
tth
time,
(a)
(6)
(c)
aged x will die, having survived a life now aged y by at least m years, and a life aged s by at least n years. The last survivor of three lives (x), (y), and (s) will die.
A life now
A life
To
(a)
fulfil the conditions, (x) must die in the fth year, (y) on the average before the middle of the (t - m)ih year, and () on the average before the middle of the (t - re)th year respectively.
The
probability
'x+t-l
I
is
y+t-m-j
/
z~ z+t-n-j
I
+ t-ll^xyz
(c)
t^
4.
lzJ x
x
J+!zl
y
(x) (_y)
Find expressions for the probabilities that of three and (z), (x) will die
lives
(1) In the
same year
t
as (s),
whether
first,
second, or third of
the lives.
(2)
At
least
years after
(j/),
and
at least
years before
(s).
100
(1) This probability
ACTUARIAL THEORY
is
[chap.
iv.
all
values of n of the
nth.
year
n* x'^-n-l'
-
n'
Z-*
(2) If
(,r)
( ,P + n l xz n-1 1 x X p P \n-\xz
1
n*
pz -
nl x
p X n-1*p) z'
n
_l
'
Oc " *""
(ra
x~l
_
'"
g-l
Px -X
P2 _j
die in the
+ +
/
(#) must on the average have died before the middle of the (?i + l)th year, and (z) must live on the average till the
The
probability required
therefore
2 x+n+t x
I
y
I
y+n+i
y
z+n+it+j
I
V
X 2(Pz^x+( tPx
x+t+n
1x+t
:
y~ y+n+$
I
z+it+n+j
/
z+2t
z+2t
5.
Required
(.r)'s
expectation of
life
of a
life
presently aged y.
From
required
life
of
(.r),
x~
y(W\)
x~
e
<
x~ wPx{ex+10~
e
x+10:yJ>
loPx^x+lO ~
x+10
y)
Or we may proceed
only
if
(,r)
otherwise.
will count
survive
ability of its
and if (y) die within n years. The probbeing reckoned is therefore (1 - p ) +10 f>j and the
it,
sum
of this
expression
for
all
values
of n
is
the expectation
required
V
n-^yJn+lO-^x
V)Px^{
e
V>PJ< x+10
~ nPy'nPx+10 ~ ea;+10 y)
:
6.
(a)
Q2
(6)
2
,
3 , **-xyz'
(d) V J
Q -, ^x-.yz'
1
(e) V >
QI ^xy.z
(/) KJ J
QJ_
<xy<:z
CHAP.
IV.]
TEXT BOOKPART
I
l l
II.
101
a)
x
y
z
dx+lK x+A
d
h+t+d y+t+h'
l
K. z+*+&
^
c)
TTT
x
y
*+
^y ~
l
y+t +i
^ +t+i + (h - K
+i+i ) v+
+v
TTT
x y
x+t( y
y + t+i )(.h-K+t+i)
^ TTT
x
y z
x+t{ y +t +i
h+t+i
( y
~ ty+t+Jh+t+i
f^
TTl x y
d h+t+i^x+t+i y+t
Vt-*+* <*+)
7.
Show
that
_zi_LJ!
r i1
/""
,.
Pj.+1-J
PP^im ately.
^xy
[Iy I x
I
J
I
" Q
x+t^x+t y+t
TT
/ ^+<
Vm
27~
approximately.
x +t-\
y+t
dt
x+t+l y+t
P*-i
since
e
Jo"T
dt
CHAPTER V
Statistical Applications of the Mortality Table
in this chapter
may
1. In Text Book, Article 14, we are told "the average age death of a stationary population, kept up by births alone,
-jS.
at
is
T =
e ,"
g
which
is
explained as follows
The d persons who die between and 1 are on the average \ year old at death, that is, amongst them they have lived \d g
years.
The rfj persons who die between 1 and 2 are on the average 1^ years, etc. The d2 persons who die between 2 and 3 are on the average
2^ years,
etc.
Therefore, the d
altogether, lived
at
+ d +dz +
1
etc.
4-
persons
who
d + d 1 + |d,
is
etc. years,
death of each
-|d
therefore
L + Lj + L 2 +
l
Zo
0
=
To
upwards,
who
we have by
_
(*+iK+(*+fK +1 +(*+*K +i +
^ + 4+1 + ^+2+
=
v
L* +L *+i + L*+2+T
X
a:
chap.
v.J
II.
103
Again, similarly, the average age at death of those within the n years after age x is
who
die
+ dx+i +
+ dx+n-i
~
since
+
,
K+K+1+TTJx %+n
- +(-^K + .rrjx+n x
x+
-
Tx - Tx+ n - nlx+n
.
(w ^
_i)rf -y
x+ti-1
-rc(d ^
a:
s+ti
,
+d*++l +dx+n+2 +
,
,
) I
= T -Tz+n. -wZx+ti
We
are
now
The
+ %d x + ^d2 +
by those that have died out of the original and the total years at ),
f((*+iK+(*+!K +1 +(d
+(*+-iH + ._
is
+ d1 + d2 +.
+ l(dx + dx+1 +
at death of each
+dx+n _ 1)
dies
is
who
+ id2 +
(d
+(* + -iH + . 1
1)
+ d 1 + d2 +.
)+
L(dx + dx+l +
+dx+n _
)\
Ta + Ul -I
^ )x + CT
-T
^ -nl
L + (lx -Ix+n' ) v
'
104
2.
ACTUARIAL THEORY
[chap.
v.
18 to 20,
Passing to the problems discussed in Text Book, Articles we may find the average present age of the existing
:
population as follows
There are
There are
L
L
x
and
1
1,
and
2,
There are
L2
3,
Therefore the total years lived amount to and the average lived by each person is
(|-L
+ f-Lj + -|L2 +
= jT + T + T 2 +. T
1 -
Xa
who
are
is
+i|+
+T
+T
~
3.
population,
we must
is
first
of
persons r
i.e.,
Tx
lifetime
of
Lx
the
persons,
IQX + 1X+1 )
years.
K T + T + i)> L persons is
and
therefore
KT. + T. +1 )
LX
Now
and
1
1
L
L2
be
(T + Tj), and of Lj
2
3
,,
M T i + T2)' and
of
CHAP. V.]
105
i(T + T
+ KT +T9 ) + KT 9 + T,)+. L + L, + L 2 + |T + T + T 2 +. Tn
1
Y
Similarly the average future lifetime of the existing population
who
may be shown
Y
to
be
-=?.
X
4.
Now
if
if
is
Y
?p-j
and
Y
is
ttt,
it is
obvious that
existing
population will be
2Y 2
;
and for those of the existing population who are aged x and
2Y
upwards the average age at death
will
be x
ttt^X
21,
may be
shown thus
is
recruited each
year by births,
at
death
+ d 1 + d2 + T = 2
/
we have
of each.
(3)
as follows
(2)
0-1
Ln
1-2
KT\ + T2 ) +
2-3
etc. etc.
KT
+ T 3)
etc.
106
ACTUARIAL THEORY
[chap.
v.
Multiplying the number living at each age by the average age and dividing the sum of these products by the total population, we have for the average age at death
at death of each of the group,
2Y_o
T
In the case of
population and,
e we have the average age at death of the assuming that there are / annual births, this
average age
multiply the
is
the same
every year.
2Y
we
number at present living in each age group by the average age at death of the group, and by this process obtain the average age at death of the present members of the community.
Applying the same process to those of the present population aged x and upwards we have for their average age at death
(*
...
yr,
+-
+ T, +1 +T
i
+1
2
+ ..
;
h+h + + h +
chap, v.]
II.
107
births, that
l
= d + d + d.2 + ds +
p^ p v p 2 p s
,
,
We
etc.,
h = h x Pi
l 2
= l2
X P-2
etc.
we can
ly, /. l v etc. assumption of a uniform births and deaths, the total population numbers
successively obtain
Now making
the
distribution of
=
2.
+ i i+h+ i3+
power desires to maintain a standing army of is compulsory on all males attaining the age of twenty. How would you apply a table, showing the mortality amongst males, to ascertain the annual number of recruits required to maintain the army at its proper
military
1,000,000 men.
strength
By the table, an entry at age twenty of / males will support a population between twenty and twenty-five of T 90 - T-. By
simple proportion we find the number of recruits of age twenty necessary to support an army of 1,000,000 men of ages twenty to
twenty-nve to be
1000000 = =
* 20
20 .
* 25
This formula naturally only takes account of the numbers in It further does not allow for the necessary time of peace. selection by medical examination of the recruits, nor for the effect
thereof on mortality.
3. In a stationary community supported by 5000 annual births, each member, on attaining the age of twenty, makes a payment of 20, and contributes 1 at the end of each succeeding year until, and inclusive of, the sixtieth birthday receiving thereafter an In respect of annuity of 15, payable at the end of each year. each contributor who dies before receiving the first payment of 15, a payment of 5 is made. Find expressions for (a) the number of contributors, (6) the annual receipts, (c) the total yearly annuity-payment, and (d) the annual death claims.
;
108
ACTUARIAL THEORY
(a)
[chap.
v.
contributors
is
(T
k
20
T60).
(6)
receipts are
^0_(20/20 + ln
(c)
+ Z22 +
+lm) =
is
^(20Z
20
+ N'20 -
N' 60 )
The
l
total yearly
annuity-payment
l
r- xl5(l61 + le2 +
o
5000
6a
+
are
T +L-i) = -r-xl5N 60
,
5000
o
,_.
(d)
J +</ 60 )
N
S/I = -7 x5(/20
5000
-y
7
4.
2Y
What
does
T x -T x+n
X
represenL?
A community otherwise stationary is subject for n years to an annual increase from immigration at age x to the extent of 10 per Show how to ascertain cent, of the number who attain that age. the effect of this immigration upon the average age at death at the end of n years. What practical consideration would vitiate
your result
?
T 2
is
persons born in a
of this chapter,
2Y
-j-^
is
T -T -
X
"
is
the average
number
of years lived
by each of
1 2.
+ n).
com-
=
is
The
reason
result
vitiated as
in
shown
births
of no
increase
following on the
increase in
chap, v.]
II.
109
5. In a population of 1,000,000, hitherto stationary, the birthrate begins to increase at the rate of 1 per cent, per annum.
What
is the population at the end of three years, assuming a uniform distribution of births and deaths throughout the year ?
supported by
According to the mortality table, a population of T must be l births, and therefore a population of 1,000,000
l Q
must be supported by
births.
due to
h x
^[{(l-01)B-l}L +
=
l
(1-01)2-
}Ll
-01L 2
1000Q0
(-030301L + -02011^
+ -01Lo)
Hence the
total population is
1000000
+ ^(303011^ + 201001^ +
100001.2)
6.
In a certain
to
commence
at
age
sixty-five,
twenty to age
find
fifty-five.
The number
contributors.
Let
in
be the
common
Then
it
follows that
Assuming that the births take place uniformly throughout the calendar year, that the figures are required at the close of the calendar year, and that there is no disturbance from immigration or emigration, we have the number of immediate pensioners
i-(^L66 + ^L 60 + ^L67 +.
and the number of contributors
* (r*>L 20
'0
+ r^L 54).
110
ACTUARIAL THEORY
[chap.
v.
7. A system of free education is introduced into a community, embracing all children from the age of five to thirteen inclusive.
of such children
is
the community, previously stationary, has been increasing during the last four years at 1 per cent, per annum. What would you
estimate to be the number of children under education at the end of twenty years, and how many children will have passed out
Assuming
as follows
A
In the second year
/ L5
+ L6+ L 7+
"
+ L ]3 \
'
A f^C 1
\
01 )
+ L6 + LT + T -T
^-5
+ L us\
J
A { ML2D! + ^(W+
*
L r+
"
hA
I
'14
and so
will
on,
till
at
be
+L,(l-0iyi 1
J
The number
+(l-01)i"|
In a pension society
it is
a condition that if a
is
member
dies
If
after
widow
entitled to an annuity.
on the average there enter the society in the course of the year k new members aged x, each with a wife aged y, how many widows entitled to draw annuities will there be at the end of the
rath
The widows between (y + m) and (y + m + 1) years of age are on the average each (y + m + J), and that they may be entitled to annuities their husbands must have died between (x + m) and (x + m + Similarly the husbands of the widows whose average J). age is (y + m + -f ) must have died between (x + m) and (x + m + f
chap,
if
v.]
II.
Ill
their widows are to get annuities, and so on for (n - m) terms. Therefore the number of widows entitled to draw annuities is
s+m+i*-
x y
x+m
x+m+i'
"*"
'y+m+V-'x+m~
"-
.e+m +
y+n-i^ x+m
x+n-y
=
An
k( p x M?U x m\n-m
I
xy'
alternative
method of
arriving at the
same
result
is
to
deduct from the number of females who are alive and who have become entitled to annuities by the survivance of their husbands for the necessary m years the number of females who are alive and whose husbands are still alive. The result is obviously the number of widows who are entitled to draw annuities. Following out this plan we get
\
<*
y+m+h x+m
y+m+% x+m
' "
y+n-b x+m'
'
'y+n-$
x+n-y
J"
=
9.
if p x m\n-m ey Mrc-i
I
a:
I) n - m xy'
as above.
railway
staff
in
stationary
condition
is
recruited
who
are
required to
At age sixty they have the option and retirement is compulsory at age Assuming that there are no secessions other than by
sixty retire at
till
total
total
number of present contributors. number of present pensioners. total number of future years' service with which
The
total
number of present
.
contributors
is
^{(L20 + L 21+
+L )-K^o + L +64
01
+ LM)}
=
=
500, ~{(T -T
S0
66
)-i(T 60 -Te6 )}
^{T
20
-KT
60
+ T 65)}
112
(2)
ACTUARIAL THEORY
The
'20
[chap. v.
total
is
+L64) + ( L
66
+ L00+
)}
I
20
^xKT
60
+ T65 )
(The total of present contributors and present pensioners makes up the whole population of age twenty and upwards. This is obviously correct, and goes to prove our results.)
(3)
L20
number of years, however, \ (T 60 + T 65 ) is lived after retirement. Hence iCTao + T^) - i(T 60 + T 65 ) represents the number of future years'
this
Of
L20
twenty-one.
Similarly |(T 21 + T 22 ) \ (T 60 + T 66 ) future years' service in respect of the
represents the
number of
L 21
We
L 22 L 23
,
etc., to
L59
Further, for
the
JL60
persons
who have not retired the number of future years' service is - T 65 }. Also for the L persons between sixty-one il^C^Mjo + IV) 61
and sixty -two years of age the expression is \ {J(T 61 + T 62 ) and so on, till finally for L 64 it is \ {J(T 64 + T 6S ) - T 65 }.
T65
The
total
number
therefore
Y65 - 5T 66 )}.
CHAPTER
for the
1.
VI
Law
of Mortality
Under the supposition named at the beginning of Text 7, viz., that the numbers living at successive ages are in geometrical progression, it may be shown as follows that " there would be no assignable limit to the duration of human
Book, Article
life,
at all ages."
Let k be the radix of the table, and r the rate at which the Then the fractional. is decreasing, and therefore numbers living at successive ages will be k, kt, kv2, nr3, etc., to
population
infinity.
force of mortality
dl
X
F*~
__
i
die
dKr*
Kf dx
Krx
xr* log r e r
x,
= - log
which
is
at
all ages.
life at
r
Kr^+tdt
o
J
-.1 Kr x
J
1
r*dt
log/
114
e
is
ACTUARIAL THEORY
x
[chap.
vi.
all
ages
first
part
of the statement
proved.
Anticipating by a little the theory of annuities, the annuity value under the supposition
a
we have
for
chap,
vi.]
II.
15
log k
table
3.
may be may be
now known
the
may be shown
it
Q ^xy
1
x 1,7 t 'xy
\
was suggested in the notes on Chapter might be used as an approximation in any mortality table.
a relation which,
it
IV.,
x yJ o
By Gompertz's law J r
1
-5=I
/""
/
.1 , x+t y+t
, ,
Bc x +'dt
rX cx
r
l
00
+
c*
cy
x yJ
x+t y +t
'
If"
Q. ^-xy
&T&TT\ * y
c* c x 4. cy cx Cx
'
J dt 'y+t')
+ cV
f*
Als
\t?ly
nj
,
'
x+t y+t
&x+t +
y+t
yt
4.
From
figures
in the Carlisle,
Seventeen Offices, and Government Annuitants' Tables, Makeham deduced the principle of his first modification of Gompertz's law, namely, that " the probabilities of living, increased or diminished by a certain constant ratio, form a series whose logs are in geometrical If, then, Gomperlz's law is defined in the statement progression."
that the logarithms of the probabilities of living are in geometrical
progression,
is
covered by the
geometrical progression with common ratio c, which is shown to be true by the process followed in Text Book, Article 19. It may be noted in passing that Mr King is perhaps not
116
strictly correct in
ACTUARIAL THEORY
[chap. VI.
ham's modification, but had not arrived at formulas to express it, for, as Makeham points out, he would in that case have expressed himself thus " It is possible that death may be the consequence of one or other of two generally coexisting causes," and so on. Examination of mortality tables based on the experience of assured lives convinced Makeham that while his modification of the law accounted for the facts very closely from about age thirtytwo onwards, the agreement was not so close at the early ages, and he proposed to have recourse to a complementary series during this The want of agreement with the portion of the mortality table. observed facts is due to the fact that the great proportion of the lives under observation at these early ages have recently been medically examined in other words, it is due to the unequal effect of selection. The following table gives the rates of mortality of the H MF
:
experience (1) as graduated by Makeham's law, and (2) as adjusted without reference lo any formula. It will be noticed that
at this
over-
Age.
chap,
vi.]
II.
117
The same difficulty presents itself in applying the formula to the graduation of annuity statistics, where the mortality is disturbed for too long a period of the table by the introduction of
experience, both of assured lives and annuitants, was graduated by Makeham's law. The formula was not, however, applied below age twenty-five, the rates of mortality at these ages (which were made identical in the two experiences) being obtained by assuming that q could be represented by the following
x
algebraical expression
qx
A, B, C,
etc.,
One
that
the value
is
.
experiences
Makeham's law is the fact logc as deduced from different mortality very nearly identical. The following examples
of
may be
given
Seventeen Offices
118
ACTUARIAL THEORY
[chap.
vi.
method
possessed by the well-known first modification, proved to be of more than theoretical interest.
may
is
simply
of
the
be stated
that
2
,
under
the
second
find that
modification
form ks^g^'uf
whence we
p = A + FLz + Bc*.
EXAMPLES
1.
Find, on
of deaths
De Moivre's hypothesis, the most probable number among 1000 persons aged thirty.
The most probable number of deaths may be found by determining the greatest term in the series (p 30 + <7 30 ) 100CI
-
= ^1 =
^~^
and
9so
5Q-
J_yoo.
56/
(n
Now the
And
)th
term
(re
the
rath
term x
the
rath
1000-ra +
n
55
therefore the
so long as or or
term
55 1001
17ft.
That is, the 18th term is the greatest. But the 18th term involves 17 deaths
probable number of deaths
2.
is
17.
mortality
Prove that upon De Moivre's hypothesis the is equal to the rate of mortality at all ages.
1
force
of
dl
~dlc
**
~T
x 1 1
= ~
d(8&-x)
di
86^
..
h yp thesis )
86 -a:
chap.
vi.J
II.
119
3.
of
life,
XX
and
e
complement
1
(o
-x
k
Let
[l
=
0)
X
d log I r_ dx
\
But
Therefore
log a
a r* =
I
u,
'
dx dx
a:)
"-/.
=
whence
Also
l
x k log (oj iu
(a>
- )*
-2-'<&
.'
But
a-.r-Q * fr V
I
^-t (o-.r)*
^ = "
e
*
-( M -aA
(a;
<)''+!
(co-.r)*
1
(<o
Therefore
- ayn- 1
, .
- a;) 1
A+l
4.
law of mortality
s ksx iox
Since
log
x
I
But
***
Now
let
and
Then
dx~ = -(log j + 2o; log w + c* logc - log s = A - 2 log w = H - log c log g = B = A + Hz + Bc* /*,
d log
logg)
CHAPTER
Annuities
1.
VII
and Assurances
By
vp
(1
+a
fl
,)
whence
(i+*X =
From
^( 1
+i)
much
that
is
useful
may
by
be learned.
If a x be invested at age x in the purchase of a life annuity,
the end of one year the purchase-money will have accumulated to Now if the annuitant has survived, he will be aged (1 + i) a
.
+a
).
first payment of the annuity The value of the annuity will therefore be The excess of (1+a ) over (l+i)a is, by the
equation above, q (1 + o-x+ -,)> which is the loss to the granter of the annuity for each survivor, and therefore the total loss in respect of the survivors of lx entrants at age x is I ). q (1+a
Again, if the annuitant dies during the first year the whole of the accumulation, that is (l+z')a, will be set free. The total
amount
d
(1
set free
.
+i)a
It is
be that shown by the table adopted, and proved that I ..a (1+a ,,) --= d (1 +i)a
will
may
easily be
l(l+i)ax = ' x^
From
this it
may be
d
seen
die during the year, the accumulations of
chap,
vii.]
II.
121
the purchase-monies of
annuities
This confirms
Mr
King's
always presuppose a sufficient number of such benefits to form an average; so that the contributions for those that never mature may be available
"we must
(2) That, when an annuitant dies, the reserve released is not be considered profit to the office, since the amount released has to be applied to make good the deficiency under the contracts of
those
who
survive.
2.
identity in result of
Barrett's
According
to Barrett,
who used
B-
+i
V,+
l
(1
+ )-',
(l+i)<v x
DX
_
NX
DX
who used
the terminal form.
according to Davies,
3.
life
it
is
than the value of an annuity-certain for the term of the curtate expectation, and it may similarly be shown that the value of an assurance of 1 payable at the moment of death
annuity
less
122
ACTUARIAL THEORY
1
[chap.
vii.
due
at the
since a
<
a,
e
x\
,.1+e
>
in the year of death.
i\
ex +K
where
is
Therefore
or
(l+i)*
e v x
> v^
since
AX >
it
AX = A(l+i) K / X^
there be d
being the
Or we may prove
eaual to
v,
thus
,
Let
quantities each
each 2 , d
The arithmetic
is
mean
of these dX
a"
, x+1
,
a"
L x+2
+
d
quantities *
dx+
<*.+!
x+2 +
= AX
and their geometric mean
is
i +!+** **+** x +l+ ad x+^
x+ d x+l +d x+2+= 1+ *
But the arithmetic mean of any number of positive quantities which are not all equal is always greater than their geometric mean, as proved on page 6.
Therefore
A.
>
1+ '
and
CHAP.
VII
II.
123
1
premium payable
at the
end
life.
and Px
we can
(1) V /
Given a and
Ax
By
=
=
ia
?
whence
and
(2)
(l
+ i)A
i
ia
1-A. a + A X X
dA = jjr
X
Given A^ and Px
By
whence
(l+i)Tx (l-AJ =
and
i\ A
P x (1 - AX' ) V - P (1-A)
(3)
Given P x and a x
By J
+a
1 1
whence
(1
+ i) ?x (1 + aj =
1
- ias
and
*.+u i +J
of the equations given in Text Book, Article 39, every can be adapted to the case of endowment assurances in
5.
The form
instance.
Axn\ =
V
1
(.
l+ax:^ia
x:^T\
x:^Tl
1+i
ii
o - a x:n-l\ be found a
All through
^.^ni
is
substituted for
a,,
and
it will
124
useful
ACTUARIAL THEORY
exercise
is
[chap.
vii.
to
reason these
equations
out
30,
for
endowment
to 44, for
assurances as
and 41
whole-life assurances.
6. In connection with Text Book formula (41), noted that
it
should be
+ Dx+1 +D X+2J T
xn\
+D
'-L-"
,
TEXT BOOK PART
Text Book, Article '
88, '
chap,
vii.]
II.
125
is
8.
In
A wxyz
(m)
-,
described as an
assurance on the last r survivors of in lives, by which is meant that it is an assurance payable at the end of the year in which
at least r lives cease to survive,
i.e.,
the
(m-r+l)th
L =
(
person.
Now
the
(in
r + l)th death
i(7
7i- 1[
wxyz
(m)
2L
p wxyz
Ti-1
L.
(m)
p wxyz
*i
L). (my
(m)
Therefore
2"(
(m)
p wxyz
73
(m)
L - p irayz
Tjfl+Sy"
M-2u
iuei/z
. . .
ra
p
71
im)
wxyz
(m)
= v(\+a
imi/z
.
t)-a.
.
.
(m)
wxyz
(m)
But
affain
A
,
1
(m)
2r
Ti-1
J
1-
wxyz
(m)
where each power of Z represents the sum of the form o ,,, the number < being the same ,
1
of certain probabilities
as the
71
-1
u-xyz
(t)'
index of the particular power of Z involved. We may therefore extend the meaning of Z for use with assurances; so that Z r may signify the sum of the values of the assurances on r joint
lives for all the
lives.
made
out of
in
We
shall
then have
A wxyz
Taking
1 A wxyz =
1
. . .
= Z'-rZ
+i
r J?+V
Z'+Z-
(m)
;
as
examples
Z - Z 2 + Z 3 - Z4
V.
_ (A +
,
A+A+A)-(A wx +A +A +A +A +A)
x y
z> ^
icy
ir;
xy
xz
yz>
+ (A toti/ V
+A was +A
ii'>/-
+ A xj/2' - A >/z )
= Z 2 - 2Z 3 + 3Z 4
A _s =
V
KJ + 3 Kxyz
-3Z
it-J-i/
= fA V
*
+A
A
if
+A
!/z
A
J;
!/-
) y
3A
= Z4 =
126
ACTUARIAL THEORY
[chap.
vii.
9. The Text Book skeleton formula (57) can be applied to temporary benefits and deferred benefits, by altering the meaning ofZ.
n wxyz
*
. . .
(m)
= Zr-rZr+i +
sum
of
r(r+ -^-^
1")
J,
Z'+S-
where Z r
signifies
the
the
values of
all
the
temporary
the combinations of
made out
of
m
r
lives.
Or again
where Z r
|A
A=Z
sum
all
-rZr + l +
^t ~ Z'+-
signifies the
10. To find the present value at rate i of the amount at rate j of an annuity-due of 1 per annum to accumulate during the lifetime of 0).
The following is perhaps a clearer demonstration than that given in Text Book, Article 98.
If (x) die in the
first
1
payable
is
(1
+j) = (1 + />IT
amount payable
is
{(i+i) 2 +(i+i)} =
(i+v
amount
And
payable
so on,
is
and generally
if (x)
(1 +J)s-^.
is
to be taken at rate
i,
d
death in the
tth
year
is
*+'
-.
value of the
tih
amount
year
is
vHl+jYK JJ
(l+jj-l d^ x
.1
-t
I
chap,
vii.]
II.
127
Hence
A =
<=U
'
where A' *
is
is
such that
l
=
1
+ J'
+ 3 {(i
+j) +
(i
2 +i) +
(i
+i)
}^
2
(i
+j)
(-5
j+1
z
+2
'
+ (i +i)
+1
^ +2
a;
DX
11.
To
at
1
rate
of the amount at
for n years to
rate
of a temporary annuity-due of
per
annum
accumulate during the lifetime of {), the accumulations to be payable only in the event of (x)'s death within that period. As in the previous problem, the present value of the amount to be paid in the event of (x)'s death in the tth year is
v\\+j)
Hence
(l+i)
-!^
+/?-!
rf
--
A = 2(=1
v f (l
, + j)
(1
d t+l _, d
1 +,; f
is
1+J,
.
'-(A*^ xn\
J,
xn\
-)
such that
=
1
where
A is calculated at rate
,
which
arn
i+y = f~+
Z
i
-.
T +J
128
ACTUARIAL THEORY
According to the alternative method
[chap.
vii.
}%+X
+"{(i +i) +
(i
+i)
++(!
+M %^
a;
(1
+i)
(^
+
. .
^
?
^^ij + (1 +./)*( =i
x
a;
^'j
+(1+jQ
2
'+-
(1
+j)(M x -
12.
different
i
value at rate
of the
is
annum which
are dead.
at rate,/
This means that each payment is to be allowed to accumulate up to the limit of life, and the whole must be discounted from that time at rate i. Therefore
A =
_. x
w+jy-'+it+iV+jr-'- +
L-iQ+A
VI
i) 01-x
iiV J + i) (1+0
where
a'
X
is
calculated at rate J j.
For the value of a temporary annuity-due which is to be allowed to accumulate to the end of the term under similar conditions, we have
A =
w+jy+^+jy-^i
-\i + i)
=
x -
r
a
'
+ a'x:n^i\) w ^ ere
x -^zi\
*s
calculated at rate j.
chap,
vii.]
II.
129
13.
To
on the
life
of
(x),
annum
1
is
so long as (x)
per
According
to the terms of the contract it will be noticed that payable in any case provided (x) dies between ages x and
x+
n.
lhe
is
therefore
1*1
x+n
.
This
sum assured of
1 falls to be increased by 1 provided (y) lives one year and (x) dies between ages x + 1 and ,t + n. The value of
this
second
portion r
is
therefore
rath,
p rv
M M x+ - M ^ D
,
5^.
And
so on
for
(if)
+ n-1 and x + n,
*+*-* -M 2.
x
is
A = ^- /(M x ^ Y)
I
]VI
(]VI
x+1
1VI
]VI
)+ x+n'
1
j
+ n-l 1 y\ x+n-1 p (M _,
,
) x+n J
of Text Book, Article 99, is payable so long but not more than / years after the death of (jf). Now as to the first t years, it is obvious that (j/) does not come into consideration at all but, in order that a payment may be made on (.c)'s surviving the (< + l)th year, it is necessary that (jj) should have lived at least one year, and similarly for following years. The value of the whole annuity is therefore
14.
as (x)
lives,
;
The annuity
vl
.+l
+r
x+2
+
I
+VH*+t
Vt+ll
+
x +t+ l
l
x +t+ l
y+
l+
vt+2l
x
+W
+2 +
---
11 x
Hx+t
x
vl
= =
*ri+
vt
a tPx
x+f.y
a __|f(a
x
Dx
*+'
fl
) x+f.y'
15.
To
an annuity to
(.t),
the
first
payment
I
130
to be
ACTUARIAL THEORY
made
(jy)
[chap.
vii.
at the
which
dies.
The value of
from a
a
life
be obtained by deducting
annuity to
lives jointly
(x) live
with
so long.
that of an annuity payable so long as (x) and for t years after the death of (y), should (?/) The difference is obviously the value of the
desired annuity.
Thus
ax a
=; ax:y(t\)
-{a
x-\-t /
- -+< (
aa
\
- -^T^x+t
X
x+f.y)
Or we may proceed
a
as follows
1 = 2-"-VJtn=l
Z
V'<
Z
|, *+
/i ^
,
y,n+t
K-fn-1
Z
!/
-I
!/+"
J+n+t
Z
>
z+i+<J
,
X
, x+n+t
dic+< y y+n-1 ,
y+n
,
t;
n+1
x +n+t+l
+
'
x+t
+ + t
^^ A
2
+(
+ *Vv+
H^-V.*^...}
a;
- (Vx +t
><Py
+ V \Px+t
* iPy
+ *V +
X sP +
)}
16.
To
for
years certain
as a life presently
aged
(sc)
may
live.
chap,
vii.]
II.
131
payments of
first
payment
(1
made
at the
an end of
of
( y),
or
+ a-^rn)-
subsequent payments
first
is
payment
is
made
(;/),
year of death of
(.t), of which the end of the tth year succeeding the and of which the value as found above is
that of an annuity to
at the
D X+t
J)
x
is
therefore
A ,( 1 +ir i +
l)
1,
(V-V.:v)
To find the value of an annuity payable so long as (x) with (jj) and for n years after the death of (/), but in any event no payment to be made after m years from the present time, in being greater than n.
17.
lives
The value of
x+l
this annuity is
x+2
I
'
x
,
V n+1
,
x+n+l Iy+l
,
X y
a-+ xn\
18.
D+*<.
_,_
J)
x+n y:m-n\
:
To
as the
survivor of (^) and (z) lives with (.r) and for t years after the death of (x), should the survivor of (y) and (s) live so long.
=
*(.*])
~~
y.Mj\)
+ a z:x(.t\)~ ayz:~x~(J\)
y_
%- -rrK+ ~V D ~V+
v y
z
-a ~x:y+t' x: +( )
+ a*--Tr( a, + t- ax:; +t )
-ayz +
v+t:s+t
Dyg
(a
^
y+f-z+t
-nx-.y+f.z+tJ ^
132
ACTUARIAL THEORY
[chap.
VII.
1 9. To find the value of an annuity payable so long as (x) lives with the survivor of {y) and {), and for t years after the survivor's death should {) live so long.
x:yz{t\)
x:y(t\)
+ a x:z(t\)
ax:yz(t\)
= .- -^^x+t-^+f.y)
X
D x+t
J)
x
( V"i+l
~a + x
D x+t
a T5-( .+-
fl
+:)
D
X
T^ Y)
V. ^
x+t
a;+(:y
1
x+t:z
+ x+t
20. If
we
P
a:
mortality table.
:
The process
is
as set forth
Age
X
(1)
chap,
vii.]
II.
133
I
.
As usual we
is
(8), whence by continued addition of the successive values in (7) those in (8) are found. The values in (9) are the natural numbers corresponding to the logs in (8). Here we may repeat what is said in Text Book, Chapter III., Article 18, viz., "The values in the column of I so formed will X
'
'
not be the same as in the corresponding column from which the given table (of PJ was originally calculated, unless the radix we
choose
is
but the
all
ratios
is
is
that
required.
but only relative numbers." It may be mentioned that an easy way of obtaining Text Book formula (72) is from formula (70). Thus by formula (70) we have
(1+0 a,
x-tl
" P +d X
P_,,+<*
x+1
and therefore
1
1+ Vi
we have
Px
a+0(p^ + o(pTa-i
X
21.
By
A^, and a^
on
De
Moivre's hypothesis
may
+
v(n-
l)
2 ?>
(ra-2)
+(-)
[=
134
ACTUARIAL THEORY
(-!)(!u TC )
CHAP.
VII.
- (a^ -
nv n )
-0+W
+
?H
n (T
z")a
Again, from the reasoning in Text Boole, Article 108, we may form a mortality table for joint lives as follows
:
Ages.
chap,
vii.]
II.
135
22. In Text Book, Article 115, we have the value of a temporary annuity on two lives, the term varying with each life. Similarly
we may have
which
it is
a deferred
annuity on two
lives,
the
period for
life.
annuity payable
6+|l0 il-|l0%:ll
And by
aged
analogy the annuity payable to the survivor of two lives, and eleven respectively, but deferred till each or the survivor has attained majority, is
six
isl^
+ ioCn-islVii
such an annuity
if in
is
for
\a
I
\n + m\"x n\lux a
or
n\
+ m\ a x - m| a ax
I
< if m >
n
re.
is
10|
6 :11
and
for the
D 16:21
F)
6
:
'eill'ilOp
16 :6|
11
P* -m * (<3:15|)(11:10|)
a
:
11
i6I
+ T)io-21 a i6
6:11
5J
Generally
*_1
l
a+m x+m
:
ax'
m| ^r
,
a+m n-m\
:
P. 1
-i., -;.
=
axm\
a+m n-m\
:
if
m <
a+m:x+m
]}
ax
A^
-.
"+=+? A-4
D a+:+
axn\
if
m>
Y)
'
ax
136
ACTUARIAL THEORY
[chap.
vii.
24. Also the assurance payable if both lives, (six) and (eleven),
die before attaining majority
is
Ai _
(6:16|)(11 :10|)
A
A
1
:
(6 :15|)(11 :10|)
Al
6:
41
"
16 :21
i-
Ml"
ll:10|
'6
ll
10|
n 16:51
11
Ai _
Pl _
1
_
16:
:
_ =
a
(0
:
(6:16|)(11:10|)
S;15|)(11:10])
16|) (11
:
D 16:21
i0|)
~D 6
M
16
:
11
Al
6 :15|
"^
ll
11 :10|
21
'6:li:10|
n
6
:
a i
16
11
6:15|
+ a il
,
_a
:10|
_
e
:
16 :21
11
10]
H
6
:
16
11
Generally
A
Pi_ i_ =
(<m|)(mP
a
A
1
+ Aia
-A'^
+:+,
A4
,
.
2
aa;
ovt|
^+
if
m <
_
|
1_ _
xm\
an
AJ >ax'n\
Pj _
a+n x+n
J)
A *+:-|
1
or
=
ara~|
it
m >
a+n x+n
:
xni\
axn\
J)
x+n :m-n\
ax
25.
The
at
insurance.
living
following are problems connected with national Given a stationary population where the numbers each age correspond with the figures in some known
will require to
be subscribed to provide
at the
member
first
of the community.
The deaths
year are (d
(d
1
second
third
+d +d +. +d + d^ +
.
+d u _ )=--l +d u _ )^ ^
1
(d
2
+ ds +
d
4
+ ..
+ du _
and
so on.
137
chap,
vii.]
II.
therefore
C A= =
1
vl
+
l
v
;
k(
+ v%++ ao)
1
=
If each
oOo
+ A o)-
the benefit
community is to contribute the same we must divide the value of by the population. The total population is
of the
/
member
+ *, + /,+
(l+e
).
is
W
(6)
c o)
eo
will
require
to every
to be
subscribed to pay an
of the community.
annuity-due of
per
annum
l
member
K'
ll
x(.
1+
= -
o( l
1
+ a o) + ho- + i) + hv
ad
+
.
4- I
A +
l
l
/
A +
2
1
= \{Qo+k + h+=
)-K'
iA x
(l+e )-^o(l+o)}
)
(c)
will require
to
be subscribed to pay an
of the
annum to every member no payments to be made at and after age y. The expression for this may be stated thus
annuity-due of
per
y,"1
community
Id+a)-^'
l(l+a)
is, we deduct from the fund required in respect of the whole community that portion of it which is not required in respect of those who are at present aged y and upwards, and from the result
that
ACTUARIAL THEORY
138
[chap.
vii.
we deduct
the value of the deferred annuities payable after attainment of age y to those who at present are of younger age. The expression may be reduced as follows
:
(i
_
+o
1
{
+ e o) -
^ + <a
8
-{*,(i
+,)-',q+ ,)}
v
Vl
y\
(d)
will require to
per annum,
first
age_y.
is
merely the
last
+ lO VVyPo( 1 + ay) =
(e)
Z..5-j
!/|
x
y
la.
I
each
member
The annual premium, equal at all ages, Lo be subscribed by of the community to provide 1 at each death.
(a)
This premium will be obtained by dividing the fund of problem by the expression found in problem (6), since the benefit side is
i,
IK,
is
Px2
(1
+ a).
annual premium equal at all ages, payable up to (J") The but not including age y, to provide an old age pension of 1 per annum, first payment on attaining age y.
This premium will be obtained by dividing the expression in
problem
(d)
by that
in
problem
(c).
These problems are discussed by Mr R. P. Hardy in a paper on " Collective Assurance " (J. I. A., xxx. 79), where the formulas
are given.
26. It
is
interesting
to
notice
the
money
yields no interest.
'.
vii.]
II.
139
If
= 0,
= 1, and
l1 +! U+^+3+
2 /
,+i
+ U +/+ +
Also
,_,
U+U+U+n\
,t
And
Again
in
?i|
ie x
A* =
vd
+v 2d
*1
+ c3
,
(/
*+ 2
140
ACTUARIAL THEORY
P^ =
1
[chap. vu.
-,
n-l\
1- n px 1 l+e -j
P( iA xJ ) Kn
\
AX ii-^ l+a
71
I
111
P_ =
l+e A sw|
T+a x
l
ii-Il
l+ex :^Tl
Further
(I A)
<+
d
a;
^+i + 3
+2
+-
+2dx+1 ,,+3ds+2 +
mortality
grasp.
from
entry
is
amongst the
not
difficult to
The notation
For example,
is
first
year of
insurance
q
is
among among
those
who who
enter at age
x,
insurance
</
enter at age
x,
and generally
is
the
rate
year of insurance
among
those
who
enter at age
x.
appended to the various symbols is formed by putting the age at which the life enters in square brackets, and adding the particular number of years after entry outside these brackets.
suffix
The
It is
not usual to give for the several ages at entry the rates of
number
of years
(re),
after
TEXT .BOOKPART
141
CHAP.
VII.]
II.
which the rates are joined to what has been called the "ultimate" experience. This ultimate table shows the rates of mortality amongst those who have been insured for n or more years, the assumption being that the mortality at age x + n is the same for all of that age whether they entered at x or younger ages This period of n years is not always assumed to be of the same
length.
(O m
x,
) it is five
it
is
The numbers
living, in respect of
age at entry
:
after the
W
d
ix]'
Wl'
d
'
kx]+2''
[x]+n-l'
x+n'
x+n+1'
The deaths
by
, y x+n'
ix]+i>
m+2'-
d, [a:]+>l-l>
dx+n+1''
v.
[xY
[x]+l
l
[x]+l'
'
x+n
'
x+n'
W= D M + D M+ + D M + +
*
(x]
+ [x]+n - 1
x+n +
i+n+1
M+l
'
M+l
x+n
x+n'
"""
[x]
~ CM + CM+1 + CM+2 +
[x]+n-l
x+n +
x+n+1
mortality
tables.
If
we
refer
to
the
:
tables
we
find
Age
at
Entry
[*]
142
ACTUARIAL THEORY
[chap.
vii.
The most obvious way to form such a mortality table is to assume the same radix at each age at entry. Successive multiplication by the probabilities of living will then give us a complete
table of mortality for each age at entry, since
{x]
P[x\
Wi'
n
X
'
Wi x p m+i
/.+.
Wa'
X P.+fc-l
>
m X PW X P M+
this
P M+ -i X
X P*+n+l X
But by
mortality
and the extent of the monetary A better plan is, tables following thereon would be prohibitive. after forming the table for the first age at entry as above to the by working along the first line and down the column I
table for each age at entry,
limit of
life,
to
at
respective
lines.
Thus since
P [*+l] + 9l-l
Therefore
I
X+71 + 1
= =
x+n+l
r[a;+l]+-l
Also
I ,, [l+l]+ -2
ta;+1]+ 't -
and
so on.
[ai+l]+n-2
But
x+n+l
is
already J
calculated
in
the
ultimate
column,
therefore
^ +I]+B _i
l,
may be found by
\ x+1 y
^
successively
x+1]+n _ 2 ,
dividing by
with
x+n+2'
to
,, [e+2/
,
and so on
for the
The advantage of this method of formation of " ultimate " monetary values is necessary.
29.
is
Now
out of
will
be
alive at the
end of n years.
we have
attained
x+n
,
is
also the
number
alive at
mixed
lives
who were
alive at age
I,
,
It follows
II.
143
/
and
if
is
the
Again,
lives
mixed
we
the
the
deaths
the
corresponding
years
amongst
select
(/
:
lives
[x]
amongst the
is
we have the deaths in each year of age b J damaged lives. The mortality experience )
as follows
Age.
144
ACTUARIAL THEORY
chap.
vir.
we
- p[x+n']-' [x )+n in
M
(P
[x)+n
- P
[1]
ml/ n
I
It is to be noted that this annual premium can only be accepted along with the annual premium for an ordinary policy running during the n years otherwise by withdrawing at any time the assured would exercise against the office issuing the policy an
;
made
in the calculation.
To
premium
all
The
arises
from the
insurance frequently diminishes with an increase in the age, the original date of termination of the contract remaining unchanged.
Thus, in symbols,
it
p!_
xn\
>
P J_
x+1
that
x+2:n-2\
> ^
etc c
The reason
for this
insurance has a greater effect in reducing the premium than the increase in the age has in raising it. The following table (based
on the
O tNM]
Age.
chap,
vii.]
II.
145
etc.
Here
so on.
it
will
> P^-,
and
are
the lives which end of the first year may drop their policies and effect new ones for the remaining six years at a lower rate. The value of this risk is ascertained in the problem before us.
risk, in that all
still
select at the
If
x,
first
year,
enter on
the
second
[X]
+1
,
[3+1]
,,.
Out of
these, '
w+i;
ix+n
2
die within
alive
-d
alive
>
W~k+u+i
leaving
Wi"Wn+J
and so on
rf
[x+l] +1 )
+ p "(dM+ .-i-
rf
[
. + i ]+ .- 8 )
i]
[x]
i]
^+
1]
+ 1 +hx]
+*'Wi ]+ ._,
M M- M M +
And
P'l
[*]l
/
>,
^,+11-^+1]+.-!
_
"' w + <i]+i-Wi]) + ^i]+2-Wi]+ + --- +p (W.-i-^+n+.-J )
1 1)
[I]
p'l
_/ _ fx]
N
N -N fj]+n _
[X]
[x+1]
;
"
[j+l]+n-l \
^lx]
'
146
ACTUARIAL THEORY
solving
r*i
[chap.
vii.
F1
If n
_ =
"'
[*
[,
i]
+m -i)
i]
+ ,-i)
effect of selection is
assumed
p' r
1 _ Ml
N ri -N,\x+l]
[X]
_,_
32.
(see
To
Text Book,
all
that
premium for a " Half Premium " Policy Chapter XVI., Article 37), on the assumption the healthy lives withdraw at the end of i years, the halffind the annual
premium term.
If
l
[x]
x,
d
[x]
[x]+l
[xW _ x
Z,
die
in the first
I
,
l")th
year
I,
out
of
whom
.,
-d,
die in the
(t
enter the
(i
+ 2)th = +
year,
and so on.
Benefit side
i[x]
1'
vd,
+ v2d.
+n'drll
(<W - <W + M M- M + q
<+1
[
I,
,
< +2
(<W +
<Wl) +
Payment
side
= P -=
+ vl,
+ J'*" 1
Zf
solving
N +N
Mw - M -y+i]
iy
- 2N
33. To find the addition that must be made to the annual premium for a contingent insurance policy, payable in the event
(i/),
may,
in the event of
chap,
vii.]
II.
147
surviving (y), have the option to effect a new whole-life assurance by annual premiums without fresh medical examination.
It will
will
be
alive at the
will fall
be convenient to assume that, should (x) survive (j/), he end of the year of death of (g) when the option to be exercised. Then in respect of the nth year the
is
nP[x]\n-lP[g}~ nP[y])\"[x]+n~
a [x+ny [x]+n
To get
complete value of the option this expression should from 1 onwards and the annual option premium required will be found by dividing the result
at the
be summed
tion of
approximate result would be obtained by taking the expecta(3/), say n years, and applying the formula for the problem discussed in paragraph 30, page 143.
34.
An
To
premium
for a policy
sum
Here the
due of
is
an annuityif
per h
1
annum
~
n
Therefore
the
be P
^E
n
will
be Px
-^i.
The value
of
is
(a
-a
premium
of
(,r)
and
(x),
(j/).
should be made payable during the joint lifetime The reason for this is that on the death of Q/), if
before
the benefit
much reduced and if the premium may throw up the policy lower premium if in good health, and thus exeris
very
We
&/)
therefore
fix
the annual
premium
at
a,
i
a -a
a
n \
148
ACTUARIAL THEORY
[chap.
vii.
(x) it
will
be reduced to P -^.
*
n
is
35.
cognate problem
are to
death or maturity and to be payable for a fixed period with continuance thereafter so long as the life assured survives. A definite number of payments is guaranteed, so that, in the event of death
before maturity or within n years thereafter, the income would be payable for the minimum period agreed upon. On the principles
is
n\
1 1
-
xm
\
m+n-l\ a
\a
36. To find the annual premium for a whole-life policy, it being a condition that the office retain the sum assured for n years after death of (x) and pay interest thereon for that period
at rate j.
will
is
{
office must settle upon the rate which it is to assume it and then the problem earn upon its investments, say i simply to find the annual premium for a sum assured of 4The payments of the annuity here will obviously (J i) a^- }.
;
The
The
37.
To
find
i.e.,
the annual
a
2.
premium
for
1
a double-endowment a
assurance,
term assurance of
coupled with
pure
endowment of
p _
Ai- + xn\
i
2Ai xn\
+ ax:n-l\
X-j-n
,
+ ax :n-\\
,
MX - M
p
xn\
,
+2D
,
3J+71
,
Nx-l -N x+n-1
xn\ x
:
:
n-l\
~, 1
l+ax
7i
from which the premium may most conveniently be calculated. A peculiarity of double-endowment assurances is that, unlike whole-life assurances and endowment assurances, the premium
TEXT BOOK PART
CHAP.
VII.]
II.
149
an increase in the age, as observed from the rates in the following table
:
may be
3 per
cent.
Annual Premiums
required for 100 payable in the event of death within the term, or 200 payable in the event of the term being survived.
Age.
' '
150
38.
ACTUARIAL THEORY
To
have
find the annual
[chap.
vii.
premium
for a joint-life
endowment
assurance.
We
Pryn = -i
^
+
xy
7 xy:n-l\
and axy:n-l\
,
Dx+n-i^y+n-i
J)
x+n-1 y+n-1
:
xy
/
axy
D x + n -'
J)
+-i
I
x+n-1 y+n-1
:
.n/
n-1
from
this formula, 3
7
which
is
we ma} very
easily
for
(J.
method of approximating to the value of the annual premium a joint-life endowment assurance is suggested by Mr Lidstone I A., xxxiii. 354), viz.,
Pxyn =
|
P- + P--Pyn\ n\
xn\
where
1
is
the
premium payable
in advance
which
will repay
in
re
years certain. J
little
Pxyn\ which -,
are generally a
the difference
39.
may be made.
survivor
To find the annual premium required to provide a lastendowment assurance on (x) and (jf), payable at the end
;
of
re
that
an assurance payable (1) at and (?/), if that event takes the end of n years, if one or both
is,
(.r)
be then
alive.
Benefit side
= A
= A + A
,
-,
-,
Payment J
side
r n-l\
.)
-,
Hence
Pxyn\
chap,
vii.]
II.
151
Therefore
=
wl
l-d(l+axy:n-i ,) v \l l+ axy n~
:
1|
1 1
-d
r,
from which it will be seen that the simplest way of obtaining P will be to enter conversion tables (see next chapter) with
the value of
a - = a + xy:n-\\ x:-l|
=-.
y-n-l\
-,
- a xy:ii-l\
40.
To
find the
(?/),
last
a = ij
ax +
n\
a
y
\a n\ xy
which we
If the
premiums are
to continue
is
till
the annuity
is
entered
Px
which
is
a = xy
called the
payment
side.
for
we have
p _
n\
I
-r
+ n\ ay - n + a -; - a
I
\a
\
xy
-;
There
is
premium payable
die, say, in the
the annuity
is
entered upon
(i+l)ih year, the value of the benefit to (#) at the end of that year is _ _-,\ a an(l ne could purchase such t+1
,
annual
premium of
premium
a
:
y+t+i
Now
it
is
might be
contract.
less
might be the
loser
assumed in the
calculation.
152
ACTUARIAL THEORY
[chap.
vii.
The alternative plan is to make the premium payable during the joint lives only, under which
p
\a n\ x
+ n \ay - n
|
xy
Here again a risk is involved, for one of the lives, say (x), may be dying when the contract is entered into, and the office would thus be granting to (j/) an annuity deferred n years at a totally inadequate premium.
The
some
latter plan
is,
satisfactory
evidence
however, probably the better, provided as to the health of (x) and (#) is
obtained.
41.
To
find
i.e.,
the annual
premium
for
a joint-life temporary
assurance,
payable
if either
The
benefit side
Al *V n
r
r
|
vd
+ v ndi+n - 1 + T<
:
'xy'
xy
xy
Ixy'nl
vl
a;+l
y+1
+
I
+
xy
V%
x+n-1 y+n-l
:
pi
ixj'n\
vd
I
xy
v 2d
x+1
,
y+1
+
. .
vn d
1 l
x+n-1 y+n-1
,
+ xy
Vl
vl x+1 :y+l
+v
'
n~
x-\-n-l .y-\-n-\
,,._,_,
'
v
I
x+l:y+l
X.
1)1
xy
x+l:y+l
+vHx+2:y+Z + -1-...-U
'
'
+l U lx+n:y+n
1 /
7;Ti.
x+n-1: y+n-1
= vIt
mjn
xyn\
may be mentioned
Pj-L-
is
very nearly
the equivalent of (P 1 -,
+ P
at
-,),
the
sum of
cent.,
the
premiums
by Dr Sprague's Tables
cent.,
3^ per
P_L_
_.
1-4:73 per
whereas 2P 1
jj
chap,
vii.]
II.
153
per cent.
Wn\ ~
'xi/
n\
-, xyn\
Ai-+ xn\
Ai__
a.
Ai-,- Al-,
yn
|
XT/ ?i
Ai-,
i/7i
,
|
xn\
Al-,
xy
xyn
.
|
xyn
a
is
xyn
Now
if
it
is
improbable that both (,r) and (y) will die within a few years, and accordingly the last term of this expression may be ignored.
Again,
lives, 3
lives will
n be small the value of the term annuity on the joint be very nearly equal to the term annuity on each of the Accordingly or in other words a = a = a -, nearly. J J xyn xn\ yn\
if
;
| ;
pi
'^'"l
Ai
_!tl
xn\
-,
a-, yn\
,
1 = Pxn\ + Pi -, yn\
very nearly. J J
effect
It is to
on
1
the
result,
Ain
"^
<
xy n\
increasing the
-, xyn\
premium, and the substituting of a-, and a -; xn\ yn\ the premium.
'
for a
reducing
EXAMPLES
1.
Prove that
is
DX =
154
ACTUARIAL THEORY
[chap.
vii.
Or again, since the present value of 1 payable at the of the year of death of (x) is clearly less than 1, we have
end
A* = Hence
M
:
d*
<
DX > M X
2.
D
for
and
premiums
An endowment
A whole-life
assurance,
premiums limited
first
to n payments.
inter-
D_
The premium
for (1)
is
^-V.-i
(
d
and
for (2)
m
x+ X
N x~l ,-Nx+n-1 ^
,
The
difference
is
which
is
x+n-l
required to provide an annuity-due during the lifetime of (x) after n years, consisting of d, the interest in advance on 1, payment of
which in the case of (2) is deferred from the end of the rath year to the end of the year of death of as would happen under (1) During the ra years the benefits are identical. (x).
3.
interest, given
=13-257 and
X
=-19304
a =13-164 and
PX =-04147
(c) v
'
AX =-19414
and PX =-00927
;
Approximately
(b)
3 per cent.
(c) 4
per cent.
4.
having given P
= -01662,
= 17-155,
and;; =-99229.
chap,
vii.]
II.
155
We
have
= l-d(l+a
,)
= l-d~Z
VP*
ia
Px
The only unknown quantity in this expression is i, which from P and a we ascertain to be practically equal =-30847, '04. Substituting: this value for i we get A
,
,
Required the cost of a deferred annuity, of which the first is to be made at the end of four years, and which is then to continue for twenty years certain and thereafter for so long as a life presently aged x may live.
5.
payment
The first part of the annuity is an annuity-due for twenty years certain deferred four years, and the second is an annuitydue on (x) deferred twenty-four years. The cost is therefore
Al+asp + wl*.
=
,
(S1
~ a w) +
N z+23
-Q-
6.
1-A "
d
156
ACTUARIAL THEORY
[chap.
vii.
/. Give the formula for a whole-of-life assurance on (x) by three payments, the first to be made immediately, the second to be half the amount of the first and to be made at the end of three
years,
and the third to be half the amount of the second and be made at the end of seven years.
to
The
benefit side
M
^=-^
The payment
side
= P
DX
whence
P =
M
D , + *D + + *D, +
, 7
8.
an assurance on the life of (.r), the sum assured not to be paid in any event for twenty years from the date of the policy.
life
for
The
value
is
i>
sum assured is payable at the end of that 20 (l p ). The other part is an assurance
i
on
(a:)
is
equal to
The payment
side
= P(l + a
tfl(l
).
Hence
p)+ +a
9.
annum
at
P per
and investments
will yield
life
his
decease.
How much
may
enjoy a
balance
is
each year.
for
which
must insure
his
life.
Then
SP
is
SP
).
will
chap,
vii.]
II.
157
proceeds of the policy will be Sd, d being the interest in advance corresponding to i. We now have the equation
J-SPX =
whence
and
S
Sd
J J p*
= =
SP
,,20
10.
In consideration of a yearly
offers a life
premium of
a
z:20|
an assurance
aged x a policy securing a sum of 1 payable twenty years, if (x) be then alive, and a sum of S payable fifteen years after the end of the year of death of (.r) if this event take place during the twenty years. Find the value of S.
company
at the expiration of
to be received
1)20
is
xa
\
And
20|
is
D * + 20+
Hence
and
Si' 15
S 1!i (M-
, + 20)
DX
(M x
M
^
L0 .)
'
20
D -D
M X - M x+20 ^
a;+20
11.
value
of q
produced by
assuming an increase in the rate of interest to represent an Illustrate from the case where a increase in the rate of mortality. x
is extracted from the 4 per cent, table and assumed to represent the 3 per cent, value of a table showing higher rates of mortality.
We
must
first
we have
=1-0 =1
158
ACTUARIAL THEORY
[chap.
VII.
rate,
(l+i)a'
q'
-t;
+ a x+l
'
where
and a x
+1
,
are
at
(>
i).
To obtain the
have
we
(i+iK 1 +d x+1
and
>
qx
fl_^*\
1
A_^A
and 4 per cent, we have
r
+o' 3+1
3 per cent,
i.e..
- q
-=
ow ^
+ a+1
where
a'
and a
,
,
are
12. Calculate
premiums
(a)
(6)
(c)
(d^)
life.
(e)
(/*)
years'
years' pure
years' years'
endowment
assurance.
double-endowment assurance.
chap,
vii.]
II.
159
a)
'
b)
c)
M -M J
80
4
N so-N 40
D 40
ho ~
)
N 40
"40
-080989
M4 + D40
-006970
-080989
-087959
CO
13. What is the annual premium at 3 per cent, for a temporary insurance for three years on a life aged thirty ? Given Z = 92529,
/.= 92079,
==
Zi
91472,
M = 90763.
pi
30:31
"
'
^X+^+^BB + Si + ^w
'ao
= =
14.
-97087 --96469
-00618
Given P x and
Aaar
show how
the
x.
O) > '
pXX
1+rt XX
(LA
XX
Id
(b) V
/
P- = XX
A1+fl-
2A X -A X
1
+ "2a -a
160
ACTUARIAL THEORY
'
[chap.
vii.
and
chap,
vii.]
II.
161
is
Payment
if it is
side
P(l
+_?-)
desired to
status.
make the premium level throughout the whole certain risk, however, attaches to the issue of the policy
on such a footing. If one of the lives, say (x), die early, the remainder of the benefit could be obtained by the survivors, (y) and (s), provided they are in good health, at a smaller premium than P as found from the above. In such a case the office would not receive the stipulated premium throughout the whole of the status assumed in the calculation. To get over the difficulty we
may
(1)
of
all
Make the premium payable only during the joint existence three lives, whence payment side = P(l+a _^-\
(2)
is
to be reduced
by
half on the
death.
side
Payment >
P{l+-?r (axyz - v
t
Ki+a xyz 9
1
^"H. 9 y >
(3) Probably the best way is to issue two policies, each for \, one of which will be payable on the first death, the premium
being ^ Pf^T
ioi
'
premium 1
17.
-J
Pi,.
|
10
as follows
(a)
at the death of the first of two lives and 50 at the death of the second, the premium to be reduced by one half from the date of first renewal after the death of the first life.
50
the death of the first of three lives, the be reduced by one-third 33, 6s. 8d. at the second death, with a similar reduction in the premium and the remaining 33, 6s. 8d. on the death of the last survivor.
(b)
33,
6s. 8d. at
premium then
to
(a)
The
benefit
is
obviously 50(A
+ A
).
The premium
life (x)
life
to
be paid depends as to one -half on the and as to the other half on the
(x).
The
side
therefore
P{Ki+<g+t(i+,,)} = P{i+IK+<v>}-
162
ACTUARIAL THEORY
Or
again, the
(,r)
[chap.
vii.
lives of
survivor.
side
as
to one-half
Payment
l(
a
y
)}.
Hence
P = 50,
A +A v ^ ,
for this benefit, found in a
(b)
manner
33-3
The payment
side
may be
benefit
Find a formula for the annual premium, payable till the is entered upon, for a deferred annuity of 1 to begin to run on either of two lives, presently aged twenty-five and thirty If (30) attain age sixty and respectively, attaining age sixty. (25) be also then alive the annuity will be payable thereafter during the joint lives and the life of the survivor.
18.
Benefit side
30
30 P25
30O55
+ a 60 ~ 65:60)
= P
ffl
a^-^ + v*\ p 9 l - 30 pJ J
l
'
a
1
65
And p _
S0
30P30( ]
'
-SO^^O + ^SS^C 1
,O
gaj^Kj
iiB)
fl
+B S6:8O
80P26(
-lP>)( 1+ |4 a
19. Find the annual premium for an assurance payable at the second death of the four lives (w), (x), (3/), and (s).
Benefit side
= A wxyz
= P
8
Payment
side
(l+o
?)
chap. vu.J
II.
163
Therefore equating
A wxyz
wxyz
1 1
wxyz
+awxyz
-d
where
wxyz
a wxy
the event of A,
Find the single premium to assure a perpetuity of 100 in who is aged thirty, dying within ten years, the first payment of the perpetuity to be due at the end of the year in which A dies. Interest is to be taken at 4 per cent, and the mortality is to be assumed to follow De Moivre's hypothesis. Given vw at 4 per cent. = -675564.
20.
By De Moivre's hypothesis the number living at age thirty 86 30 = 56, and one dies every year. Therefore
so:io]
is
+ D2 +
+ V 10
gg
l-i>io
56;
14484
The
single
premium
Ai 30
:
x 100 x
ii? =
i
-14484 x 100 x 26
lOf
= =
376-584
376,
21. On De Moivre's hypothesis as to the law of mortality, find the annual premium at age x to provide an endowment assurance
payable at age x +
or previous death.
p _ _
*"
""
s'l
1+a *:^|
ment of
164
.
ACTUARIAL THEORY
CHAP vn
-
+ d2 +
+
n
vl
(re
f)vt
'
_Ji +
71
(-<>'
Also
x:t-l\
= "(-l) + A"-2)+n
(*
+f
-1
(^-< +
l)
CHAP.
VII.]
II.
165
Age
X
166
ACTUARIAL THEORY
[chap.
vii.
life
and
still
a select
life, life.
In the form of tables described, selection is assumed to wear the end of that time the number persons select at age x who are still alive is merged in the of /
off in five years, therefore at
is
expressed by
+5
is
by notation
remainder
+sp
therefore
total
/
the
.
number of unhealthy
Accordingly
the
is
the
of the
probabilities
required are
(a)
x+S
l
lx]
'[x+S ]
(6)
M
X+5
[+]
(<0
26. A life office secures every year K new assurers all aged x at entry. At the end of a quinquennium how many of the entrants during that time may be expected to be unhealthy.
Of
five
I,
persons
I
,
who
years
of
whom some
x+5 age
is
L
I
Therefore the
I
.
number of unhealthy
expressions give the
three, two,
is
Similar
number of unhealthy lives at the end of four, and one years. Thus, if the number of entrants each year is K, and if we assume them all to enter at the beginning of the year, we get the number of unhealthy lives at the end of five
years as
J~ \ v-Vj+6
~ l*+W +
( [*]+4
~~
[x+t)
+ Cv]+s ~
kx+i])}
{x+sy
+ (Wa "
h*+i?
+ (Wi ~
chap,
vii.]
II.
167
effect
27. A person aged x wishes to be allowed to each for 1000 as follows : (1)
(
ten policies
At age
at the
2)
(*+l)
(* + 2)
etc.
etc. etc.
(3)
(10)
It is
(*
+ 9)
For the second of these policies the premium to be paid in absence of any arrangement would be P , whereas the premium
arranged for
is is
P
[a
+ir
this
one policy
- P _) -gl. [x+iy
r
the
is
third
(P.
,
,
policy the
difference
in
premium
this
is
to
be allowed for
-P
so
,)
PM+2 Pi>+2i)
single
N
1
"
3
'
n"
^ n(^
on ^01
The
premium
100 {( p
,m-V )%
11
11
+ ( pM+2 - p , +2]
)%12+
+ fp
_p
N M+9 L
i
w
28.
(a)
premiums
The
single
premium per
five
effecting at the
end of
annual premium for his then age, without fresh medical examination.
Use the
O tM1
(6) The yearly addition per cent, to the short-term insurance premium for seven years required to permit of (40) effecting a
168
(a)
ACTUARIAL THEORY
Using the formula given on page 143, we have
[chap.
VII.
100(P
[30]+5
[ssy
(-
a
rf [80]
[30]
5l)
|-
option
premium we have
"[40]
100 ( P
:T) 7
:
- 6-250)
6-250
=
29.
office
premium
and subsequent
premiums with further initial expenses of 2 per cent, on the sum assured and 5 per cent, on the first gross premium.
gross
To get the value to the office of the payment side we must deduct from the value of the gross premium the value of all expenses. Thus, if P be the gross premium, the value of the
payment
side is
P(l
+ a.) -
-08P(1
+ a.) -
-02
- -05P
and
Hence
P(l
P{-92(l
+-02
92(l+a.) --05
30.
immediate annuities on
female single lives, aged fifty and sixty respectively, find at these ages the annuity which 500 will purchase, it being a condition that the annuity is to be payable during the joint lives and the lifetime of the survivor, but is to be reduced by one-half after
the
first
death.
Age
last Birthday.
chap.
vii.J
II.
169
The annuity required is the sum of two annuities of equal amount on the lives, and if 2P be the amount to be received during the joint lives we have
500
= =
P(a'
60
'
60 )
P(17-5954
+ 13-7142)
Hence
P =
17-5954
+ 13-7142
=
500
the joint
lives, to
will therefore
purchase an annuity of 31, 18s. lOd. during be reduced to 15, 19s. 5d. on the first death.
31. Given tables of office premiums for endowment assurances and double-endowment assurances, show how to employ them to obtain the office premiums for the following benefits
:
(a)
100 payable on
the given age
is
8d. payable
only
if
attained.
(6)
(a) This is equivalent to a term assurance of 100 coupled with a pure endowment of 133, 6s. 8d., which may be split into an endowment assurance of 66, 13s. 4d. payable on attaining the given age or at previous death and a double-endowment assurance of 33, 6s. 8d. payable on death within the term and 66, 13s. 4d. on attaining the given age. Therefore if P'^ and (DP)'^ be the
,
office premiums per 100 assured for endowment assurances and double-endowment assurances respectively, we obtain the required premium from the formula
l p '^+KDP) Mn
(b)
By
we
find the
premium
for
32. From tables of office "Whole of Life" and "Limited Payment" premiums for each age at entry, show how to find the sum assured that could be given at age x for a single payment of S and a future annual payment of P.
170
an(^
ACTUARIAL THEORY
x
[chap. vh.
^'x
'
3e
^e
omce
premiums
at
must split the single payment to be made now into P and (S - P) in order to put the payments of P on the basis of an
annual premium.
We
Then
since a single
premium of A'
.
insures
1,
a single premium
of (S - P) insures
rr
X
insures
1,
an annual
premium of P
P
insures pr.
X
Therefore the whole amount insured by a single payment of S- P P S and a future annual payment of P is + -rp.
33. A man aged forty next birthday desires to effect a policy payable at death for 5000. He proposes to make a first payment of 1000. Find the future premium to be charged annually, given tables as in the preceding question.
A' 40
Hence
chap,
vii.]
II.
171
Here the
M ^ M ^ + D*
,
And
= Pf^^i
P =
/N
Nr
-^
L
+ _5i
*J^z2)
Whence
XT
__
M30 -
60
+ D 60
50
^f
N 29 + N 34 -2N 69
But
M 30 = M
fl0
t-X 29
-N 30 =
53 5
'
~ 474646-5
8385-7
= N 69 -N 60 =
3344-9
and
D 60 = N69 - X 60 =
P
502353-5
58526-9-52931-0-5595-9
Therefore
=
The premium
thereafter -027944.
-013972.
is
[NM] Find by the Table, with interest at 3| per cent, throughout, the annual premium per cent, required at age thirty to provide a debenture policy under which 5 per cent, interest payable half-yearly is to be provided on the sum assured for 15 years from the end of the year of death, at the end of which period the sum assured is to be payable.
35.
As explained on page
death
the
is 1
-05lnnn L 100P[M] 1+ {
-035
fl
so, (1
U)}
1-788(1
2-099,
+ -0075x23-18585)
say 2,
2s.
172
36.
ACTUARIAL THEORY
Find by the
[NM]
[chap.
vii.
Table, with interest at 3 per cent, annual premium required at age thirty-five to provide an annuity-certain of 100 payable half-yearly for 20 years, the first payment to be made at the end of the year of
throughout, the
death.
half-yearly annuity
Modifying the formula given on page 147 to we have for this premium
P[35] x 50xa.WmX)
8d,
Find by
Mr
endowment
assurances.
of the
(6)
Lives (20) and (40) for a term of 30 years on the same basis with 3 per cent, interest.
(a)
Following
(.
Mr
i
[30]
Lidstone's formula
:
we have
20]
+ +
~~
[35]
:
20]
20| /
=
=
3-841
4-348,
3-923-3-416
say
4,
7s.
1O0
(W30i +IV3O|= =
2-460
3-366,
P30-,)
7s. 4d.
+ 2-947-2-041
say
3,
38. Write down formulas, with and without commutation symbols, for the annual premium for a joint-life term policy.
premium
joint lives of A and B, each aged thirty-six next birthday, at 3 per cent, interest, having given
for a three-year
log
x = 5-9097, log
s7
= 5-9076,
log
3S
= 5-9042, and
log
m = 5-9002.
?
How
commutation symbols
:
is
M xy -M x+n
y+n
N x-\:y-\ -N x+n-l:y+n-\
chap,
vii.]
II
173
from which we
as follows
:
to a formula without
commutation symbols
M - M x+n _xy
ON x
^
y+n
:
N a;-l:j/-I -N x+n-1
,
y+n-1
-
?/
Nwys - (N x+n-1 ) v
L
,
*
, y+n-1
,
Nx+n
,
^ ) y+n J
y+n~\
N
_
p/
l
N gy N x+n ,-N ^
-
^ y+n.
,
+
,
:
""
x+n K+n
'..
H -iVh>-1
Substituting the ages, etc., required for the second part of the question we have the premium desired as follows
V hl hi
^36 ^36
+V +V
ks
''S7
At
3 per cent.
v
3
= -97087,
log u 2 =T-9743,
and log
= 1-9615.
In dealing with the logarithms of the numbers living the characteristics may be ignored as they are the same in every case and only determine the position of the decimal place in the corre-
Then
log vls1 log
log
l
S6
36
2 log
36
2 x -9097
1-8194
log 65-978
s7
% s /38
= logv +21ogZsr =T-9872 + l-8152 = l-8024 = log 63-445 = log2 + 21og/38 = r-9743 + 1-8084 = 1-7827 = log 60-632 = log 3 + 21ogZ39 =T-9615 +
_
"*87*37+
,,i!<
log 3
1-8004
= 1-7619 = log
57-796
39
Therefore
v
38
/
8S
+ 1 8/89*39
'
__ _
63-445 65-978
= =
p r
-97087 - -95695
-01392.
we would take
:
|
it
that
|86:S61
_ pi _+pi T 36 3 36 3
"
'
:
|
174
ACTUARIAL THEORY
Using the
figures given,
[chap.
vii.
we
find P'
the
approximate joint-life short-term premium pares very favourably with the true value.
39.
Tables, using 3i per cent, interest, the annual premium for a joint-life short-term assurance for four years, the lives being aged thirty and forty.
Find by the
[NM]
as before
[30]+l
7 [30]
7
I30:40l:4|
_ =
_ "
[40]+l
[40)
'
'
'
,
+V WhT[40]+4
,,3/
7
i. T
T"
[30]+3 [40]+3
= -96618= -01532.
The
pi
130:401
:
-95086
30 :4|
-+pi _ r 40 :4|
+ -00878
= =
40. aIld
-00663
-01541.
Given
"[44][44]
=12
'
%M =
13-463,
C
1
^^
)
13-006,
diffel _
'
VH44]
fimte
ences, (2)
(1)
by central
a [x+n][y]
a "{xm + 5^ [i+B][]
%W
_
T<T
|2
"
'),
(%+10Iy}
fct+6][y]
+ \][yV
Hence
a
=
(3T][44]
a
[34][44]
5\ fl [S9][44]
"
| ( - 1)
|2
'
[84][44y
fl
[44][44]
[39][44]
fl
[34][44])
= = =
26-012
13-463)
The
is
+ * a +i +
xfx12
1),
b
o
chap,
vii.]
II.
175
Whence
a
[37][44]
= = = =
41.
rt
[S4J[44]
+H
fl
""
[39][44]
~~
"[34][44]-'
2TV a [39][44]
_ ja
[34][44]
"*" fl
[29][44K
13-463
13-791)
13-204.
Given
P40
25
and
p40
=
:
29
176
ACTUARIAL THEORY
Now
2-692 3-117
[chap,
vrr.
3-742
4-692
= = = =
u u
= 5A
625 = 5A Mo + 35A2m
950
Again
= 25A
3
i/
+ 100A3
+ 225A3M()
. .
= 25A
And
-125
= 125A
CHAP.
VII.
II.
177
= 5B + 25C + 125D = 5B + 75C + 875D = 5B + 125C + 2375D = 50C + 750D = 50C + 1500D
125 = 750D
whence
D =
C = B =
00016
-0015
-073.
Then
P 41
P42 =
P43 =
P44 = P45 =
By
either
+ -073 + -0015 + -00016 + -146 + -006 + -0013 2-692 + -22 + -0135 + -0045 2-692 + -293 + -024 + -0106 2-692 + -36 + -0375 + -02083
2-692 2-692
= = = = =
3-020
3-117
values.
CHAPTER
VIII
Premiums
Conversion tables should be thoroughly understood both in and their use, and to these ends Rothery and Ryan's tables should be carefully examined. For both single- and annual-premium conversion tables, they
1.
their construction
start
it
with the
initial
value
for
the
annuity,
by
differences
of
'01.
CHAP.
VIII.
II.
179
AnnuityValue.
(i)
180
ACTUARIAL THEORY
[chap.
VIII
d,
+1
rate.
Or
d
first
table at rate
is
..
may be formed by the constant addition value, as may be seen from the following table
Annuity
Value.
(l)
CHAP.
VIII.]
II.
181
4.
premiums, whether single or annual, where it to obtain the annuity value than the premium.
frequently easier
For example,
We obtain
If
in the
we
enter
Annual-Premium
Conversion Table
i-d(i+<g
=ax
+ o.
=
-d
*st:-l|
+ a x:^T\
=P
-.
xy
!-<*(! + %,)
= A ^
TTi"- d
;
=P^
-. a"=P*"'
}
**:-!
a
1
|
-d 1+a i xy:irT\)
= A xyn\
+ axy:^T
+ o; Z1/
1
l-d(l + <^)
1 -
= A Ty
= =
Pz
d ( 1 + a ^:^T])
A-|
+ a^:iT^T|
1
-d=Pz
i-d(l + iirr|)
vn
+ a n-l|
Thus
table
when
we
r
speak
of
entering
the
single
premium
is
l-d(l+a)
f;
-T
and the
result
A^.
If
we entered with
a^
A^.^j. we
is
give
1+a
-d
1+a n\
+l|
the annual
premium
years.
end of
5,
(n
+ 1)
To
for
an assurance
182
ACTUARIAL THEORY
[chap. vnr.
(id),
(x),
(y),
and
(z).
Now
that
A* = l-d(l+a^)
is, the assurance is not payable so long as 3 at least of the 4 lives survive, for 3 at least will cease to survive at the second The formula shows us that to obtain this assurance we death.
enter the
wxyz
which by J
equal to
wyz
wxz
xyz
-3awxyz
enter the annual-premium
premium we
Pwxyz =
6.
we
T 1
^ +d
8 r
~d
wxyz
When
premium
the latter
to
value,
happens that we are given the single- or annualand the annuity value is required, we may obtain by entering the ordinary conversion tables inversely, on
it
number corresponding
find a
any logarithm by entering ordinary log tables inversely. Thus if we know PX at any rate of interest we could J from the formula
#
x
= = +d PX
f
it
at once
-,.
by
inspection.
Again
let it
be required to find a t
xyn\
We
.^rrr
shall
obtain the
and by Lidstone's
Als0
P:i+i] = Px:i+I| + F .^+T ~ P5+Ij approximately. r Px:-+li' P!/:S+T|' and P^l] "^ be f0Und b y ente g
{
the
and
a, respectively.
[M]
We
find
from the
O tM]
table
that
a^.^ =
12-845,
o^.^
'04052,
= 12-451,
also a^.
we have P
[sol
-gi
=-03841, P [i0] .^
P^
=-03416.
chap, vin.]
II.
183
Therefore
^ =
"03841
-04052 - -03416
table
-04477.
And
entering the
same
conversion
inversely
we have
a [30][40]:i9j
= H' 725
7. It should be clearly understood that conversion tables are merely a means of saving labour and further that they can be used to find the value of y, whatever y may be, so long as it can be expressed in the form, for single-premium tables,
l-d(l+i)
and
for
annual-premium tables
1
+k
where k is known and d is at a known rate of interest. It must be remarked that k does not need to be an annuity or at any rate
recognisable as such.
Thus
let
L = l-d(l+k)
Thend(l+k) = 1- lt!
X
an d
D x -D '+'
f
,,.
i.D
-D
L, X-\-t
2d X
function
Again, let ( P
=
=
Y~Tk
t-
Then
1 *
+d
, +t -i)
M+< Nx-a- N
and
k
(N._ 1
M X + dN X-l - dN K+E-l
,,
.
M. + rf(N._ 1 -N >+ ,. 1 )
184
ACTUARIAL THEORY
we
obtain
[chap.
viri.
8. To form conversion tables for continuous functions we sketch out the following scheme for single premiums
:
first
AnnuityValue.
(l)
CHAP.
VIII.]
II.
185
EXAMPLES
1.
A,
which correspond to values of a advancing from 10 to 11 by differences of -1, at 3J per cent, interest; and insert correct values in place of those which are incorrect.
a.
186
3.
ACTUARIAL THEORY
single lives,
[chap.
viti.
Given tables of joint-life annuities, the columns D and / and conversion tables, show how, by means of these, you would arrive at a premium for a joint-life endowment assurance on (x) and (_y) payable at the end of 20 years if both be alive, or at the first death before then, half premiums only to be
for
first five
years.
The
with a
benefit side
= A m/:20|
equal to
^-..
of this
tables
which
19
|
is
%~ %
all
= =
xy~
V
1
X lgPy
+i9
I
%+W
*+19
:
y+19
n
xy
g+ 19
Dx
+
y+V
we
The payment
a
xy
,
:
side
P(l
jgj
+ 6 a^.^)
|
19|
ay 15|
:
Dx
n
K
s+19
J)
x
1+19
/
x+b:y+b->
.e+19
y+19
Use the
tables at the
end of the
Institute Text
Book and
premiums for a joint-life endowment assurance on two lives each aged thirty-seven, the sum assured to be payable at the end of
23 years or
first
death preceding.
Here we have
A S7:37:
and P
=
23|
~d
^+
fl
87 :37
22])
37:37:2l
=
"S 7
H^ T
:
37:37:22|
Z ~d
lo g
N0W
N
a
37:37:2^
37
"
iT^
37
:
37
log
N 59:59 = D 37:37 =
=
log
'
40776
9-22491
18285
1-524
= 13-054-1-524 =
this value
11-530
we get
CHAP.
VIII.]
II.
187
Value corresponding to
Do.
53846
-5
Do.
-03
= =
-01923
-00115
Deduct
37
37
23|
02038
51808
:
11-530
Value corresponding to 11
Do.
-5
=
-03
-04487
Do.
= =
-00333
-00020
Deduct
00353
04134
37
37
2S|
5.
single-
Given P, find the corresponding A by the use of the ordinary and annual-premium conversion tables.
Enter inversely with P the annual-premium conversion table and with the result thereby obtained enter directly the singlepremium conversion table, which will give us the A required.
6. Show how to construct a conversion may be found directly by inspection, P being
table from
which
given.
Since
A =
to
following system
Annual
Premium
Value.
(i)
log
(2)
(1).
li
-(3)
log-
= ogA.
(3)
(4)
A.
(2)
(5)
logP
log(P + AP)
log(P + d) log(P +
log
.
P + AP
P + 2AP
etc.
AP + <2)
f+d P + AP
l0S
log
P+AP+d
P + 2AP P + 2AP + d
etc.
+ 2AP + d)
etc.
etc.
188
ACTUARIAL THEORY
[chap.
viii.
= -^ =
we may proceed by
;
first
drawing up a table of reciprocals of P, P + AP, P -f 2AP, etc. then multiplying each of these by d on the arithmometer and adding 1 to each result we obtain a table of reciprocals of A from which the successive values of A may be found. As this also is not a continuous method, the work must be done in duplicate or checked by doing all the calculations in reverse order when we should obtain P, P + AP, P + 2AP, etc.
;
7.
If a
a table
is
founded
is
A = 1-Sd
And
as
we
we have
1-A
A = e~ nS
.
Therefore
e~ n ^
o
5
which
is
the
value
of
an annuity of
(15).)
for
n years payable
momently with
Finance, Chapter
interest
II.,
convertible momently.
(See
Theory of
Formula
8.
What would
and what does
premium conversion
be the result of entering single- and annualtables, calculated for continuous functions, with
represent
A =
=
=
l-8a1
1-eS
e"
chap,
viii.]
II.
189
that
is,
interest being at
per
annum
convertible momently.
Also
P = 4- -8
=
1
-8
1
-e~ nS
-^ 1 --"'>}
-ttM
which
is
year's
i
instalments,
interest at rate
due in n years.
-i1
-8 =
which
premium payable per annum by momently instalments payable at the moment of death. (See Chapters IX. and X.)
is
the
9.
single
Find by means of Rothery and Ryan's Conversion Tables the premium corresponding to annuity -983, interest 4 per cent.
practical difficulty here
is
The
than unity.
But
A = l-d{\+a)
=
i
- d(i + rTo)
and add d to
Then the
d at 4 per
Single
single
premium corresponding
.
to annuity
.
.
= = =
premium corresponding
to
annuity -983
The value of d might be obtained by taking the difference between the single premiums corresponding to annuities 1 and 2
respectively.
CHAPTER IX
Annuities and Premiums Payable Fractionally throughout the Year
1.
following
Formula (1) of this chapter may be arrived at by the method which is somewhat similar to that of Text
3.
o|
i|
Book, Article
Therefore interpolating
,
la
|
tC
k
yyi
m
But
o
*
\1| a m
(
,
I
mm
x
| _2[
+
a
mlla} xl
m
)
/(a
m+\ =
.
- )+
+
(m)
m
+
1
(m'i
Also
= = =
ax
m
2m
a
*
m+\
-k
a
*
- n
2m
2. Formula (5) which applies to the case where be made general as follows
:
m 2 may
chap,
ix.j
II.
191
payments of
m-l
each
m-2
is
^{(i + O*
+(i +
m +
+1}
life
for the
whole
of (x)
is
m-l
m-2
amount to the end of the year of the payments which he has received is
1) the
(i + mK
m
J
+ m
m-2
(i
K
ro-r+1
+
'
m +
+(l+) m
in
since,
is
on the assumption
equally probable in
as
each of the
at the
parts
of the
year,
we have
the
amount,
that year
TO ~ 2 m ~l _ 9 1 _L/!!LlL(i +,)" + ^_^(i +z-) ' v
1
in
+.
+_Ln +,)} J mK )
made during
The value
for the
is
whole of
life
of the payments
therefore
A * m /Ezi(i + i) +^_^(i +
and we have
,
m +
(i
+ O ml
m-l
m-2
= .s-{Ci + 0- +(i + 0-
++!}
. .
+ _L(i+i)j
i
J
192
ACTUARIAL THEORV
Expanding the successive powers of
(1
[chap.
ix.
+ i),
but stopping at
first
powers of
in the expansions,
we have
, *
'm
l\ (1
\
.
m
in
i)
1+
m
i)+
J
i)+
j
+
+
H
)
+ &{ x
1
fm-1/,
1
L
m-1
in
m-2/-,
m-1
m
\
i
...
+ l(i + i-M m \ m J
a
*
(/m
1
2/
m-1
1 + = 2m
za
+ 2m
:
(m 1-
lV2m 6m 2
tts
1)
m-1
^ 2m
m-1
*
ta
s 2m
(taking
1
= (l+z)~ = 1-i
1
.
approximately)
&
=
If
^+
m-1
~2~ik
m2
6m 2"
the value 2
we have
which
is
This general formula can be rapidly applied in practice and on the whole gives very good results. If we calculate by it the
annuities of Text Book, Article 28,
we get the
following values.
/? = a =
a 30
20-14127 20-26533
a =
a^ =
10-46974
10-59380
= 20-39002
d60 = 10-71849
3. The argument of Text Book, Article 12, is very involved, and the following is an alternative method of obtaining formula (7), which is founded on the assumption of a uniform distribution
of deaths.
chap,
ix.]
II.
193
(ml
1 / 1 /
t.
-L -
m
in.
ro-l vl
....
, z+1
,
m
1
ra 1
'*
f
<-
i./
,
?-l ,\
m-2
ra
,\
\ x+1
ro-l
/
V
\
rf
\ x+1
2./
\
+ (/,, + x+1
^
%_/
x+2
m
J
\
I
,, x+ 1
m m
+^J
>
=
+ _5
_^+i
x+2
a:
x jLf(i
i_
a X
s
T
8{(1
+
1}
(l+i){(l+i)-l}-i(l + i)
a:
+ m i)
2 {(1 + i)m
is
l} 2
the coefficient of
A may
1_
ro-l
m-2
Let
1
2=
(OT-l)(l+2') m
+ (m-2)(l+i) m +...+(l+i)
m-l
...
2^
+(l+i)m
J_
m-l
(i
2{(i+i)-i}=
+ )-{(i+0+(i+0 m +
+(i+*') m }
= <l+i)-(l+j)m
(l
_1_
^
+ i)m_l
_!_
And
1 +'')"2 = (1+0{(
-(1+')"
{(l+i)-l}2
194
ACTUARIAL THEORY
4.
[chap.
ix.
To
find a
( >.
set
|
Am)
a=t
I
Am)
x
x+t
J_)
(m)
s+J
1
ra
a
*
*+; /
m
2
1>
2ro
ET V^'
a:
"x+t a a _
W-'/i
*+'
2m
a n ^1
_^ri2m
V
D ^' D
5.
To
find
la
that
is,
T
made
It
is
at the
end of
distinct
etc.,
years respectively.
quite
the
annuity
payable
times
T
a year in instalments of
12
,
-,
etc.,
the same as
a[
1/i
t
<B
l+i
t
t
2+1t
\
'
x+.
'
&
etc.
').
etc.
Kr
' ')(,
"
),
etc.
And summing
we have
......igfio. ft-y-U -. 2
*-i
^
chap.
ix.J
II.
195
Therefore
,,,:(, x-i,-i D D
x
I
-KM AD jg-y-tD
2
*
,.,.
x
}
)
D D^
Ql 3
D D
a:
<
_
t
a* +
is
-l AD3
2P
(<-l)(2f-l) A^D
+ "'
which
6.
To
find
_|
axn\ -t
the
first
n terms of the
we have accordingly
1
/D -
2l i
^-j\r-B
(
a pp roximatel y
=
t
ta.
xn\
1 +a xn\.-ax
-,
,,) n-l[l
=
To
(m)
.
!((< - l)a
-\
7.
find
!|a
'
to
(where
AD, =
(m)
D ,-D)
j_
<
<-OT
2< 2
AD D
a,
196
ACTUARIAL THEORY
8.
[chap.
ix.
To
find
i|a
( ->
(m)
()
_ i_ _
Ji2?(V
approximately
(m)
if ^.L5H^
t
DX
'
'
ml
\m
fl
:-J
"wl
J
'
=
To
T {('-KfT+
(
9.
find
(m)
.
m)
~~
m*
2w
1 1
* V
2m
Now
(m)
P^,
-p
<
2m
P
'
_^li(P +d) y *
2m
J 1
J
^ (P^ +
P,
d)
V>
we have
f_!^p>^ =
chap,
ix.]
II.
197
premium
";
2m
for loss of interest
(mJ
*>
P and
*
2m
d.
*
:
The addition for loss of premium is found as follows The chance of the second instalment of the mthly premium not being
received
is
of the third
etc.,
of the rath
m~
m
,
on the
2 ++ \m m
/I / 1
m - 1\ m-\\
P,
ot-1
m s 1 r (m) t, as above. rx * 2m The loss of interest on the second instalment being postponed
this loss
is
of m
1
a year
p()
-
is
P d mm
-
<m>
m
2
of
year a J
m
_
etc
on the
rath
being "
postponed r r
of a
p(m)
year
**
mm
pC)
,
d.
Therefore the
is
loss
of interest in accepting
an rathly premium
,
.
.
|l+2+
.
f,
,0 +(m-l)| =
.
p(> rx m -
m-1
2m
10.
(m)
Px
d as above.
To
find
P^.
xt\
(m) a n
xt\
a
xt\
m;
2m
1
1 f, I /,
(
D U
"., t r+
ti
H
,
(a. x xt\
*)}
198
ACTUARIAL THEORY
[chap.
ix.
*i{
^T
<m)
art|
p
-i
*>}
since
^ =
il
+ pii
Now P
(T
g = -r4 (m)
irtj
A
*(|
a
*<|
{l_!^i
[
pi
v (
*t\
2m
|
+4
J
at
2?re
v VLi+<o
*l
From
this
we
obtain
Here the
to
loss of
premium
be insured against for the term of the assurance, since if the life Therefore survives the term no loss of premium will be incurred.
the annual premium to cover this loss r
is
m~
2m
is
_
a*|
PL.
t|
The
by the reasoning of
F,
2m
**!
a.
11.
To
find ,P
p(m)
=
"
As
(m)
a*|
Mll
-^^^}
,
P*
v
a*
2m
whence
(m)
'
I
,P
(a;
2m
*(|
chap,
ix.]
II.
199
are
The
premium and
interest
on the same
12.
pW
premiums.
r of these
Each instalment
is
and
only J
the remaining (m -
have been paid in any year the office has no claim on But as pointed out in Text Book, Article r). 42, it is sometimes the custom of offices to calculate the premiums in such a way as to make it part of the contract that the unpaid instalments in the year of death shall be deducted from the sum assured that is, in effect, that they shall all be paid. In such a case the rathly premiums are merely instalments of an annual premium which must be paid in full. We must therefore ignore,
;
in
the
expressions
corrections
for
loss
of
premium.
We
shall
p[m]
*
then have
_ p
'
m-\ p[m) ^
2m
x
as before
on the
m^
ro-1
(1
+jjm++.
+V m
+(1-0
)/ J
m"1 m
\m
+ m
where we put
(1
d) m
=1
d approximately
(-=r<)
200
ACTUARIAL THEORY
Now
p[m]
x
[chap.
IX.
_
"
Ax
a [m]
x\
2m
Zm
Hence
,[m]
2?n
Similarly
we
shall write
and
,P'
m~
I
1
T>
[ml
EXAMPLES
1
.
Show
that a x
+^ - ^
approximately.
By
(l+i)*+l
Ki+rT +
ul -/a,
^
-J{2
than the
first
chap.
ix.J
II.
201
2.
A^ = v(\+a )-a x
transform them from yearly to mthly intervals and give a verbal interpretation of each result.
W C=""^- + F)
/
.
/ n i
(m) \
ma
(m)
On
we have
The
difference
instalments of
at the end
which
(x) enters
end
of each
the value of
in
which again
is
the value of an
in
payable at the
(m)
,
which
(x) dies.
is v
m(
hax
and
J
of the latter a
Am m
x
x
and we therefore
have
\m
K
(b)
1
= m{(l+i)^-l}a< + (l+0A<
If
1
m)
be invested now
it
end of each
of a year
202
{(1
ACTUARIAL THEORY
1} of interest so
[chap.
ix.
+i) m -
long as
(x) lives,
rathly interval in
which
(x) dies
we
shall
Ki+0-i} + i =
But the value of an annuity of
the value of a similar annuity of
(!+).
is
m
{(1
per interval
T_
Therefore
l^
+z) m -
1} is m{(l
+i) m - l}a^\
these
And
is (1
+ i) m Ax
Now
two
together
make up
1 originally
invested and
(
we have accordingly
(c)
=
vm
*{(1
+ i)A \
A<
m)
-m{(l + i)-l}v m a
I,'
1
this, see
(d)
a ;'= i- m{ (i + ^-i}^(l +
fl
(e) v J
(m)
a -\
Te.i;<
(ro)
/ 1
\77J
ha
(m)\
JA
(m)
This
is
explained in
Z?oo&, Articles
3.
yearly)
years.
Find the present value of an annuity to (x) (payable halfcommencing at 1, the payments to be doubled every 10
This annuity
is
equivalent to an annuity of
1
commencing
of age of age
the
now +10;
;
plus an annuity of
a:
x + 20
x + 30 '
and so
on.
Therefore, taking cP 3 to
X
aX + i-, &'
we have
whole value
chap,
4.
ix.]
II.
203
yearly
Use the Text Book table at 3^ per cent, to find the halfpremium to secure at age thirty-five a double-endowment assurance payable at the end of 1 years or previous death.
A^+A.1
a , a?!
M
*-
M
45
+2D
^
x-1
3
x+n-l'
x+n'
J_
2
1
M ,-M
+ 2D45
(N S4 -N M)-'2o(D 3i
-DJ
9806-7769 + 2x16570
35177 211567
08313.
5.
(x) for
-=
--m~
*l
2m
V
V
D t+,t \ D )
-
Ir
2m\
2m
l
^
y ^
'
D DX
,
-v
Dx
/J
Hence
i( 3a
"raTf
+ "^ "
)
j ,7]
6.
Prove that the value of a temporary annuity to (z) for n is approximately ^(3a^ + a 7])m
204
ACTUARIAL THEORY
a V
X = d*>--Z?:cP "x+n
[chap.
ix.
D D
( x
D x+n ^
)--jr(. X
ax+n
+ )
approximately
V.
a;.
'
|
xny
the ordinary approximate addition to a yearly 7. Using annuity to make it payable m times a year, prove that for an assurance of 1 on (x) the premium payable m times a year
m\
W
\
a +-7i
OT+1 TO + 1
The premium payable at the beginning of each ?th part of a year for a whole-of-life assurance on (x) is
W
m
1 1
W
1
da,
1
1
- aa *
(m)
-1 2m
;t
m
(m)
a.
(m)
ra
2m
m1 ^
a,
(m)
(I
i)
m+
2m
since
a1
a
*
m+1 -=
2m
chap.
ix.J
II.
205
8.
Given P^ at 3 per
Since
(m)
"- 1 2m (p.+o
Therefore
P (2)
01930
l-i(-01930 + -02913)
01930
1-
-01211
1930 98789
-01954
p(2)
=
P
-00977.
Also
PW =
01930
1-
-01816
1930 98184
=
and the quarterly premium
-01966
pW
jj =
"00492.
9. An industrial assurance office grants whole-life policies by weekly premiums of 2d. Find what sum assured can be granted at age x, if the agent introducing the business is allowed as commission the whole of the office premiums for the first 13 weeks and 20 per cent, on them thereafter, and the office expenses amount to 20 per cent, on the premiums from the commencement. Assume that premiums, commission, expenses, and claims are on the average paid in the middle of the year, and that the year contains 52 weeks.
206
ACTUARIAL THEORY
The premium
of 2d. a
[chap.
ix.
weeks = 8s. 8d. = 43 of 1. It is assumed to be payable in the middle of the year on the average, and therefore the value of the premiums is
week
for 52
= -43xi(a +a) =
Of the premium
ance.
-43
approximately
N +^D D
20 per cent, for commission and 20 per cent, be allowed for the whole period of the assurThis being 40 per cent, of the premium, its value is
173
-.
be allowed for the first thirteen weeks, and this being payable on the average in the middle of the year, according to assumption,
to
its
value
is
-086
-|i
X
-173
'
XX
-
office is
'
- -086 -gfci
If
its
value
is
M^l+t)*
X
26(N. + jD,)-086D,
+t
M.(l+0*
10. Given a table of temporary life annuities, show how you would find approximately the value of an annuity on (x) payable yearly for 21A years, the first payment of 1 being due 2 J years
hence.
In commutation symbols
means a payment
chap.
ix.J
II.
207
of
1 at the beginning of each year for 21 years, with a payment of i at the end of 20| years.
Now
=
D, +
+
,
+
,
D +
,
:t
ffl+ 2
D,+
g8
+
,
D, +M
~2~
a PP rox
+D
a:+23
" N ,- N 2 3-^ D , +1 + ( D , + l + D , +2 )}
Converting the expression into annuities, we have
2ir*:2iJT
I
a..
x:~23\
^( a x:T\
"*:])
is
This shows us to be correct, for the annuity under consideration one for 23 years but with no payment for a year and a half.
that a
ym\
may be J
Let
u,
j/+i
=
-,
etc.
y+in = - log
,
r.
d log
Then
dy
= log r S
= J^logr + log* = = =
fa*
r 'G
'r*
y y
Py
>
=
*'
)
c*
and
But
d'
where ur
c.
_ a -:
ml
| I
v* ,p ', d/
,
fm
<ft
o 1
c -
logc
CHAPTER X
Assurances Payable at any other Moment than the End of the Year of Death
1.
is
to find
the present
value of
part of a year in
which
(x) dies.
First,
and
(x)
dividing
into
equal parts,
is
we
chance of
equal to
If then (x) die within the first mth part payable at the end thereof, which is equivalent
m-l
payable at the end of the year. Similarly if (x) die mth part, 1 is payable at the end thereof, which is m-2 equivalent to (1 + z) m payable at the end of the year, and so on. Therefore, should (x) die in the tth year, the value at the end thereof of 1, payable at the end of that rcth part of the year in which he dies, is equal to
to (1 in the second
+ 1) m
m-l
m-2
Me
m{(l+i) m Similarly for
1}
every year up to the limit of life ; and we may 1 payable at the end of that with part
is
equivalent to an assurance of
m{(l+i)-l}
chap. x.J
II.
209
_1_
m{(l+i) m -l}
= A
where j
If
.
A
m
times a
i.
is
we make m
infinite,
we have
A X = Ax x
2.
-r-
Again,
will
be payable
Therefore on
after
the average
will
be payable
(-S-
+ 77
year
the
death.
,(i + sr) d + x
+ l+
^
,
+i+
(i+0 V2
(1-J-)
'"'-
vd
+vH
"
= (l+i)V 2
And when m
is infinite
2m )A
distribution of deaths,
ar
say that
<-
m>
um
_ wm {(1 + i )m _
}/">
We may
at the
reason this out as follows. If 1 were payable certainly end of the first mth part of a year its value would
210
i
ACTUARIAL THEORY
vm
.
[chap. x.
be
But as
(x) dies
j_
it is
not payable
till
which
we must deduct
every
interest on v m for
i_
completes.
&.
Now
{(1
+i) m -
1} is
JL
the interest on
JL
for the
mth part of
JL
year, and
therefore v m {(l+i) m
-1}
is
Again a
is
'
the value
?nth part.
of
at the
end of every
provide
t!
m {(l +i) m -
1}
the
end of every
such
period
is
When m
is
infinite
1,
1}
=8
therefore
A =
4.
8a"
of
endowment
We have
-,
A^ + A 1
A^ =
(
art)
A%x J-+
X7i
A-i
Eft
I
and
A^
(
rc?a
Also
-, Axn\ = A xn\
-.
-=
-. + Aam
and
'
A**l = V,
And
vm
- mv m {iv. + i) m (1 /
'
}
)
x:n-\
ml
-i
- So"
;.
chap. x.J
6.
II.
211
The proof of
clearly.
A =
~
T
X
v*l
^ax+t ^dt
*
Uo
1
* +i
V
,
x+t
dt
dl
--ty.*-**
Now
by the method of integration by parts
\p
and
dx
dx
S
]
n#* r
r<
-ht dx d r -pdX -r q p* dx dx
dx
J o
r ,0
Hence
jQ
^dt = -** - jf
dl
.
dv t
,,
W
t)
dv*
/CO
= I1
..V
log
dt
in
x+t
dt
And
A, =
= l-Sd. X
We may
Since
dD x+t _
,
<fo*+*Z
x+t
dt
dt
&+t_?+L + l
dt
dl
dtp+t
dt
*+<
= - VX+Hx+t'1x+t + lx+tVX+n0 S V
-
D,>. +t + s)
212
ACTUARIAL THEORY
[chap. x
We
have
/-to
=
that
is
TT"/ D /
D X+t,uX+t + S D *+' r D /n
L
rft
/
a:
/-co
/ft
As + So"
1
and therefore
AX =
- Sa
6.
easily
Formula (14) may be deduced as follows, probably more than by the method of the Text Book.
/oo
,Pt
o
dt
/d/
\ ax J
dx x
Jo
I
d.p
d _xl
I
But
t*X _
dx
1
dx
dl ^, X+t
dl
j
dx
x +*
dx
x+tlJ'x+t
+ lx+t lxlJ x
-
Therefore
da -pS
'(
/GO
-
,
,Vp
fOO
dl
"Jo
'
Jo
'
x+t
C
dt
=
And
,
a a
-r
a a A X = 'XX -
da
j dx
5
chap, x.]
II.
213
7. Similarly
=
X7l\
fn
I
I C\
vf
pXdt
Therefore
-^ = dx
=
=
P v'(-^)dt \ dx /
fn
v* (u,
Q
Vas
r \ L dt a p x+l ) x
,
fn
fn
^l
V \P dt
X
-j
vt
tP^.X+t dt
a-.-A*-,
And
8.
-, A xn = xn\
1
u r xaam. m
,
xn
'
gx
(20)
is
perhaps
r
I
n dt
x
Jo'
dx
.i/r.,/.)
dx\J
(
>d
s:m
/-oo
)dt
'dt
/-co
Hence
=
=
l>x
]o
e
X
#,* ~ ] tP.^+t*
1
de
'
u,
And
= -|-{l-i(^_a-^ +1 )}
X
approximately.
9.
("JP
the annual
a year required to
. ,
214
ACTUARIAL THEORY
1
[chap. x.
provide an assurance of
payable at the
moment
of death and
accordingly
is
equal to
is
the annual
instalments
to provide an assurance of
at the
A
is
equal to
a
X
0'P
is
the annual
instalments
is
moment
of death and
equal to
EXAMPLES
1.
Find the weekly premium required to provide a doubleto {) payable at the end of n years. for the immediate payment of claims.
DX
As
to the
premiums,
it
is
is
so short.
The payment
side will
thus be
Pxa-,
P(a
-vn
p a
D
where P
is
annum
(M Hence
(N
-N
5(1+0* + 2D ^ ^ ) + i(D -D ^ )
_,
The
week
is
therefore
52
TEXT BOOK PART
x.J
II.
215
the value
2.
of
A gQ
.
0)
A 0:fiii SO
:
"
50
20|
f\
SO
i\
-58821.
(
_J /
M so- M 5o){ + D
n SO
60
A
30:20T
= =
0)
0^62^9X^+^6605
36949
-58819.
l
A so :2
-o]
=
a
%
=
We may
put
30
H
20(
Nao- N5o + KD 30 -D 60 )
n 30
(735104 - 230450) + ^(36949 - 16605) 36949
13-933.
1
=
Therefore
A^.^ =
=
- -02956 x 13-933
-58814.
for the single
3.
premiums
for
An An
assurance payable
The required
single
premium
is v 12
For
\
or
= A.(l+0*
i
A X = Ax x
-s-
AX =
- Sd
216
(6)
ACTUARIAL THEORY
For this assurance we have
[chap.
x.
4.
first
Show
that,
by a mortality
Makeham's
A =
of
logs a
+(/x +log*)n'
where
1
calculated
at
rate
interest j,
such
that
If"
~x+t
x J
1
/<*>
dt
v*
x+t
T
x
x J
logs
vtl dt *+t
~T
a;
io
gg
y(
/
+(
-logs^+^ + log^a'^
since
fj,
= - log * (log g
c) c1
log c)^
fjt,
+ log *.
is
such that
i+j
5.
~~
i+r
Prove that
(6)
-f(/a)=-ZA
(a)
dN
_
-J-2-N
dT> -=-?
(D) 2
chap, x.]
II.
217
Now
JLTb Tb
SJ
\cte J o \dx
dt
rrD X+t\dt
,
x+t
dt
=
and
-D X
D
a
-D^ +
"
S),
(see
page 211).
Therefore
d*
"a* =
(DJ 2
,^'v,'
'
This
may be
_ A = r ai *
u.
~.
dx
da
(b)
(la) =
la+al
a:
6.
Prove that
218
ACTUARIAL THEORY
J d
[chap. x.
MX
DX
dx
rj-\
*
dA %
dx
'
(D) 2
8)
-#;+MD><+
7.
c),
prove by direct
integration that
Ax =
~T~S'
Let
= -logs =
=
I
i*
=
x
p.x+t'
d log
Since r "
dx
*
- d log
then
j
=
log
-log*,
dx
l
and integrating,
%
I
= =
x log
ks
x
+ log k
Now
A,= x/ X
_,
'^/:x+t dt
..
))
_LJ
*&*+'( -log*)
t)'i'(-log*) dt
Jo
+S
CHAPTER XI
Complete Annuities
1.
On
value, at the
beginning of the year of death, of the correction make it complete is as shown in Text
Book, Article
5,
lv r +2v r
From
Article
large.
3,
1
+3v r +
Ja
+ rVr
Text Boole,
is
too
The average
payment
.
is
.1(1
+2+3+
1
+r)
r(r+l)
r+1
i when
is infinite.
of death, the
JL
But to arrive at the value at the commencement of the year earlier and smaller payments are multiplied by
JL -1
T
,
etc.)
which
are
greater
than
the
values
are
multiplied.
etc.) by which the later and larger payments Thus the true correction is less than |i)i.
,
Now
let
\
v T + 2v T
2
i.
A
+3v r +
+rv T
Z.
v^s
T + 2vT +
3_
it!
r
+(r-l> r +rv
220
ACTUARIAL THEORY
s(l-vT) =
vr vr
1
+v r +v r +
j--r
r
+fl r
-ru
-v v
j--n;
*{(l+i)''-l} =
1
-WT
iv(l
+i) r I
rv
{(1
+')'-!}
iv(l
+i) r
{(1
{(1+0' -I} 8
year of death
is
+0'-l}
iv(l+i) r
T
And
at the
r*{(l+0' -1}2
{(l+iy-l\
Making
r infinite
we have
j_
S2
as the correction
l_
S"
result to a
Multiplying this by
A
a
we have
/*
a;^g2
1\
g 8
a;
'Z
a,+ a
I
A A ,i2-
=
since
+A
-7s-
A = A
-~-
approximately.
chap,
2.
xi.]
II.
221
In the case of annuities payable m times a year we have only from a year to the mXh part of a year,
1 to
If
we have
_3_
.
If
2_
,mr
+ 3^mr +
+rv
w,
which
is
yearly annuity.
We
have merely to
1}.
alter
from
to {(1
+ i)m -
r {(l+i)-l}(l+Qr 2 {(l+i) mr
-|
ml
But when
1
JL
-l} 2
r{(l+i)
L mr
~l}
l
is
made
infinitely
great, (1
+ i) mr
/
is
unity,
-i-
and
1
r {(l
+ j)mr _
is
log (1
+ i) =
-Is
And writing iw
for
(1
+ m
we have
as the correction Jo
1
|
1_
'()
S2
Therefore
(m)
= =
(m)
x
(m)
i
-8 5~~
since
(m) A = A
^P
approximately.
deaths, and 3. Making no assumption as to distribution of the taking r very great and approaching infinity, we have as year for a value of the correction in respect of the (re+l)th
yearly annuity
222
ACTUARIAL THEORY
[chap.
xi.
Now
= =
_,_
M x+n-\ ^ A
i
^ A2M ,+.+
I+
etc.
'
"
etc.
etc.
/r
c-^-o
Therefore
2 =
rM^ + ^AM^
+?l,
2 2
A'M
+(i+
where
AMi+ ,
if
= M, + , +1 - M
etc.
Hence
we
is
^-{ (rM
=
(making
1
+
,
^AM
1
_,
-^p=^A2M
r2
)-M xl ]
\
'
/
x
*
rr( DV
-l-
r infinitely great)
correction to o
to
to
M
D
re
ax
%+
AM,
12
D
a;
TEXT BOOK PART
chap,
xi.]
II.
223
4.
times a year,
we
have only to alter the interval of time from a year to the mth
part of a year and the
payment from
to
If then
we break
up the
/
(
k+ IN)th
r parts,
being very
is
if CM
,*-M
+ -(M
J_
_fc_
i) +
(M^Jti -M_LJ
,
_*
_s) +
.fc.r-l-M
M-l)},
otD^V
*++ro
2r
^+ m +m
12r 2
*++
x+n +^r)
by a process
where
AM
Now making
ml)
^ x
jj
,,j;+i
m
r infinite
mm
-
ic,
etc.
we have
^
as the value
*+ n +
x+n +-lT
x+n+
X+n+ m
and giving to (n
-\
upwards we have as
But
M x+
l
,
Mh
x
x
( v
M
K
x +l
,
M
-
) x'
approximately *
M aH -M
i
therefore
(M ^ m
n
m
x+1
M) &
x:l\
Hence
a.
+ 2^ A *
12m2
^1
224
ACTUARIAL THEORY
Or by
a better approximation
[chap. xi.
M
and
+m
-
dM +~ m
i
dx
dM
=
dx
-r a
Dx
(a).)
M x+ - M
i
Therefore
=
X
(m)
t* x
j and a
<m)
+ 5 A - 12m2 ^2 *
:
It
P*
5.
We may
:
as follows
-1
= = =
a - vn p a
K
a
as o
+ Ki
0^ J
%+Ki + O^-,
(m)
a m|
,
.(m)
w"i-^a; a <c+n p
^ + -2^(
1
TJ-j
+ 2^( 1 +
^ 4A-|
These approximations are close enough for practical purposes, more refined formulas is to a certain extent inoperative on account of the subtractive portion in the above formulas.
EXAMPLES
1. A life annuity of P, payable by half-yearly instalments, was purchased at age x. After n years (a half-year's payment having just been made) it is desired to make the annuity payable by quarterly instalments in future and with a proportion to date of death. To what sum must the annuity be reduced if the alteration be given effect to ?
chap, xi.]
II.
225
Remembering
ax
(m)
af = f + A^l +
i)h,
and
that
+ ~^~> we have
m-
constituted
v*
x+nJ
be the annual payment in future under the conditions required, the value of the future payments
If
Hence, equating
and
K =
PG
+ ",+,)
yearly, find
will purchase an annuity of 5-026 payable the corresponding annuity also payable yearly but with a proportion to the date of death, using 3 per cent, interest.
2.
Here
=
= =
5-026
L
+ ^(1+0*
19-897.
a,
And
dx
= <W{l-<l+^)}(l+4-)
taking (1+z)*
= 1+1
= = =
+ -199
100
20-096
4-976.
3. A man aged 70 has 250, which he decides to invest in an annuity. What annuity, payable quarterly in advance and with a proportion to date of death, can be allowed to him, given a n = 7-299 and d at 3 per cent. = -02913, and assuming a loading of 10 per cent, to be added to the pure value ?
226
ACTUARIAL THEORY
It is
[chap.
xi.
a^
in the
first
place.
Now
&f =
af>
(2)
Therefore
3$ =
?0
+ 1 + J{ 1 - d(l + aj
(1
+ i)i
x 8-299)1-015
-
7-299
1-015)
= 7-924 + -096
=
8-020.
of an annuity of
Adding the loading of 10 per cent, we get 8-822 as the price 1. Therefore 250 will purchase an annuity of
=28-338.
annuity, payable quarterly in advance and with a proporof death, which can be purchased is therefore
250
8-822
The
tion
to date
6s. 9d.
28,
4.
Show
that
A =1
-id approximately.
1
We
have
A =
(1+?')A
- ia
l+i
whence But
= l-ia
(l+i) = (l+i)i(l+i)i
=
Therefore
(1
(1
i)i( 1
approximately.
+ i)U/l +
+ i)iAx =
1
\ = 1_
ia
x
and
(1
- -1(1 + i)U
*"a *
is
A^ =
i&
approximately.
II.
227
5.
Show
that a
=
=
v 2m
approximately.
1 1
.(m)
A + -^ 2m + 7T- x 2m
x
TO
2J
2m
8a
x
a x
2m
= all v im a
jr
since 8 = d approximately.
approximately,
since
v im
(1
- dy
- - approximately.
CHAPTER
XII
Joint-Life Annuities
1. In a table in which Gompertz's mentally
Law
holds
we have
funda-
u and
/
= =
Be*
kg*
g
(
whence
and
p
a
=
=
-*)
2s'
+ cy =
cw )
Su'gc'V-i)
Sw'
Similarly
o a
"to
where
cP
c*
+ cv + c* =
cw ,
and generally
terms
a xyz'
(m)
where
+ cy + cz +
to
cw .
Now,
then
that
is,
if c*
c*
c*
+
.
to in terms to
cw,
,
Bc
a:
+ Bc!' + Bc2 +
ft
terms
= Bcw =
[i
.
p +
+u +
to! terms
From this we see that in the case of a table following Gompertz's Law we can find the values of joint-life annuities, provided we have a table of the force of mortality and of annuities
for single
lives.
firSt
If,
for example,
we wish
30:40:5O'
We
btain
SUch that
60
Xh
CHAP. xn.J
230
ACTUARIAL THEORY
[chap.
xir.
from which we see that the value of w-x is the same for all values of x and y where the difference between x and y is constant. In other words, the addition to be made to the younger age to find the equivalent equal age is constant where {y - .r) is constant. We might therefore form such a table as the following
:
y-x
CHAP. XII .]
4. Still
II.
231
first
modi-
fication of
=
=
2u
2t)
( ,
t'
t
p xy
cI
+ c,)( t'- 1 )
_1 )
(putting cf + cv
cw )
2uV V (c
c
t*w
=
where
a'
a'
w
/,
''
is
that
1+j
=
.1
-
l+i
..
Similarly
= 2uss*gV-i>
g
where e w
such that
c^
+
;
+
=
c2
is
calculated at a rate
1+j
where c w
+1
.
Generally axyzJ
(m)
= +
a'
w
to
I
c"
cv
+
;'
cs
m
=
is
gm - 1
;
1+7
still
1+z
r-
stated
~2
more generally.
-
(m)
a v tsmtb -(c
+c +c z +
ll
to to terms)(c'-l)
putting
c*
+ &+
2'
a'
cz
to
m terms =
rcw
'
i-f
p www-
(r)
(r)
}
\+j
sm
^
~T
;
In practice it would be most convenient to make r=l, as, under this second method, tables of annuity values have to be calculated at special rates depending on the number of joint lives, and these special tables will of course be most easily prepared for
single-life
annuities.
table of c
/*
x must also
be prepared, as a table of
in this connection
inconvenient.
232
5.
ACTUARIAL THEORY
[chap. xh.
constant
increase
in
the
force
of
mortality
under
rate of
effect
of an increase in the
For
if in
/*
the expression
= - log*- (log g
log c)c*
a constant - log r, where r is a positive fraction and consequently log r is also positive, we have
we add
p'
z
log cy?
whence simply
= hx rx gcX = rx lX
=
r \P
X
tP'z
(r) in
x
the
new
table
is
~2v* p'
x(i)
tPx t*x
xQ)
where a
1
is
+j
+
r
..
From
this
we
see that
11
:
j which
is
such that
is
\+j
<
>
since r
equivalent to a rise of
dD
dx
increased to
dlosD
dx
jx
^
Now
in a table
DX
where
jj,
is
-logr
rflo S
D'_
dx
Also in a table where
S is
increased to
- logr
dlogD"
Therefore
dx~^ dlogW __ =
dx
D'
X
^+
dx
- lo g0
dlosD"
= D"X
=
a"
.
and
chap,
xii.]
II
233
to the
Thus a constant addition to the force of mortality is equivalent same constant addition to the force of interest. From this
practical assumption
is is
fact the
made
Though
normal,
equal to a
by the
it does not follow that the annual premiums are also equal.
For
ACTUARIAL THEORY
Or, to take a particular case,
a
wxyz
234
[chap. xn.
z'
xz
+ayz' )
rule the the joint-life annuities involved and hence find the
it is
8. As already pointed out in the notes on Chapter Makeham's second modification of Gompertz's law, the
VI., under
expression
form
u
'
= A + Hz + Bc*
whence simply
and
t
= ksW2gX
= = =
s*w ixt+t ^" s
**
vx r
_1)
also
v t^x+d
t
:+ w 2*(z+d)+*V 'V-i)
Therefore
v r x x+d
:
*2
w 2((2 + i)+2(Vc
a:
(
a;
+c:l:+d)(c( -i)
Now
putting
cx
+ cx + d =
cz ~x
2c 2
we have
and
+
1
c^
z-x = lg0+^)-%2
log c
=
where
(x
d'
d'
depends on
x
p
,
d,
+ d).
Also
Hence
= = =
s - d'
*2*
2 W!(2*-2<*'+<+2* 2V-l)
ff
s '2t
t-t
w2U,d-2d')
But
2e p
~2a)t
w 'tt{d-2d')
a'
chap,
xii.]
II.
23;
where
Again
= =
=
A -2<(3z+d+c)+3tVcW + &
fc
''+c
+Vc
-i) '
And
putting
3e 2
c'~ x
cx
+ cx + d + cx + e
"
we have
and
+c +c
3
s-* = logQ+C+cQ-IogS
logc
=
where
rf'
d'
e
depends on d and
Hence M
a:
x+a x+e
:
= =
sSt
2
(c
-i)
t* zzz
w 2t(d+e-3d')
and where
'
a'
is
is
such that
+j
:
Generally J
x:x +d x+e
:
where a zzz
is
is
such that
to
l+j
and
t
7/
l+i
d
lofffl + c
+c +
e
-.
to
terms')
- log
2
logc
joint-life annuities
be seen that, under this second modification, tables of would be required calculated at special rates of interest depending on the number of lives and on the differIt will
all
other lives.
table of c
also necessary.
236
ACTUARIAL THEORY
[chap. xh.
EXAMPLES
1
Obtain an approximation to a
m n by
.
at 3^ per cent.
(a)
Simpson's
rule.
70:75
=
= =
3 731
"
a
^50: 82
S2-411
3 562
-
"50:83
50 82-411
:
3 369
"
Orfl
50: 70: 75
3 483
'
50:70:76
= =
fl
50:82-' 05
3-562 --05
=
(c)
3-512
Milne's correction.
60
70
=
:
75
50
82-5
'
= =
2.
3 562
+ 3 369 )
'
3-466
Use Simpson's
3TTWTT3
.
rule to find
by the
HM
Table at Z\ per
cent,
the value of a
S5:67:.73
"
35
67
73
35
67
35
73
67
73
35
67
73
Tofinda36:67:73 wehave
"67:73
4 - 20
alld a
35:78
3 997
'
35:79
therefore
36:78 a73
= =
3 765
'
3-864
__
oD
Hence
Oi
17-325
17-921
to
chap,
xii.]
II.
237
3.
Find from the Text Book table the values of a ^ at aL 43:48:59 A^,^, - at 3i per cent.
a 43 Aa
fl
. :
43
48
M
:
59
=
=
=
48
a,,
43
B 59
48
. :
c 69
- 3a 43
48
59
~~
45-7S
45-78
53-69
53-69
S4-83
54'83
52-11
52-11
52-11
11-915 6-190
1
= A 3T7407T4 =
"
31:40:44
rf
1+ VT4oT44)
"31:40" a 31:44~ a 40:44
!
a31
a
31
+a40 +a 44~
+
fl
+fl!
Sl:40:44
40
44
~ a36-40
36-40
~" rt
39-33
39-33
~~
42-lS 42-18
:
^39-56
39-56:39-56
= =
31
:
18-235
21-001
+ 16-103 + 14-997 -
+ 11-196
40
44
1- -03382x22-001
=
4.
-25593
State
value of a
M:illM
From
it
6,
will
appear that
:
as the following o
would be incorrect to adopt such a method . is Find w such that aw a ,. then a 47:60 80:to:15|
; '
necessary to
split
into
its
two
parts,
62
76
S0:47:60:15|
~*
30:47:60
f)
30
:
45:62:75
47
:
60
,
Then
and we
find
to
such that a w
a,,
47
:
and 60
vS
62
_., 75'
shall
have
""
ff
30:47:60:15|
SO
u-
U 30
1")
/ l
45 :w'
47 '60
5. Show that doubling the force of mortality is equivalent to taking two lives of equal age in the expectation of life, the life
238
chap,
xii.]
II.
239
Similarly
a
a
=
mJ
V -i)gV-i)
Hence
&
dx
<f
am dy
7.
rule that
log k
+ (x + 1)
log
+ <f+
log
g
that the
in order
may
loss
of the property
of uniform seniority.
for log
,
g g since these will vary progressively Log * and c will remain constant for
,
We m +t
l
[x]
then have
and
lo S
= = =
=
log k
lag g
log
[x]+t
f
- log
^
s)
(log k
- log k + tlog o
+ c* (c
log g - log
t (
go )
Similarly log
(P[y]
(log
Therefore
Io S
Aw
(putting 2cTO
= = =
2 ( lo 8' k
d"
~ loS k +
lo S *)
+ (^ + ct (c )
+ 2cw (c<
lo
& ~ lo S <)
go )
cv)
2 (log k
t
- log k + 1 log o
s)
log g - log
(
= So^,,,, =
-P[w][i]
[w][]
where
Similarly also
c^
c'J
=
.
2cw
Mfe]w
<^
(m)
[roM , e]
(m)
.
where
It
31
c^
to
""
terms
= mcw
may
a [x]+r:[y]+r:[z]+r-
(m)
[w]+r:[w]+r:[w]+r.
(m)
"
CHAPTER
XIII
We may
shall
easily transform Text Book formula (1) so that be suitable for application to select tables.
^m
But aai-lii/ ,
=42
,
,\
up , (1 *x-l r^
) + aa;:i/+l'' and
,
x:j/-l
=
)
w (1 + a%+\;y' *%:y-l^
,
Therefore
A^ =
J { A^
+ ^(1 + a,
f+1
- ^(1 + >+1
Hence
A MW " A
)}
Again, since
- d(\
+a
),
in a
form
for
finding the
value
of A*,
of
joint -life
annuities.
Ky =
2.
iU -
*(*
+ %) + %(! +
a,
s+ l)
- *Pj} + ,+!
annuities
)>
In calculating the
necessary joint-life
or
the
suitable
17,
it
commutation columns
is not at all essential that both (,r) and (/) be taken from same mortality experience. The two lives are of quite different classes, and the risk will be most accurately calculated by taking their mortality from different tables. The standard
the
basis at the
in
present time
is
to take the
table for
(if)
who
the position of an annuitant or life-tenant, and the O is table for (x) who comes into property on the death of (y),
and desires to insure against his dying before that event.* Tables of A 1 and P 1 on this basis have been calculated by J mj xy
* See,
however, the word of caution on pp. vi. and vii. of British "Select Tables, Whole-Life Assurances Males.
Offices'
chap, xm.]
II.
241
Messrs Baker and Raisin. Further, it is wrong to calculate the from an aggregate table, for (x) is usually the younger life, and in such a case his mortality would be underestimated, while that of (y), the older, would be overestimated, both
values
errors operating against the office.
3.
may be shown
,|q Ti-1 *xy
I
simply thus
2tj
= =
2( jo Ml-1
|
?x
ti-1
,|oM ?xy'
I
1v n
7i-l
I
I
1 , qx - 2uTi-1 o xy l *x
I
= Ax Again
Ai
xy
A*y =
2
2jj m
71-1
in
|
JX1/
= =
2(
1(7
|
lfl-1)
*>7i-l
'*/
71-1
*:ry'
Stj^C
^Tt-l
,1(71
J
A
!/
Axy +
Ai
xy
may be
by summing from
to n only.
Thus
A' =
ft
a^/
2?u A
,i(i
ft-1
|
J xy
= 2%r
jo -
jo
=
4.
\n
A xy -I\n A 1 xy
i
An alternative
1 1 l
formula for
A^ may be
found as follows
\n
^Wftiy+ft-l,
s+ ft-l:y+ft \
ti^A +:+
pj+ii _ 1
p^.j
= 1(, A -.l^tl+ii^iil) / \
-tf
ft
XJ/
*y-l
*x-l
242
ACTUARIAL THEORY
[chap. xin.
5. The Text Book formulas (8) may best be obtained by deducting the corresponding values in (9) from the whole benefits.
Thus
|A 2
I
xy
2 = Axy -
I
|
Axy
2
|
I
\n
AM
xy J
Ax - n\ Axy |
1
I I
The application of Davies's and De Morgan's types of jointcommutation symbols respectively to the case of A^ may be
in
We
have
Axy =
1
-rT
I I
'Zv t
dx+t-l
,
,, , y+t-i
Now
>
y,
we may
y+t-l
write this
D xy
YiiX+tfl
v
l
x+t-l
x+u^
y+V
2D xy
7
4-7
x+t-l y+t-l
x+t-l y+t
x+t y+t-l
-7
x+t
y+P
2D xy
t
,(N - , x 1
>
y-
y-l
+N xys
Also where y
'
>
q
x we have
S/oV+ X l
x+ t-l
+t-l
x+t-l
+t~
y+^
2D xy
(N x-1
,
>
:
y-l
2D xy
Under De Morgan's form we
x+y
St)
2
(.
shall write
x +t-lh)+t-l
+ lx+t-l iy+t~
x+t
y+t-l~ lx+t
y+t)
2D xy
(N ^
, x-1: y-l
-N xy' + w4(N
) ^
se-1
:i/
-N %;y-l'
,)
2D
chap, xni.]
7.
II.
243
To
find
-=:.
x:y(t\)
Al
+ v2dx + l +
,
+v dx+ t-1
l
4.
+' V+i
I
I,
x+t+1 y+lj
x y
u(
I /
vd
,1
+ 2
~7
<i
x
A
x+t
Al
Dx+t
x
In practice the following approximation is sometimes used for finding A *.^ Find * sucn tnat e = e +<, and then write
:
1 -gr x:y(tl)
Al
xz
8.
in this approximation
we should
write
AL
1+axz
true
value
To
find
the
of
ov (*)
A l.m
out.
either
w
for
divisor of
1+ ^:^j
1+
Ai
(a) If
we take P*.^ =
in
x:m)
,
i+ax:y(T\)
an option
For
if
is
given which
is
not allowed
the
calculation.
may be
a less
premium than
that Pj^-.n
Thus
it
if
is
end of the
year where n
is
small,
possible
<
P*."7^V
also
be
exercised in respect
of the
fact that
premium
On
if
we make P 1
=r.
. Ax:y W
1 ,
a risk of
xy is being run. For if (y) be on his deathbed and die one payment of premium, the office is granting a /-years term assurance for a quite inadequate single premium. The former method is probably the better.
another kind
after but
9.
To
in the event
244
ACTUARIAL THEORY
The value of the assurance
[chap.
xiii.
x y
x y
Vdx
ly
+i +
M
+
.
X+ l
y+n+
y + t+i
x y
~T~ x
x
%+t
* + t y +i
+ v2d*+t+i ly + H +
T~ly x+t
- A1 - - A
=
1
+
1
.
x+t
x
A
:
Ax:y(t\) - Axy
is
This result
obviously correct
is
equivalent to an assurance payable should (x) die before (y) or within t years after the death of (y), less the assurance payable
(y).
10
A1 = ' xyz
S"
x+n-l
I
y+n-j e+n-j
I
I
r~
%
y
I
y+n
z+7t-l~f" z+n
m
z /
+ +
,
m j m ii m
2
in
x y
x
x y
ill
x y
z
x+n y+n z+
m m
i,i,,
(A
4 V
*
JHziAlzJ
a
|
x-l:y-l:z
fl
:y-l:s ^.^zlitii^
Vl:-1
a
,
Px-l:y-l '
\
\
Py-1
P-U-l
ag;:i/:z-l
s-1 :y:z
chap, xih.]
II.
245
since
IIIz x y
IJJ. x y z
result
by
a
\
:y-l:z
Px-l:y-l
Px-l:z-l
Py-i
+
which, however,
is
x-.y.z-l
l
x-l: y:z\
a small quantity.
also
1
+ Vl y+lJ - ^J 1 + Vl
:
.+l)
1
+ Vj} + %
etC
-
,+i .+i)}
:
,:,-i :,-i
= ^:-.,-,(
+V:
:)
may be
11.
we have
j\2
**
1
y
I
y+n-j
z+n-j
I
_ "
d y7i +-!
Az+rc-
_y
j,
dic+n-1
I jz+ti- 1
Az+7t-$
11z %
IIIz x y
= Ai -Ai xz xyz
^2
_ gt
'
,7t
+-!
(
y+n-j
I
z+n-j
z
II
.
z+n-j
z
y+n-j
I
\,n
dx+n
,
/ / -I t y+n-j
,
,
+
,
z+n-j _ q
,
11z y
A a^ +A az -2Ai
1
1
aa/3
246
ACTUARIAL THEORY
A.8 xyz
[chap.
xiii.
_
~
Vj,ti
d x+n-1
i
-Iy+n-j x +
I
'
-Iz+n-j
,
,
_.
2i,n
+"-! _
x
2j)
*+"-!
x
4-
2i
dx+n-1
I
xi 1,1,
y
V+n-h - Yv n x+n-1
z+n-j
V+n- l
I
z+n-j
I z
= Ax - Ai - Ai + Ai xy xz xyz
Al
*
:
V;t
x+n-l l y+n-*
4
z+m-$
/
z
z+?t-$
/
y
I
y+ft- 1
v
V
I
.
+
,
y+n-j
,
z+
I
't
r~\~r1
y+n-j z+m-A
= A xy +A* -A xyz xz
1
(It v
Ax = A x - A3 yz xyz'
1
:
,
Y-,71
y+n-j
j/
y+n-1
y
x+n-j\
a;
Axy:z
%,)!
-I
dy+rc-1
,
/
a;
-/x+n-j A
)
z
I
y
,
y
,
,
yM +"-
,
,/d
(
+-!
,
i z
+
,
dy+n-1
,
x y
n
y
i = A1 + Ai - Ai - A xyz xz yz xyz
12.
To
find
2 Pxy
p2
A x -A xy
1
In granting such an assurance by annual premiums, (y) must be medically examined as well as (x). For were (z/) in bad health
and about
to
die,
the
,
office
2 Pxy' which
is less
a whole-life
chap,
xiii.]
II.
247
13. To find the annual premiums corresponding to the assurances in Text Book formulas (22) to (27) inclusive. In obtaining the statuses for annual premiums, care
must be
exercised that premiums are not taken into account beyond the period when they certainly cease to be payable by reason either of the benefit being paid or of the chance of its payment having passed.
p2
f
1
2
A2 xyz
1+a xz
must be medically examined.
A2
"U"
Here both
(x)
and
{tj)
P2
= ""
1+ax:yz
A3 X1IZ
P3
*n*
= " 1+a X
three lives must be examined.
all
x:yz
_ _ ~
Ai
\
x:yz
1 -^, Px:y(t\y
_ +ax:yz
" since, e '*=>'' '
The same
if
(z)
difficulty arises *
as in the case of
die
early,
^\:y~z>
say
during
the
rth
year,
then
possibly
^xTf.y+t
office.
<
anc* an P tion
is
may
The
alternative
to
1 make P*:* =
Ai 1+a
ivH.
xyz
with
is
a corresingle
insufficient
premium,
examined.
if (z),
say,
be on
deathbed,
(x)
alone
medically
1
ixy'-.z
= Pxy:z
3
248
ACTUARIAL THEORY
Then
finding
[chap. xnr.
such that a w
Ai
Also
A- = xy'.z
S
Ai
xz
write
xyz
xyz
Find
have
w
:
such that a
Axy
z 3
such that a
and we
,.
1
15. To find the single and annual premiums for an assurance payable on the death of the survivor of two children, ten and fifteen years old respectively, provided both die before attaining age twenty-one during the lifetime of their mother, aged fifty.
The
I
single
1
premium
is
11
16:21:S6
,
Ai
5
F)
10
:
16:56/
15
50
To
premium divide
a
|6
this expression
by
i6
:
i0 ISO
*"
|6
a iB
:60
i0:15:60
+^
6^10:50^
e^ie)
|s
56
16.
To
find
Ai _ ao xy
:
A\.~ = ao'.xy
=
ax
+Ai -Aiaxy' + )
ay
1
(A} ^
bx
( A
V-
<abi:x~
_L
'abi-.y
>aW :xy>
(Ai
v
ax
+ Ai + AJ + Ai ) ay bx hy'
+Ai+Ai) abx
aby'
abxy
dbxy'
abc
,
:
(tti)
xyz
()
^ may
j
To
find
2 Awxyz
1
1
-Ai ) + (Ai -Ai ) + (A> -A ) ^ wyz V wxyz' \ wxz wxyz' wxy wxyz' = (Ai +Ai +Ai )-3A! > wyz wxz wxy/ wxyz
(Ai
'
'
p.
xm.]
II.
249
18.
3
To
A
1
(Ai
^
i
-) yz'
1 1 1 = {Awz -(Awzx +A wzy -Ai )\ ^ wzxy' 1 1 )} + {Ai -(A* + Awxz -Awxyz-' ^ wx wxy
( >
wj/a;
+A
v.
-uji/s
>
was/
wa^/z
19.
To
find
4 Awxyz
= A w -A} -{(Ai +Ai +Ai )-3Ai } wxyz wxz. wyz' wxyz' wxy
l
>
1 1 1 -{(A* +Awy +Ai)-2(A! +Ai + A wyz' U3A wxyz>} v V wx wxz wz' wxy
*
1 1 = Aw -(A 1 +Ai +Awz 7 + (A wxy +A wxz +Ai )-Ai ) ^ ^ icy wyz' wxyz
1
itfffi
Or
) wz''
may be
easily obtained in a
manner
shown
I
Chapter X.
a
d_
v*.
Jo
a
p tlx dt
v*l
dx
,p
), dt
But
as
0*.
- fi+ ,)A
Therefore
-r-
dt f A^-^+t) Pxy
t
And
since
u rxa xy
-A xy
1
(3. +1
~ Vi:) approximately
250
ACTUARIAL THEORY
In the same way, since
a
xyz
[chap.
xiii.
= = =
J
I
v'p dt t^xyz
vt (
dx *v
Jo
I
I
\dx*
vHu, ^.r"a;
p7' \p
4
dt
v
-u ,,vp ~x+t)t*xyz
1
aa/z
eft
im r a; a aa/z
-A
and since
d a
fl r
.
xyz
1
ici/2
= aa-f 2 ^
,
j/2
-az-lia/z') approximately rr j
,
we have
which
21.
is Te.ri
u, r s a ki/3
We
in
Text
Book
si =
=
rr/o
'*+''*+'* ~a;+S
TT
C'
'
'
s+e v+i
'
iV
' //
+ d'Tz
\-jyix+t
.
y+t
+t
+^
+t dt )
^it/ rt
""
-+
^ +>-+* + /V< )(
c^
+ c^
in
^
of Gompertz's law, the method
22. Following,
the case
adopted
/.
I.
by Mr
Colenso with
regard to Makeham's
formula in
we have
this expression:
*y
x y
Jo
*+t y+t
b^
t-7
I I
rv c
l
J0
,J t x+t y+t
,
dt
= ra') (a! u, v i
=
/j,
j '
where
1+1
\+i
:)
a'
{a
= nx +/x J a ry ). *w
'
II.
chap,
xiii.]
251
23.
Under Makeham's
Text
Book
formula (38)
may
also
be obtained as follows
yJ u
~*y - Aa + -fi{? H* +
l
t
y+ t
Bctdt
= A
%+
^ n7
+
"v
"V
Bc* +t+Bc!,+
+ cv
ti*
-
-A_
c?
+ cy
cv
Acr
*y
(f
+ cv
A *v +
c*
+ cy
A=
log s
Also
Axyz
1
. .
(ro)
X
'
(
xyz
.
vH
(m)
_,, ^, x+t:y+t:z+t:
(m) V
,
,(A + Bc*+
)<fc
/
= A
(to)
+
H
(m)
Bc
^
/
(m) y u
= Aa !(?... (m)
c*
a:
+ c + c* + ...
i
'/
to terms
to
Z
a^/2
.
(m)
.Jo
x (Bc +
+ BcJ/+ + Bc*+* +
(
.
m
,
terms) <ft
^...(m)
....
If"
ca:
+ C + CJ +
!/
to to terms
x 0*.+, + /*+,
+ /*,+ +
to
arc/z
(to)
= Aa
sty*
... (m)
h ^
c1
+ c* + c2 +
to ot terms
f v
Aw
()
- mAa
**
W
. .
c*
c*
+ c* + c2 +
to
terms
to m terms) + c" + <f + + cy + c* + -to m terms
(c
-
mcx cx
... ()
'
252
(putting Kr
c^
ACTUARIAL THEORY
+ cV + c 2 +
[chap.
xiii.
to
m terms = mcw
,
, '
and a xyz
(m)
= awww
~\
. . .
(my
=
ffl(<w
Awww
(m)
qw
log * a & w u ww
(m)
24.
Mr
following expressions
A*
1
J:,I
In J "
+ Bc*+*)dt
x y
x+t v +t
(a'
**
\+j
l+jj
(a'
\
;',
'
since
A=
- log s. O
Similarly
A
And
1
:cyz
= -logs
www +
C , v
+log*W www o y
generally
Axyz
Mr
Basis
. . . .
(m)
= -log*
www
(m)
+ ( ^r
:c
+log.s")o' o
/
www
,
.
(m)
-log
1
log
(/j
+log
s),
and
lg,a' 10 www
:
A xyz may J
be easily calculated. J
Carlisle
25.
may be
obtained thus
chap, xhi.]
II.
253
'xyz
()
1
-
J ate ...(.) J n
r vh*+' ^ x+t
: :
y+t z+t !/
:
(m)
.1
tn)
v
{mA + B(c*+* +
,
c+'
c*+*
+
x
to
m
z
-\
terms)}*
_ m \n xyz
X
/
.
.
(m)
.
abc
(*)
/""
/
c*
to
ra
terms
1 'xyz
y'Z
n u
(m)
ahc
(ny
x+f.y+f.z+t
(m)
a+t :b+t:c+t
(n)
{/*,+,
+
s
/*+,
/*,
+
c
to
terms
t0 n terms
+ Pa+t + Pb+t + P
c
x
+t
w + )A
re
.
_
terms
a
xyzabc
6
. .
(m+n)
.
to n terms)
terms
x
since
log &
(8xyzabc
.
,
. . .
(m+n)
,
A =
log s.
26. Text Book formula (42) may be obtained directly in a manner which throws light on the ordinary assurance of the same kind proved in Text Book, Article 21. (1) An assurance The benefit may be divided up as follows
:
of death of (x) provided (y) be then of 1 alive, and (2) a temporary assurance for t years to be entered on by (x) at the death of (y). Thus
payable at the
moment
/-co
x y
Azy + In x y
1
I
/-co
vnl
I ix x+n y+n^y+vS
t<-
v'p _2 = Ai + A xy - -r^ f xy I I
/CO
I
vnl
x+t y J
Ax+t+ndn
, .
,
\-
vt
t
Px X iTt:y
254
ACTUARIAL THEORY
[chap.
xm.
EXAMPLES
1.
Find an expression
(x)
for
A A
chance of
But as the chance of both deaths occurring in the same year may be neglected, we omit the second term in the expression, and we have for the value of A 1 under the conditions specified r
xy
2v n (
\n-\ r x
.p
W
J
p n> ayn 1 y
p *-i=y
p)
- p )
V x-1 ,
This benefit is of use when studying formula (11) of Text Book, Chapter XIV., and its modification in formula (14).
2.
annual premium payable during the joint lives of (x) and (z/) for an assurance payable on the death of the last survivor of (,r) and (y), but half the sum assured to be payable on each death if (x)
dies before (y). Do you see
during the
life
The
half
is
two parts
where
assurance
payable on his death, and where (y) is the survivor payable on each death. Therefore the whole value is
2 A2 +|Ai + |Axy 2 xy * xy
= 1-^(1+^ + ^-1^)
chap, xni.]
II.
255
= P(l+o
and
P = to
-d(l ^
The objection
life
were to die in the early years might be able to secure the benefit of own death at a smaller premium, provided he
that, if (x)
(?/)
Deduce a formula
if a life
payable
lives five
for the annual premium for an assurance aged x dies within the next five years, or if he years and dies after another life now aged y.
The
first
is
A*. .
5
(jj)
years, ' J
we have
.
v ^p r
b
within
is
five years, v 6
(1
p )A
-nc y+b
= Ax -
t 5J x
+
c
JJ
c 5 J" x
A x+b -D 5b 1 xy A x+b ,p
,
payment
side is
P{%
61
VJ
= Pa
a;
A
Hence
P =
-*
1 v b V A x+b:y+5 & xy
Express the value of an annuity-certain for n years, payable quarterly, to begin to run at the death of (x) if he die after (y).
4.
256
ACTUARIAL THEORY
On
the
is
[chap.
xiii.
of the
annuity
Therefore the
5. Deduce a formula for the annual premium for an assurance payable on the death of (,r) if (^) has died five years or more before him, the premium to be payable during the currency of
the assurance.
The
benefit here
if
is
assurance payable
(y), that is
equivalent to an assurance on (x), less an he dies before (y) or within five years after
(x)'s life,
equal to
whence
P =
Ax - A
_
-~.
'-"^
6. State a formula for the annual premium for an insurance payable t years after the death of (x), if (?/) has survived him and died before the end of the t years.
Benefit side
tt'fetl"-*
\ N
x+n ~
v.
It
l
V+n-l
ii
Vpn-}
x+n-1
r.
It/
it
v+n+t-j\
*
xy
ry
x:y+t'
The premium
with
(x)
will
be payable so long as
(x)'s
(?/)
survives jointly
and
for
years after
death,
= P(l+a
.zsjO
__
xy
1 y
x:y+t'
chap, xrn.]
II.
257
7. Give the formula for the single premium for an assurance payable at the death of the last survivor of (x) and ( y), if that occur in the lifetime of (z), or within t years after the death
of
(4
+
_
( j^
1
"-
A
{
.-%f(V:
A ^:,)}
D xy
x+t:y+t
-A -A x+t:y+t:z x+t
:y+t :z) f
I
-L.
^l
8.
for
death of
lifetime of
benefit we must deduct from the ordinary assurance the value (1) of an assurance payable should (x) die after (y) within n years, and (2) of an assurance payable should (x) die after
To get the
on
(x)
n years,
{jj)
The
benefit side
Ax -{I\n A 2 +(1- n*y'n\\A\ p) v xy = Ax -|\n A+l\n Axy - n\ Ax +v nn*pxy A x+n x = \n Axy +Vnnxy Ax+n p
l
x>
which
(y)
is
n years,
{jj)
having
The payment
side
is
Pfl
<
And P =
\n
Find the annual premium for an assurance on the life of money to be payable at death or on the expiry of n years, provided that in either case two other lives (y) and (z) are then in existence.
9.
(x),
the policy
258
ACTUARIAL THEORY
The
benefit side
is
I
[chap.
xiii.
\n
Axyz +vnn^xyz p
1
And
is
xyz:n-l\'
Hence
P =
|ro
+Vn p
^?
Give the formula for the annual premium for a temporary 1 payable in the event of (x) dying before (y) within n years, (s) having died previously.
10.
assurance of
The
benefit side
is
= A^ xyz
1
\n
will not cease on the death of (z), and therefore does not come into account in settling the currency of the payment side, which accordingly is
The assurance
life
that
pn+o
And P
n
\
Ai -I Ai n xyz xy
11.
for an assurance payable on he attains age x + n and dies before (jf) and the premium to be payable throughout the whole period
of the status.
The
As
benefit side
=
?i
1 1 A xy - n\ Axyz
I
the continuance of the assurance, and therefore the be payable so long as (x) and (^) jointly survive.
side
is
accordingly
P(l+fl
)
vz
and P
|A1
"1
"ti
- |A1 n x
\
\+axy
for
12.
How
an
survivor of three
chap, xm.]
lives
is
TEXT BOOKPART
II.
259
life
aged 40, 50, and 60 respectively, provided a dead before the happening of the death of
aged
>0
the survivor?
a
i
The
benefit side
side
2 = A = a 20:40:50:60 ^40:50:60
40:50:6 0:20
The payment
Hence
= P(l+a ^ 40
A
60
:
50
^ 60'
P =
A 40
60
40
so
go
20
+
40:60:60:20
40
50 ==
%
: :
50
60
A40
40
+ 20
60
:
A 50
_
20
+ A 60
:
20
A 40
:
50
20
20
~~
20
40
60
20
~
:
50
60
20
50
60
+ 20
40
50
60
20
40
60
60
+ A 40 20
60
60
20
13. A sum of 1 is to be divided among such of the existing children of a widow aged w as may be alive at her death. What is the share of (,r), (a) assuming that there are two children aged
x and y respectively
now
alive
aged
both
x, y,
now alive, (6) assuming that there are three and z respectively ?
(a) If
A,
but
if (y)
(a-)'s
value of
(,r) and (y) are alive at (w)'s death then (x) receives has died previously (x) receives 1. Therefore the share is
1 AA wxy +A2 * wxy 1
(JJ)
(to),
(x) receives
;
he receives A
1.
)
and
if
A if (x) he alone
;
is
AAi o
21
12
14.
Given four
and
assurance to yield at
lives (a), (6),
(c)
and (c), find the value of an death 1000 if one and only one of the shall have predeceased him, and 3000 if
260
ACTUARIAL THEORY
[chap. xnr.
two and only two shall have predeceased him. The expression to be reduced to assurances which determine on the first death.
is
is
3000 (A^ +
15. Three partners, A, P>, and C, aged respectively 30, 35, and 40, possess a capital of 10,000, and their proportionate interests in the business are 2, 3, and 5 tenths. How would you calculate the premium for an assurance to cover the risk of having to pay out the representatives of the partners who may happen to die first and second ?
The
is
2000A i
It
sFTlo
+ 0OA L
-.
aoTIo
+ 5000A i,
^
2fl
1
would be advisable that three separate policies should be by single or annual premiums, one for each part of the above benefit. If, however, one annual-premium policy is essential, the payment side will be
effected, either
30: 8 5:4o)
qa
P = 1000
possible
30:35:40
36:30:40
fl!
1-5A
40:30:35
1+as0:35 + a30:40 +
35:40~ 2o 30:35:40
It
is
that
office in
in the first
viz.
under such a policy an option may be the event of one of the lives dying year. The premium for the remainder of
2000A1
the benefit,
at less
2~ +3000A1 2^i,
+ a31
:
will
36
16.
Give a formula
for
P*
,
the annual
premium
for
an
chap, xm.]
II.
261
The
benefit side
1
= A 30:10|:60 = A ^30
:10|
_4-Al ^ ^30
CO
-Al A 30:60:ioj
The premium will be payable so long as (30) survives jointly with the survivor of 10 years certain and of (60), and for the payment side we have
^on SO
. in, . en :10| :60
SO
10|
:60
30
lofTio '
30
1
ioj
+ a 30
1
i
60
~ a 30
60
ioj)
Therefore
1 = P30 10|
:
=
:
60
o
30 :10|
T 30:60 _
30:60:10]
it is
tth year.
is
in good health, he
may
less
10 _,,
which might be
it
On
would not do to make the premium payable so long as (30), (60), and 10 years certain survive jointly, unless evidence as to the health of (60) were produced. For if (60) were dying, then (30) would secure a short-term assurance for 10 years for a very inadequate single premium.
17.
value of
I.
the
5
since
72
79
= "
lo S fl ~35 72
:
79
0*116
+ lo S *) " 8 5
72
79
=
/" 5 3
-log
u
/
72
V73 71-73: 71-73 + <>35 + l0 S*Kn-73: 71-73: 71-73 + /"-9 = -01020 + -06558 + -11692
.9
:
-19270
3 /*71-73
.
= Now
-log,-71
.
7S:71
(,u
73:n
73
-02930
and
3-29072
-68205
s6
3-97277
log -00939
]0
262
Therefore
ACTUARIAL THEORY
[chap.
xiii.
i 85
72
79
-02930
+ -00939
=
(
very nearly.
"J)P 1
BB
:72:79
r^f^ 2^ K
3B
:
approximately.
79
72
03869
4-053
=
18. Investigate
very nearly.
an expression for
this leads to
-a
dx
xn
,
\
d = -r-
f
I
dx)
v\p dt tlx
r/ufy
1
)dt
dt
l
= =
On Makeham's
-
'xj
fn
I
v* t p
dt
fn
I
'
t*x r x+t
,
p a
dt
a a
. xn\
A1-, xn\
p. =
( (c (
'Bc x (c t
hypothesis p
1),
and therefore
dx
-a=-'Bcx *l
Jo
-llp xdt H
we
see
that
it
represents
The value of
;
ments
or
(6) The difference between the values of two uniform annuities, one calculated at the ordinary rate of interest, say i, the other
l+j
1+2
chap, xin.]
II.
263
19.
Show
Makeham's hypothesis J r
y,
=
the
"v*
31og
- s-S
for
O
all
values
>x
'y
of
''z
x,
and
z,
which
satisfy
equation
lg*
"
Mx + lo g*
^r*%
i^y
Since
>z
iog*
/\+ lc g*
B(2cc -c-c')
Be
2c*
c"
c~
Therefore
Sc*
= =
+ cu + c*)}
C-
+ CV +
C--
^-T^
it
Ti v
ij/z
_ =
'
rX c cx
+ cy + cz
for
A A xy* _
C"
-t' 1
cf
+ cv + c*
logtftf
substituting 1
- Sa^
A^
C
te
!^^log,a-
its
= =
cx
+ &> + C
logs
c*(31og s
c*
S)
logy
31og J - 8
264
ACTUARIAL THEORY
20.
[chap, xiii
Find an expression ^
d
di
*u
for
-^
di
-
a
*
dv d
di dv
*v
P dij dv
/CO
tPxv
Jo
tlxy
tv*.p
Jo
tlx
dt
21.
Give a formula
without further inquiry as to health, the sum assured by a survivorship policy payable only in the event of (x) dying before (j/).
If,
premium
on the option being exercised at the end of n years, the to be paid is to remain at the rate of P * per unit for
of
f
selection, should
,)
is
(PL.
is
(PL-
-rr-
- P \r
D MM
If,
(V
M+ :[]+
when
,
pi
is
M[i/]A
yi T
lx]+n:[y]+nJ-
however,
the option
to be exercised, the
premium we must
.
substitute for
22.
P*
mlV\
P [y+n] [x+n]
i
select life, (x), desires a contingent insurance against (y) if he be alive at the death of (?/), he shall
have the option of converting his policy, as at the next renewal date, into a whole-life assurance at the ordinary annual premium applicable to his then age without medical examination. Obtain an expression for the net annual charge required for this option.
If the option is
assumed to be exercised
[x]+t~
at the
end of the
tth
year
its
value
is
(
ix+ty\x]+t
chap,
xiii.]
II.
265
is
tfth
~ P [s+<]) a M+<
t
Summing
and dividing by a
we
premium
lx
+ ty\x]+t
MM
P [s+<]Xa
=
23.
2
<-i|9[i/](
M+< ~
a
M 3 aM
-Fy)
M]
Show how
Makeham
an assurance payable in the event of (x) predeceasing (y), (1) (x) only, and (2) both (x) and (y), being resident in a foreign country. It may be assumed that the extra risk is represented in the case of a single life by a constant
addition of -01 to the force of mortality at
all
ages.
A' 1
(1) K)
<>P'i
xy
=
=
+
dt
lv
,
where
A^
j^\p xt p/ x+t
J o
A' 1
xy
+ -01a' xy
+j
1-03'
7T,
Also
a' xy "
= .
r
J
xy
found as above.
266
ACTUARIAL THEORY
()p"i
*
[chap.
xiii.
(2)
=
=.
A" 1
i+a
TOO
xy
where
A"^
J^\p'
xt P y ^ x
,.dt
=
both A" 1
1 xy
A"i +-015"
xy
xy
at rate v;
which
is
such that
CHAPTER XIV
Reversionary Annuities
1.
The temporary
reversionary annuity
I
\n y\x
I
a
to
a
7i
xy'
where (x)'s chance of receiving payments is confined to the first n years, must not be confused with the annuity to (x) after (y) for
upon only in the event of (y) dying n years. To obtain the latter we must deduct from the reversionary annuity, a the reversionary annuity after
life
is
which
to be entered
within the
first
.Its
-a )xy'
vn
p m-rm/V
(a
x+n
ax+niy+n-
) 1
This again
n\
is
different
n\
x
y\x
v n r (1 n px x
under which, as pointed out in Text Book, Article 5, it is not necessary that both lives should survive the period of deferment.
Another benefit to be distinguished from the foregoing is the annuity to commence on the death of (j/) and continue during the subsequent lifetime of (.r), but in any event to the end of n years certain from the present time. This is a reversionary annuity
on on
n\
then
I
-i y\n\
I
+ %\ a y\x =
I
C-i ^ n\
~ a -i) yn\-'
Finally, this
is
different
268
ACTUARIAL THEORY
and
for so
[chap. xiv.
much
longer as (x)
may
1=^^)
n-1]'
x+n
x+n\y'
2.
To
premium
for
an endowment assurance to
payable at age (x + n) or previous death, the premium to be doubled in the event of the death of (j/) before (x) during the
(x)
n years.
We
-, = Axn\
Paymentside = P(l +
=
Whence
The
tih
P =
2aa;:m-l| axy:n-l\ ^ r,
if (#) die early, say in the his benefit at a premium of
difficulty arises,
however, that
obtain
less
year,
.
(x)
may then
r,
which might be
would not in this case obtain the premium on which reckoned in making the contract.
office
which the purchase price of a (?/) should be paid by them. Each is entitled to half the annuity during the whole of his life, and to the remaining half for the period succeeding the death of the other life. That is, (x) is entitled to
3.
To
and
la A
+ lay\x = ^
I
a la "
x
xy
and
(?/) is
entitled to
la J
+la z
y
%\y
a la
y
xy
Now
laxy +a laxy = x * *
+ay - a xy x
:
= a xy
which is the whole purchase price. Therefore pay (ax - la ) and (a -la ) respectively. x j \ "
xy*
(.r)
and
(y)
must
xy
4.
To
is
on
(x)
and (y)
which
to be reduced
by half
chap. xiv.J
II.
269
payable during the joint lives, but half after (y), or (y)S life after .v. Therefore
I
xy
+ la 2
j,| j,
+ la x \y = Ma T a ) t2 !l", + ",j
I
which
5.
is
obviously correct.
The
easily
identity proved in Text Book, Article 18, may be very demonstrated by working from expression (1) to expres-
sion (10).
VP
%+v\PX (% + \%)+V\Pz (% +
l
\<ly+ 2
\'l
)+
etC.
I^(l
x y
+t! pI+1+t
VJ+1+etc0
+ !!it^i (1+
x
y
^ +2+
Vv2+etc0
vH
i
d
y
etc.
6.
In
Te.ri
Book,
pointed out. But similarly two lives may be assumed throughout to be that shown by two separate tables. Thus in
(.r)
mortality to which
subject
is
the
mortality
experience
of
the
the annuity aj
the assumption
may be made
class
that the
(x)
[NM]
Table
to
which
belongs
and
that of (y).
Then
a
w\w
%]~%]w
Table, and
a.
,r
where
with
a,
is
O O
is
calculated
[NM1
the annual
It is to
premium we
laf]
be noted that
(x)
(jj)
latter s early
270
7.
ACTUARIAL THEORY
Commutation columns
for
[chap. xiv.
the
calculation of reversionary
For
Vl
'+W +a
s+1
yv
^
'
+ vH
^ v+^ +
d
x y
x+
J+
"
"
xy
Z+1-'
s+2 y+lV
* /
it
ic+2-'
(ra)C
"
+ (m)C
1
L_ +l :y+1
if
>y
(ra)M
xy
D xy
(t)C
or
1+()C +i
1
-1.+
=
...
if
+*
<
(ro)M
xy
(l+i)-*D
D
()C
is
a
xy
If the annuity
is
to be entered
upon
,a
at the death of
(if) it
vU x+i ,d
,
a
y
tt+i
,+v%l x+S d
.
n
a:
jf+1
s+jj^
,+...
vx
Vx l
x y
D xy
if
>
ay
or
(ro)C !
+ (>C* +1
+1
if
<
(ra)M
xy
chap, xiv.]
II.
271
and ()M
is
suffi-
If the annuity is to be entered on at the death of {y) with a proportionate payment to the date of death of (x), we have
=
The denominator
will
take
the form
D xy
or
(l+i>-*D xy '
K
.
according as x
take the form
>
or
<
1
(ra)C
11/
-JL T + (ro)Ci+l:|+l +
(ro)M "x
xy
where
ro)C
= v*+U
,d /'a
,\
will give
ro
1 )M xy
8.
On
21, 23,
and
we have
clearly
ft
x *
y-\
which
9.
is
Article
by
a simple graphic
illustration.
L
A
I
i
J
B
Q
I
E
!
l
s
!
etc.
I
272
ACTUARIAL THEORY
[chap. xiv.
Let A, B, C, etc., represent the ends of rathly intervals as from the date of effecting the contract and let P, Q, R, etc., be at the middle of these intervals. Now on the assumption of the deaths being equally distributed throughout each interval, if (^) die, say, in the interval AB, his death will on the average occur at P. Therefore in the case of
;
the formula,
y\x
x
xy
the
first
payment, of
at C,
will
payments
D,
etc.
aW
at
it is
desired
payment of
should be
made
Q, and the
succeeding payments at R, S,
to be employed, it at B, C,
is
etc.
D,
at
correct dates of
payment Q, R,
S, etc.
payment
of v 2m
oW, he
vW
is
B and
this
or
between C and R,
etc.
Making
deduction
for
over-
to
shown
further correction
this
is
is
necessary to
also approximately
Aw ^ 1m make A
2
approximately. J
the annuity complete,
2
as shown.
sign,
finally,
i
i(m)
y\x
j;2mf a (m)
K x
a {m)\ '
xy
10.
To
find
\%
i. y\x
payments of
v 2m
J_]
As
before, let
chap, xiv.]
II.
273
a<)
a() at
at
Q, R,
S, etc.
v 2m(, a (m)_
^
[
n x
ft
a(m)\ J
xy
Now
of
z>
let
At
a payment
is
2m
is
due, but
to
payment of
outside
to
which
this
would
accumulate
is
by,
say,
falls
accordingly
not payable.
deduction
similar to that
We
2
then have,
gMi
|^|a;
I
2m(| a(m)_|
\-\n
-i-
v 2mv n c (I p % x^
-i-
- r )- 1 x p n y' 2m
|
\
A^
Besides an addition to
make
manner
as
for
we must add a
Therefore
|jli/|x
I
aW =
-J-
u 2m
^\n x
11
")
a(m>
iiW) -
/I
(
2m v -
\
)
7t-
vn
(1
- p
To
find
n\
|<i(>.
y]x
We
have
?i|
ia<> y\x
=
= =
ia( m >n\ n\ x
iaW xy
m vnn r xya<x+n:y-\-n p
)
,
v n r a< m ) v n x as+ft
vn
p n r x^
(I
first
will
of a year m
and therefore
S
274
ACTUARIAL THEORY
df-
[chap. xiv.
d<m >
m) dx+n
) x+n
j/+n|x+n
,
is
of
Therefore,
|dV)
n\
y\x
vn
n 1 x^
p (1 w-^aA
2m
x +n
but
all
claims at
moment
ignored.
12.
By
reversionary annuity
found to be
a
a
xy
Pa
y\
1+fl
Now
as the lives
the value of a reversionary annuity occasionally decreases grow older, and therefore the annual premium for an
(.r) after (if) may be greater than that for a similar annuity to (ai+1) after (^ + 1). This is a state of matters the reverse of what is usually found in assurance contracts, with the consequence that a level premium to be charged throughout may
annuity to
first and afterwards too great and were the assured to realise this they might drop the policy and get the
be too small at
same benefit
than
this.
for a lighter
premium
)
after a
year's risk is vp q (1
+a
=q
and Pa
first
less
13. To find the reversionary annuity to two children aged 10 and 15 respectively, which is to commence on the death of their mother aged 50 and to continue till both children have attained
majority.
This is a temporary annuity to (10) after (50) for 11 years, together with a temporary annuity to (15) after (50) for 6 years',
chap, xiv.]
II.
275
less a temporary annuity during the joint lives (10) and (15) after the death of (50) for 6 years. That is,
ffl
[ll
S0[l0
lo
5o|l5~
U^ollOUS
=
|li
(10
:
a iO~|li 50:10
1,
:
+ |6 a i5 _
:
lG
_
50:15
lo
iO:15
+ lo a50:10:16
ll|X15
6|)
60 :(10
ii|X15
6|)
14.
To
find a~\-r
xy\ab
(a)
* '
xy
(a, ^
\ x
abx
(a
+a) + axy yJ
(a
*
(b) v '
fl !-=
xy\ ab
(a
*
i|o
'
\,
(a a + a - a a +a ) ^ a a ax ay a axy'
ab
abx
ab
aby
ab
) abxy'
(a v
The problem
of
Policies
introduction of a beneficiary.
is to receive an annuity for life with the guarantee of n payments certain but if, on the other hand, the life assured survive the endowment period, then the annuity guaranteed at that date is for n years certain, and continued beyond the n years to the last survivor of the life assured
276
ACTUARIAL THEORY
This extra benefit for the
first
[chap. xiv.
(m + n -
years
to {y),
which however
after, or, in
is
not
payable so long as
symbols,
~V|m+i-l y~\m+n-\
y:x(n\y
And
symbols,
after
(3/)
reversionary annuity to
m+n-\\
is
x\y
The whole
re
extra benefit
therefore
Mm+m-l
\m+n-l
y:x(n\)
m+n-l\
x\y'
D
^
y:m+n-l\
yn\
J)
y+n
:x :m-l|
m+w-l|
x\y'
(See value of
=.
To get the
j
we must
by a in order
of (^) before
Qc).
EXAMPLES
1. An annuity of 100 per annum, payable until the death of the last survivor of three lives, A, B, and C, aged respectively
20, 30,
and
and ultimately
A's interest.
is
between A and B during between the survivor and C, if living, payable to the last survivor. Find the value of
Given
20
chap. xiv.J
II.
277
A's interest
a 20
30
+ (i a20
40
~ ^ a 20
SO
4o)
+ (20 ~
fl
20
30
20 40
:
+ 20
30
40^
we have
S0:40
13 9872
-
<W
m015
.
.
whence by Milne's modification of Simpson's rule, the age of the oldest life being less than 45, we assume w = 48, and
20:30:40
=
.
"20:48
=
.
Therefore
= 20-2246-8-9999
=
11-2247
= 1122,
9s.
5d.
Find the value of a reversionary annuity payable so long as three at least of the four lives (w), (x), (y), and (s) live after the death of (/).
2.
_3
wxyz
M
a
i
/]ira
a,l
/|tt
,l /|iei/z
U /|lj/z
3a,| /|wi*
joint-life
annuities on three,
is
!L
f\wxyz...(m)
2b
(1
K
- L
t
S J tl wxyz.
.. (m)
3.
What
is
and
(z),
100
the value of an annuity during the lives of [x), (y), a year to be paid so long as they are all alive, 80
278
a year after the
ACTUARIAL THEORY
first
[chap. xiv.
death, and
60
death
The value
of the annuity
80(<z
*
I
is
100axyz +
4.
x\yz
a-\
xz\y
a~\
) yz\x'
An
annuity-certain of
for the
term of n years
is
to
be
the
enjoyed by
lives
P and
aged x and y
and
expiration of
gets a reversionary annuity for the remainder of the term of n years after the failure of the joint lives x and y, but only in the
years.
a.- a
71
[
. xy n
:
\
years
should both
vm
(a
:- a
,)
Q's interest
*
is
therefore
t , ,
is
a xyz
xy
xz
yz
2a xyz
annuity a
(s)
The share
together with half of the annuity to the joint lives (x) and
after the death of
(3/),
or
\
la xy +la y\xz
la xji *
+-},a
*
xi
-la xyz
-
chap. xiv.J
II.
2 T9
The share
share
is
to
(y)
is
similar to
to
(' s
The
relative
positions of the
be changed.
Therefore (yYs
K,+K|
(s) gets half of the
K
12
*
K~K*
annuity so long as he survives jointly with (x) after {y)'s death, or with (y) after (x)'s death, or
4a s
+ ia j/z
xyz
=
6.
% + + V _2V
;
asabove
An
annuity of
is
last survivor
So long as they are all alive during the first 5 years, the annuity is to be paid to (x) alone and, so long as they are all alive during the second 5 years, to (j) alone. At
(*)> (y),
{z).
of
and
the
to
expiry of 10 years, or at the first death, the annuity is be divided equally between the survivors, and is to go wholly
the last survivor.
to
(y~)'s
interest in the
annuity.
The
is
5|5V + *
7.
10|5%,+ K| 15
1
M ,+
!/
|l5
*U)+
llitl,
An
annuity of
and
(2) is to
;
to the last survivor of three lives (x), (y), (x) and (y) during their
joint lives
and
(z) are
to enjoy
it
equally
during their joint lives and the survivor of them is to have the whole but if (y) dies first, (x) is to enjoy the whole during his life, and after his decease the whole annuity goes to (2). Find
;
The
value of
(x)'s
share
J xy
y\x
a x - la xy *
280
ACTUARIAL THEORY
The value of (y)'s share
[chap. xiv.
= = =
And
la &
xy
+&ax\yz + a\ * xz\y
\
-2ayz +2axyz' )
y y
the value of
share
I
= =
=
The sum of the
la ^
+ a yz xy\z
l(a 2 v
(a
^
z
yz
- a )- I (a "^ yz xz-'
three shares
annuity. ^
8. Find a formula for the value of a reversionary annuity payable for the remainder of the life of B, after the death of A, the annuity being reducible by one-half should such death not occur for 7 years, and by two-thirds should it not occur for 10 years from the present time.
If
be aged
x,
and
annuity
^"lO^VWlO lv+10
death of the three lives the
survivors
;
An
is
annuity of
is
and
(j/)
At the
annuity
equally by the
and, at the
second death, it is to be continued for n years certain to the last survivor of the lives or to his heirs. Express the share of {) in the annuity.
1c{a i
xyz
-a
*-
10.
(6)
fl
'2v
j t
for
a
|
(1
- p
and
for
_ 1 \q
x
t
p(l + a
).
L and prove
their identity.
0)
( )
\z\x
%\x = 2^-l|^
A( 1 +.+*)
chap, xiv.]
II.
281
^W* - tP)
=
2?,
- Pz ) =
t
^P
t
x
t
\
q<
-ll 7ji)
y.?iiC
+'!P, + i+
+ i+-")
2/u ( .p
x. ,\q(\+a
,,)
11. A father aged 50 wishes to secure to his two children aged 8 and 10 respectively, an annuity of n, to commence at his death and to continue until the younger child, or the elder if he be the survivor, attains the age of 21. Find a formula for the
Would
is
it
by annual premiums
ra
|li
50|l0-|li
50| 8 :10)
One
difficulty in
connection with accepting payment by annual in determining the period during which the premiums
made payable throughout the whole status, the run of the contract being dropped, and of a new one being effected at a cheaper premium in the event of the early failure of one of the children's lives. In this case to obtain the annual premium we should divide the single premium by
risk
(
If,
+ a50
i2|
ffl
50
10
~~
:
10|
60
10
ioj
is
consequence.
In this case
we should
if all
divide by (1
+ a 50
jo ib])'
It is possible, too,
that even
premium
A contract
avoided.
12.
cent,
interest,
Find, according to the Text Book Table, the value, at 3 per of a contingent annuity for the remainder of
282
ACTUARIAL THEORY
failure of the joint existence of
[chap. XIV.
on the
two lives both now aged 30, event of such failure taking place after the expiration of 5 years and before the completion of 10 years.
The formula
to be used
.
is
35
35
-,
1
25|
, 10^30: 30
^40 40
:
20|
_35j_35/
l " ?>
60:60
\ 60:60/
'
-(%l" a40: 40 ^
D
30
:
60
60
T)
40
:
60:60i
40
-( a 25|-35:35)30
5/"
40
^30
40 f ~( a ^"201 20l 30
"'40:40-' 40:4o)
= 9-42108 = 9-52032
1-90076
"251
lo S lo
D40:40 =
9>31707
sD 30:30 -
9-52032
17-413
15-142
2-271
log 2-271
35622
r-90076
25698
log 1-807
chap, xiv.]
II.
283
This might be written a-- a and in this form it means an annuity to the last survivor, not payable, however, so long as they both survive within the first n years which is the required annuity expressed in other terms. Our reasoning is thus proved correct.
;
side
= Paxyn
vn
-,
And P =
a
v
- 2a + xy
a
p ax
>y
+K'-v+n
which
to
(x) desires to
his death.
The
annual premium for a reversionary annuity provide for his wife (y) and child (z) after annuity is to be 100 so long as (y) survives, but
(y)'s death.
be reduced to 50 at
The
survivor of (x)
(6)
;
two parts (a) an annuity to (y) an annuity to (z) after the death of the
:
that
is
I
100a
x\y
+ 50o-i xy\z
determining the status for payment of were not subject to reduction on Q/)'s death the premium might be made payable during the joint life of (.r) and the survivor of (y) and (z). But in this case, should (y) die early, the reversionary annuity to (z) might be obtained at a smaller premium than that so found. Again, if the premium were made payable during the joint existence of (x) and (y), and (y) were to die early (she not being subject to medical examination), the contract is practically a reversionary annuity to (z) after (a-) at an insufficient premium. The best plan is, if possible, to have separate contracts for the two portions of the benefit, and have the premium for the former payable during the joint lives of (.r) and (y), and for the latter during the joint lives of (x) and (z).
difficulty arises
in
the premium.
If the annuity
Under a deed of separation, A covenants to pay an annuity annum to his wife B so long as she lives, and the terms of the deed make his estate liable for the annuity after his death.
15.
of
per
He wishes to free his estate from this liability so long as his daughter C survives him, and he applies to an insurance office for a quotation for the annual premium for such a contingent annuity. Find the net annual premium.
The company
will
284
survives jointly with
will cease
ACTUARIAL THEORY
B
on the
if
[chap. xiv.
Therefore
after the death of A, and the premium death of A, B, and C. the ages of A, B, and C are x, y, and z respectively,
first
is
Kxai = x\yz
and of the premiums
K(ayz -axyz' ) ^
)
P(l+a
K(a -a ) -2? ^P =
16. Determine the annual premium for an annuity of s to continue during the lifetime of B aged y, after the death of A, aged x; with the proviso that should A survive the age of
x + n a sum of
is
of the annuity.
The
is
>
The value
of the
is
premium which
will
P(l+
,{( - ayx )J
(> y
:
y +n
-ay+n:x+n->) +< ^ )|
+:+
J)
Hence
1+axy:n-l\ r
17. Give the formula, reduced to its simplest form, for the annual premium for an annuity of 1 to a female aged y to be entered on at the death of her husband aged x if that occur within the next 20 years but to be entered on at the end of 20 years if (#) be then alive, whether her husband survive that time
;
or not.
The annuity
is
to
The value
of the benefit
4(2)
"x\y
_ M)
1 y+W
2
= K"f - *) =
if
''V^OfU - *?U V+ J - K j
:
20
+i
Vj}
J
}
1 ,+20 + i + i^+SoC +
chap. xiv.J
II.
285
The
sides.
18. Write down an expression for the net premium payable by a husband aged 40, to provide an annuity of 1 to his wife aged 30, should she survive him the premium to be payable quarterly in
;
advance for a period not exceeding 20 years, and the annuity to be entered upon at the death of the husband, and to be payable quarterly with proportion to the death of the widow.
y\x
2m(- a(m)
*>
_ a(m)\ xy '
=
we have iW|so =
v 2m (a
if
we assume
sW = a-\ m-\
vi(a
s(j
-a 30
40 )
And
for the
payment
side
o^x^tU^
0:
20j
_
(ml
*y|
20
pm/a 80:40:20| + 8l a r
i
-Wi - D
^
50:6oN
ll )t
_ "
a(m) _
xy
%
%n\
Hence
TO
I)
x+n:y+n
1m
D xy
/..
(a
m+l\
2m
J
\ *+:+
m+1
,
x+n:y+n \
xv
a
30
:
--,:>
40
:
20|
_ + 6.A _
,
D, 50:60 \
T)
^30
40 7
A, aged 45, wishes his son, aged 15, to receive an annuitydue of 20 on A's attaining 60 years or previous death. Find the
19.
286
yearly
ACTUARIAL THEORY
premium
at 3 per cent, interest, using the
[chap. xiv.
Table
for
20a,.
Payment
side
= =
20 ( a
i6-
i5
45:i4|)
.
P(l
+ 15 u
.
-^
sides
^_ 15
15
45
liy
1+ai5:45:i4]
. .
An
approximation to a
may
1
be found as follows
15:45:U|
^5:45:151
^
_
= P 16:1^ + P46:1^- P
=10-192, and
flfij
lT|
Now
[M]
[16];1
^ = 10-899,
[NM
\
|
45];1
= 11-296
we
'
get
^ %l
=- 05220
P [15]
[46]
=-06294 approximately.
lTj
.r,.!!-i.-nn
:
[45]
14|
9-861
and
chap, xiv.]
II.
287
There are (S + T) persons involved altogether, and (s) will in only when the (S + T - 1) persons, apart from him, are reduced in number below S. Therefore his chance of getting a payment in any year is the probability that he is alive multiplied by the probability that less than S persons out of (S + T - 1 ) are
come
alive.
Now
abilities
is
exactly
exactly (S
1) persons out of (S
+Tt
p tr abc
Imnpqr
B+ xy
p r abc
. .
M
.
Imnpqr
. . .
xy
+ t^abc p
Imnpqr
m+ xy
+ t*abc p
z
2
Szll
.
Imnpqr
xy
z2
7 s-i
+.
(1+Z)s
1--*(1+Z)S
t"abc
. . .
s
Imnpqr
-
xy
where abc-
Imnpqr-
xy represents (S
therefore be
lmnpiT ...?y)
+T -
1) persons.
The
value of
K 2t>*A(l -
P aic ...
CHAPTER XV
Compound Survivorship Annuities and Assurances
1.
It
has been already pointed out that there are two formulas
annuity
y\x
i
and a y]x
I
a x ) + tJ
in value.
we may
express
compound survivorship
annuities in
two ways.
Thus
1 a yz\x
I
2d'
p t^x
i.o 1 \t"yz
for a payment will be made at the end of, say, the <th year provided (x) is then alive, and (#) has died before (z) within the
t
years.
But
|Sj,
=
=
%
2d'
\t%z
approximately.
Therefore
1
i
yz\x
Sti'p
t^x^-yz
I
xi,o \tiyz
yz\x
= =
p (Y<7 t*x^\t*yz
i
|
-La 1 ) \t"yz'
ayz
1 - ayz\x
|
And
yz\x
)
2d'j x|,g r
t
\t*yz
= = =
=
2vt
tPx(\t%-\t1yz)
a
a
x
a
- a
a:
1
i
\ 1
i/z
a1
yz\x
\
a - a a yz
1
I
I
xz
- ax + a + a 1 xyz yz\x
I
- ay\xz
chap, xv.]
II.
289
But again
2u<
*+t_y+t-i I +t-i
xyz
\
,j
for if (y) die in, say, the tth year (z) being still alive at (j/)'s death (x), if he survive to the end of that year, will come into
life.
By J
this
II
'
1
!
+ *~ l
z
,+ '*(!+
V
I
^ x+V
=
Also A
1
z\x
-ayz\x
I
as before.
,
Si,'
,+'-* JLtlzl
z
J_ J
x+t-i
Y-t
'+t-i
I
y+t-1
I
x+t-h
I
x
*
-d^^+l_y+lzl
II
x
a:
? I
+ '-*
(l+ax -L ,) K +u
2 = Axyz 1
da 2
yz
|
|
which
2.
is
(6).
To
premium
for a 1 \.
we must
divide the
;
benefit
on his
for it is (y) must be medically examined death the benefit starts, and (x)'s or (s)'s death earlier
by
+a
).
for a 2
(s)
is
+a
).
Probably
(j/)
and
for
As
alive,
and
after the
(y),
Therefore
we must
by
J ayz\x
i
Probably (x), (#), and (z) should all be examined, but in this case and the preceding one much will depend on the respective ages
of the
lives.
290
3.
ACTUARIAL THEORY
The
[chap. xv.
a=
is
as at least
r of the
m
a
statuses n\, w,
y, etc., survive.
It is
therefore equivalent to
1),
temporary annuity for n years on (r 1) lives out of (m together with an annuity deferred n years on r out of (m ^L + {a ^Jlthat is a |7i
I
1),
wxy
(m-1)
n\
wxy... (m-1)
(x) of
a-=l
is
an annuity to
which the
first
payment
is
to be
is
made at the end of the year in which (y) dies, but in no case a payment to be made till (n+ 1) years from the present time.
* ^W-mllTT s a reversionary annuity to commence on the failure of the joint lives (.r) and (y) if that event occurs within n years, but in no case are payments to extend beyond t years from the
present.
A2
is
part of the
is,
i:8
on the
average
aW-
Just as
("' is
an annuity to
(x~)
payable in instalments of
at the
end of each
of a year, so
aw
is
an annuity to
(x~)
That
aii)
is
DX
DX
if
.,
chap, xv.]
II.
291
EXAMPLES
1. Find the premium for an assurance payable on the death of the longest liver of A, B, and C, aged x, y, and z respectively should die first the premium to be reduced 50 per cent., and
should
survive
and
the
premium
to cease.
The
benefit side
= A xyz
And
forms
P(a xyz
">
\a
-2
\
x\yz
2 ia +lflxz\y' ) xy\z
r
i
-5
and
+a 2 ) xz\y'
i
may be
represented by
3.
Determine
is
A3:4 w
xyz
21
the value of an assurance on the death of (to) provided he die either third or fourth of the four lives (to), (x), (y), and (s) and provided (s) and (y) have died first and second of the four
This
respectively.
Now
A S:4 w
xyz
21
2 ivxyz
11
-rfa
2
xyz
w
I
to
But
axyz\w
|
2d r x pw
( t ( t
|,<7
|
2
1
t*xyz
2 ,p (L<7 1 r w\\t*xy
1|
-|,<7 l
\t
) xyz'
-,
l
I I
Hence
A S:4 w
:xyss
Q axy\w - Q axyz\w approximately. rr J ^-xyz ^-xy = Awxy '-Au-xyz ^^-xy xy\w -Q'oxyz\w' '-(/(Q'o ) ^"xyz
1
I
i
21
292
4.
ACTUARIAL THEORY
Find Ihe value of
(a)
[chap. xv.
chap
xv.]
^2:3:4
_ ^= " ^( = 1
t
tl
t-*
dill
z +'-I
/
II.
293
v+t-j x+t-j
,,+t-^ j-
IIIy x
vj
w+t-i
A~8:4 w.xyz
21
_ V
t t
= 0O t-l =l v
z+t-h
I
y+t-1
I
w+'t-j i-fl-tT
11x w
is
w+t-i
6.
of a
title
of nobility
aged w.
It is
desired to effect an assurance payable on the death of his wife aged x, provided that during her lifetime, the heir aged y having
died, the next heir
aged z
shall
have succeeded
to the title.
Give
To
(x)
fulfil
and
(z),
the conditions both (w) and (y) must die before both but it is immaterial whether (x) dies before or after (s).
is
3:4 3:4
The
single
premium therefore
2:3
12
may be most
easily expressed as
an integral,
as follows
re
'-
=J o
Pj( 1
Py)tPJ l v+tH 1
Pj Pf,}**+&
t
7. Calculate by the Text Book Mortality Table the value of the following formula, using 4 per cent, interest
:
50
50
50
by formula
Book
ffl^
T0 50
|
Q70:70 a 70:7o|50
2a
70:7o|50^
We
have
A n n = l-d(l+ 70
.
70 )
= 1= 1=
-03846(1 +4-054)
-19438
-80562
294
ACTUARIAL THEORY
CHAPTER XVI
Commutation Columns, Varying Benefits, and Returns of Premiums
In addition to the expressions derived in Text Book, Articles the following should be carefully examined. It will be found that these or similar expressions are very frequently required in
1.
9 to
1 4,
Chapter XVIII. in connection with valuation by the retrospective method, and it is essential that the principles upon which they are founded should be thoroughly understood.
N -i - N . + .-i D x+n ^
'.(i+o-H+ia+Q"-^'
+U-i( 1 + o
x+n
This represents the accumulations to the end of n years of an annuity-due on (x) for that period. It should be noticed that it is greater than (l+i)s; for each value of /in the numerator is
greater than
is
I
in the denominator,
+ i)* + (l + i)
'1
(1
i),
which
the value of
(1
i)sr
N ,-i- N . +t -i
x+n
x
'.(i+'r+^q+o-^
aA
+*, +t -i(i+o-
,+i
x+n
_
x+n
'J
s+1'l
J
j. 33+71
x+n-l
D X+n ^
x+t
x+n
x+t^
'_
a+f+l'/
'_
x+n -l
D x+n
x
x+n
J
l
x+n
x+n
Dx+n ^
"
x^-
a+1'-
x+n-l
M x+n
...
S x+n
^,-tM R-R + g 'n
X
x
t
1
^ x+n
i
+ 2dx+li l +
0"-'- 1
n-2
)
+---
+ <{d. + ,_ 1 (l+0"-'+Wl +
+ +d*+n-l}]
596
ACTUARIAL THEORY
[chap. xvi.
2. The following is probably a simpler method of obtaining the values of varying and increasing annuities and assurances.
(va\
iN+P i
x
, X+J
+ Nx+2 + N x ,+ i, +
x
)
-
AN hS
DX
When
A
CH
v
&
AM +*(M
..
^
AM +^R
,,
M _ M r+ ,+ .,+
x
Dx
When A =
(
R
IAX -
w
^
AN +(N
i-i
,,
N 5+" + LO
J)
)
+N
.)
AN h(S
_,_.
- S ^
DX
When
A
(la)
S -s
*+"
AM A(M ^.H-M
Also
^4-
(v^A),
=
.
+M
.)
AM x A(Ra;+l -Rx+n' .J ^
D
a;
When
R -R
(I
A)
+"
,
chap
xvi.]
II.
297
'xn\
DX
(N -
N.J k{S
=
h
- S ^ - (m - 1)N ^
D
When
k
Sx
( Ifl )-i v 'xn\
-S x+n -Nx-\-n
.
15
Also (vAV-:
A(M s v
x+ro-'
+ A{(M x+1 tv
_,_
>
DX
MM
^
a:
M x+n )h{Rx+1 ^ ^
J
*
DX
When
A
1
,
(IA)l-;
*
'xn\
R -R -M ^ 2* * = -=
J)
x
3.
R columns
out of increasing benefits by these formulas is therefore an easy matter. But in cases where these commutation columns are not available, a method which has been described by Mr Lidstone The proof upon which the (J. /. A., xxxi. 68) may be used. method rests is as follows Let B be a benefit of any nature dependent on the life (.r),
:
where p v pv p v etc., and expressed by vp 1 + v 2p 2 + v 3p B + are the probabilities of a payment being made at the end of the
,
first,
second, third,
etc., years.
Then
d -^
di
Bx =
-r,
d dv
( ft
r.
R-.
x -p
di
dv
+ 2e ft + 3ft +.
)(- 2 )
)
=
Therefore
-(v'2 p 1
+ 2v 3 p 2 + 3v i p B +
_(1 +i) * B,
= =
ip l
(
+ 2v% + 3v%+
IBX
298
ACTUARIAL THEORY
is
[chap. xvi.
where (IB)
as
same
probabilities
but increasing by
per
"
annum
throughout.
d But
-7T
^__
AB -JA*B
approximately.
AB -|A2B ^. -
approximately.
perfectly general
For example,
let
it
be required to
at 3 per cent.
lA )45
~ 1()A5
|
^05
(-39003
- -85384 +
-46889)}
writing benefit and payment sides are such as to outweigh any slight saving of trouble.
Theoretically, such expressions
etc.,
as(M -
),
(N
-N
),
have no meaning as they stand (vide Text Book, Chapter VII., Article 9), and in practical use they will have different senses according to the particular denominator used with them. Therefore until the proper denominator is fixed the proper sense cannot be ascertained. It is only after supplying denominators to both that benefit and payment sides can be examined and compared to check their accuracy. Further, where a second life comes into the problem, and the denominator is omitted everywhere, the fact may be overlooked that, e.g., D is the denominator for part of the
problem and
be introduced.
6.
To
,
in
we must
which
is
equal to
(n- l)(-2)
chap, xvi.]
II.
299
Then we
have
(U
+ { .
*.+. ~ ( "
^ ^^
-
+ }
vA)^ =
+ {SR ,-2R
-^"^""^M
To
obtain (y,a)
formulas the terms which cut off the whole benefit at the end of n years, but retain the terms which cut off the increase merely.
Thus
(V). =
^[ N B o+( S + i- S + J A
. , . X
"o
v.
...]
(v-^A)
\ |
'
} 1
AV
*]
6.
For
example, if it is desired to have a table giving the annual premiums for pure endowments, one-half of the premiums to be returnable in the event of death before the expiry of the term, it is incorrect to take the arithmetic mean of the premiums for pure endowments with and without return respectively. The correct office premium
for the
new
benefit
is
P(l
+ k) + c where
_,_
J\
x+n
x+n J
300
while the proposed
__
ACTUARIAL THEORY
office
[chap. xvi.
premium
,
is ir(l
__
c
I
D X+n ^
_,
,
Dx+n +c(R ^
V-
+k) + c where - R L SC
x+n
nM X+n' )
,
-i
I
The explanation is that if (x) were to die within the n years, having taken out a policy at this proposed premium, the office will return only one-half of the premiums paid but if, on the other hand, he had effected two policies, one with and the other without return, each for one-half of the sum assured, the office would have to return the whole premiums under the former policy which obviously are greater than the mean of the premiums under both policies. In accepting the contract at the proposed premium the assured is therefore allowing himself to be overcharged.
;
7. We proceed to discuss some practical problems not dealt with in the Text Book. It sometimes happens that (x) for some reason will not be accepted by an office at the normal premium for his then age. He, however, refuses to pay the premium for an older age which they wish to charge him, but consents to his policy at the normal premium bearing the condition that the sum assured will be paid under deduction of a certain sum in the event of his dying within t years and in full on death thereafter, t being usually fixed at the
expectation of
life of (x). It is required to obtain a formula to determine the amount of this " Contingent Debt." First, let us assume the debt to be constant during the t years,
and equal to X. Taking the life at his assumed or rated-up age we see that the value of the premiums which the office should receive is
x+n^-
x+n'
).
Therefore they
Now
XA-L x+n
t\
x+n:
CHAP. XVI.J
II.
301
X each year
As
years.
office
forgoes
is
(P
_,
-P)(l + a
=
is
(P x+n ^
-
D x+n
The present
now
^ ^
-R
^ (i1 )
D 2+71
Equating and solving we have
x
normal
life
(Px+n - Px )N ^ -1 _, J v x+n
,
tM x+n
Rx+n+l
;
R x+n+t+l )
damaged life is assumed to be a aged (x + n), and the extra rates of mortality for
:
Year of Duration.
302
paid since the
ACTUARIAL THEORY
[chap. xvi.
commencement or since the last increase, in the event of death within any quinquennial period.
Benefit side
= _5 +
+
IVf
56
x+i
+M ?i ,,+
V
flj
+5
+ 10
DX
Payment
side
ir
N3J-1 DX
i
ir.
quinquennium,
M M + M + 5+-^ + 10+--- +
*
,
XX
56
, ,
7r
,,
R, 5- 5 ( +
,+
-DX
found.
may be
V=
becomes
M
and the payment side being
6 D + D
N DX
x-l
While
6'=
M
Payment
side
ir
and in
this case
5Mx+b + Rx+& ^ ,.
X-l
chap, xvi.]
II.
303
=
,t
M - M +D?
,
+
,
56 (
/M *+'> -
M *+ n + D*+"
v
+
, ,
M + 10- M
*
g+
s
,+ D * +
+
,
X
)
'
(R iA x -R
+M x+n'
D
_
. %
5( >
DX
,
"*"
DX
11 v
Payment
and
last
7r
side
x"1
tt
x+m ' 1
may
at once
be obtained.
first five
If
no interim bonus is to be given for the term on the benefit side becomes
ii ^
years, the
...
+Mx+n'
_,_
If
b' =
b,
becomes
.
Mx M
and
x-\-n
+D x+n ^
dX
in the second case
Dr x
S
_,_
DX
Dx
side remaining throughout
payment
x-l
*
the various values of
(b).
it
x+n-1
Dx
may be deduced by
equating and solving.
find the annual
an assurance of 1, to increase by 5b per unit every 5 years, calculated on the sum assured and existing increases, with an interim bonus of b' per unit in respect of each premium
premium
commencement
or
since
304
calculated
ACTUARIAL THEORY
[chap. xvi.
on the sum assured and existing increases, in the event of death within any quinquennial period.
Benefit side
= ^-{(M,X
Mx+5
+ (l + 5i)(M^ +5 - M, +w )
.
w{^'~
x v
R , + 5- 8M ,
+ 5) +
+ B6 )C R +B - R, +1 0" 5M , +1 0)
.
.}
side
N*
it
may be
no interim bonus is to be given for the first five years, the term of the second part of the benefit side will be omitted, and it will then read
If
first
- + 5>
-5M X J+.
becomes
+1Q )
2 {M r
X
+&
-R
and
+ *(1 + 5^R
The form of the payment
several values of
tt
+10
-R
+1B )
side
is
To
premium
for
a similar bonus,
we have
chap, xvi.]
II.
305
Benefit side
lM( X
M s- M
* +6 )
+ (1 +
56
X M , +5 - M , +10
^
+ (l + 56)s(M i+10 -
M i+1B )+
..
+ (1+56) +
(M, +n _ 6
a;
{(
'
R ,-
R, +B - 5M J(+ a) + ( 1 + 5ft)(R
6
V!o- 5M , +1 o)+
+ (1+56) v '
Payment
side
tt
N x-l -N X+ll-1 D
w.
is
benefit side
to
be given
M ]^{( ,-
x + 5)
+ ( 1 + 56)( M x + 5n-5
M x +1 o)+-
M x+ J + (1 + 5by Dx+n \
.
+10
-5M i+10)+.
-.
+ (1+56) J V
1
'
If b'
6,
case becomes
+ 6(l + 56)(R
+6
-R
+10
)+.
+h
+ 6(l+56)^(Ri+7i _ 5 - R + J + (l + 5iAD
and
in the
M i+/[) }
second case
.
^\M x+ 5bM x+
x
*
+ 6(1 + 56)^(R^. 5 - R
Then, the form of the payment side remaining unchanged, the several values of ic may be obtained.
Where
b'
01
it
may be shown
1
premium
306
sionary bonus
is
ACTUARIAL THEORY
[chap. xvi.
approximately equal to the single premium at 1. For ease in working, let it be assumed that the bonus is compounded yearly. This will have the effect of increasing the value of the benefit, which may then be expressed
3 per cent, for an assurance of
1
fl-01
-rtroi
Now . =
1-04
/1-01\ 2
/1-OlX 3
I
' ' '
+ i+
---
if
substitute this
value for
it
we
which
will
now be
'
'
'
d"( X
C + C,+i + C:c+ 2 +
at 3 per cent.
effect
to
and
will to
9.
Under a scheme of Discounted-Bonus or Minimum-Premium premiums are obtained by deducting from the profit premium the value of a certain rate of bonus.
(a).
Cash Bonus.
bonuses
the
is
profit
100k per cent, of the premiums received in reduction of the premiums, the yearly reduction will be
x 5p-
n x-l
5D x+i = Dx+3 + D x+i + D x+i + D 3+6 + D X+7) ,, a lt
, ,
that
etc.,
we have
ftP'
D *+ +D *+4+N N x-l
,
+D *+7 +D s+8+-
chap, xvi.]
II.
307
But again
'
'
=
Therefore
a(i)
X
-2
X
Ax5F
_*$
a
X
+D x
-^
+D
15
x-i
-2 a +l x
Uniform Reversionary Bonus. On the assumption that desired to apply the value of a uniform reversionary bonus of 5b to be declared every five years, the reduction in the annual
(6).
it is
with-profit
premium
^
will
be
3+10
rc+15
x+5
x~l
If an
is
also to
be assumed the
R
x-i
(c).
of a similar
be
N *-r
Or
including an interim bonus at the same rate,
o)
,
we have
+10
+ &(i + 56) a (R
J+
N x-l
In any such system, if the bonus declared is greater than that applied in reduction of the premium in accordance with any of the
is
But
if
the rate declared be less than the assumed rate, the difference must be deducted from the sum assured, or else an increase must
be made in the premium payable, care being taken to ensure that no option is permitted to the disadvantage of the office.
308
10.
ACTUARIAL THEORY
[chap. xvi.
at age (x
To find the annual premium for a pure endowment payable + n), the premiums received to be returned with simple
premium
i.
be calculated at rate
The difficulty here is in the return of the interest on the premiums. In respect of the first premium paid, this return is of the nature of an increasing assurance commencing at one year's
interest,
The
'
Rx - Rx+n -M x+n
,
DX
is
In respect of the second premium the return a similar assurance deferred one year, and
its
of the nature of
is
value
Rx+1 -
_,_
and so on
for
in
Rx+n-l - Rx+n -
M x+n
_,
DX
interest in respect of all the
is
premiums
equal to
2R-2Rx+n -,Rx+n A x
j
-
^- M
}
x x+n
D
R - R
___
x+n
DX D
side
= w
N X-\ -N X + 1h-\
'
II.
chap, xvi.]
309
fD z+ +c(R
.
|_
>
a;
-R-nMx+n')+;c(SR x+n
_,_
-5-[
-R
_^1) M
\1
and
"'
7t(1+k)
+ c.
11. To find the annual premium for a similar benefit, with the exception that the premiums are to be returned with compound
interest at rate j.
benefit side
^+Mi+K)+
])
'
}2r^(i+/)^^
J
(1
+ ;)'
?f
V.
is
is
such that
+J "
-l
7r
t Payment
i.
*j side
sc+m-1
D
Hence
"
+ c-^D(A' 1 -;-AU'
N
and
tt'
_N x+n-1 -(\ + k) ^
^
1
D(A'L-AL)
7r(l
+ k) + c.
we have the benefit M -M
*
Alternatively,
side
D
a;
-M
^
+ (l
- M M -)_-HLg
,
+i7
a;
^}
,
>
%- + M
I
+ K)
ci
2 K 1 +i) M , + (1 +i) M, +1 +
x * 1
+(W)slM +M
-( 1 +i>si W ) M * + J
) )
310
ACTUARIAL THEORY
The payment
side being as above,
[chap. xvi.
we have
a+
!r
N^^-
+i)^ +1
and t
ir(l
+ k) + c.
for a deferred annuity with a similar
12.
condition as to return of premiums may be found by substituting in the above formulas. for
N x+n
Dx+n
If in this last
returnable,
we
+,
shall obtain
- = N,
+
If,
+ (1 +jy>Ma+% _ 1 - (1 +j)si,
mM x+n
_
1
}]
further,
we put j =
brackets becomes
(l+0Ma + (l+0*Ms+1 +
= (l+OC^
1
+(l+^Mx+a
-(l+0^ M, +n
)
^ ++.+! +*+.+,+
.
.
+" +,+y.+.+x+n
-
+v*+-+id
x+n
+.
)
+ - {(i + o + (i
+(1
. .
+i) n
.
X+n
(?>
<ix
+ n-l
+VX+n+ld
if +
+ (i
iy}^+^dx+n + *+-+we+ . +1 +
V *( d
^,- W+^^+in
,
W+
1
+* +
"
(',
+ .-i -'.+.)
1
- +(1+0}
x-l
x+n-1
,
x-1
x+n-1
+\
'
n\>
N
D
_,_
(l+0*-i
II.
chap, xvi.]
311
which
is
provide a
the annual premium under a leasehold assurance to at the end of n years certain.
;
This result is correct for, since the office has to return to those die within the n years their contributions along with compound interest at the rate assumed in their calculations, it will
who
must be
13.
left
who so die, and therefore mortality out of account so far as these years are concerned.
the annual premium limited
to
t
To
find
years
and
for a pure
endowment
Here there
sum.
Benefit side
will
be
= -jZ + {,r(l
,
K)
+ c}
R -R
Jl
it*
-tM
5?
3!
+^{^(l +
+4
x~
1
Payment
side
it
sides
and
solving,
and
14. To find the annual premium for a whole-life assurance of 1 deferred n years, premiums to be returnable in the event of death
Benefit side
=
=
-Jtt*
X
+ {^(1 + ) + c} -
R -R
?+^
-M**
,
Payment
side
N*~
tt
Whence Wnence
and
ir
= =
M 5 +c(R -R ^ -M
,
M
^
it'
ir(l
+k) + c.
Mr Stirling gives (/. /. v4., xxxi. 259) a simple practical formula for obtaining this annual premium from a table of annual premiums for pure endowments with return.
312
ACTUARIAL THEORY
:
[chap. xvi.
The argument is as follows At the end of the n years the premium for the assurance at the then age would be P but r rt x+n'
,
the
office is to
-k
therefore
future
at that time it
must have
in
hand
to
premiums a sum of
(Px+n -7r)a^ ^ ^ ' x+n
k must
premium
,
for a pure
,
-ir")a
with return.
That
is
7T
xRPi xn\
"
x+n x+n
'
xn\
'
px+n ax+n ^ _,
+ a
xn\
for
RP
we get
M x+n ^
N a:-l -(Rx -R x+n -M x+n' ) v
,
which
is
the annual
premium
formula above
if
and
Again, taking the loading as a percentage on the premium is 7t' = it(1 + k) and c = 0, and making the necessary modifications on the value of RP . as found in Text Book formula
only, that
xn\
(47),
we have by
Stirling's
formula
- _
Mx ^ n +
Nx-1 -(1+k)(Rx -Rx+n -nM x+n,' )
,
'
which
is
of the office
the annual premium for a deferred assurance with return premium where the office premium is loaded with a perfirst
formula
ifc=0.
chap. xvi.J
II.
313
Now, taking
giving to
RP
-1 -
its
value as
v _
A *+ L Nx .
t
- (1
)
'
But by our
first
formula
identical.
The reason
formula
is
loaded
RP-^(1+k) + c.
According to the
office
argument by which this formula was derived the which should therefore be returned is
^
premium
x+n
'
x+ 71
xnyis
'
>
But the
office
premium which
,
actually
to be returned
is
equal.
Mr
useful
Stirling,
method of obtaining the office premium for the deferred also having to be considered a assurance, the premium P
loading.
Its
usefulness
is
considerable, for
the numerator is constant for assurances commencing at age (x + n). the reciprocal of the office premium The process is to add to a
for a
result.
1 he formula is easily modified to apply to endowment assurance and limited-payment policies. For the endowment assurance payable at age (x + n + m), or at death between age (x + ri) and that age, with return of premiums
if
RP
314
ACTUARIAL THEORY
[chap. xvi.
after
For a policy under which premiums are to cease to be payable age (x + n + in - 1), i.e. after (n 4- m) payments, we have
p ^ a^
i
-,
T>p
x+n:m\
xn\
15.
To
to (x),
subject to the condition that should (x) die before he has received
in annuity
to
payments the whole of the purchase-price the balance be paid to his estate.
Let
is
W be the purchase-price.
=
Then we have
Benefit side
^+
=
'
X
+W+1
Payment
side
W
N
tt
W
Since
it
R3+l
Rg + W + l)
is still
be necessary to make an approximation to its value in the first place. The right-hand side on being worked out should then agree with the assumed value of W. After two such approximations the true value might be found by interpolation. This method of obtaining is not quite correct, inasmuch as is usually an integer plus a fraction. But as Mr Manly, the
will
author of the formula, points out, the correction for the value of
the assurance of this fraction of the annuity
that
it
is
so insignificant
might be ignored. These remarks apply also to the two following problems To find the single premium for an annuity with a similar condition but deferred n years, the net premium also being
:
Let
Benefit side
N* +n
X
WM
*
- (R V
x+n + 1
X
- R
1 ++w+i'
Payment
side
Hence we have
W W=
*+"
+ m+1
x+*.+v+i>
chap, xvi.]
II.
315
To find the annual premium for a similar annuity to the last, with the condition that all net premiums paid are to be returnable in the event of death within the n years.
Benefit side
N
'+
X
tt(R
- - R
-N D
X
- R \ *+"+"" +i j
Payment
side
= *
Hence
"
Nx+n ( Rx+n+i \
,
R
*-
^ 3+.+tt7r+l/
16.
To
aged y
is
should die within the n years. The value of the return in question was discussed on page 129, and making use of the result there given we have here
Benefit side
M
Payment
side
*ri
,i-
M5?
_,
XX
_,_,
Py
+---
Nstt
^- 1
-N+-i
it'
+-i
ir.
Also
ir(l+ k) + c.
To
premium
D
=
-^ + Ml +*) + *}('-g^'- +
L
,
/M
-M
"
r
,
Mx+n-1 -M x+n
.
XX
D
\
M X+1 - M x+n
,
Py
+'~
Qx
n-lfyj
/R-R, -M
+J>(l+) + 4(
J ^
D
~ B + R^-R^-^THlVIPy +
L
R +
- R
-if)
,
316
ACTUARIAL THEORY
Payment
side
[chap. xvr.
it
it,
and hence
it',
may be
found.
To
premium
premiums
be returnable with compound interest the event of {x)'s death within n years.
Benefit side
J
in
^iL
X
+K
+K) + c}
[{ (1+i)
^ +(1+i)2 ^i +
XX
1
...
X
1
+{(l+^=D
a;
M'
/
- M'
x
>
\
s
i
4.
where D'
M'
etc.,
is
such that
1+J
"
1+*
side
tt'
Payment
whence
19.
tt
?r
-i:-i~
found.
+-i:+.
xy
and
may be
annual premium for an assurance on the life of the premium during that period to be payable only if {jj) also is alive, and thereafter throughout (x)'s life, and to be returnable should (x) die within the n years.
find the
(x)
To
deferred n years
Benefit side
_,_
/M
,
M S+71 -I - M _x+n
D
xx
,
M-M
n-l'y^
"
chap, xvi.]
II.
317
Payment
x~
iz
Uy ~ 1 ~
'
x + n - l:
+ n ~ 1
T +"-)
Equating these two sides we may solve for ir, and 7r'
20.
= 7r(l + K) + c.
premium for an annuity to the last survivor deferred n years, the premium to be returned in the (j/) event of the annuity not being entered upon.
find the single
To
of (x) and
Let
a'
be the purchase-price.
Then we have
Benefit side
=
7i
i|
xy
+ 'xi\n A xy
) + w \ay - n]\axy'
|
=
Payment
\a \| i
(
+ {o(1+k) + c}(i A +1 A -I A
side
a.
solving for
)
a,
we have
\
) + n \uy - n \axy-' + c(\ A x +i n A y _i\n A xy J ^]n 1-(1 + k)(i A x +|\n A y -I\n A xy' ) J \\n \
\ \
and
a!
a{\
+ k) + c.
To find the annual premium for a similar benefit, all premiums paid to be returned on the death of the survivor should that occur within n years.
It has already been pointed out (page 151) that some difficulty attends the fixing of the status during which the premium shall be
payable.
We may
be taken as the
//M x
status,
JVI
^+Mi + )+ }{pV^
,
M
X
"+
_,
*-
dX
V---,,
M
+
-M
D~" "*
1
/M-M,
V N
-i'V '
!/+ ,l
Dy
\
xy
Dv
x+%:y+v,
lx
"
+
Payment
-l
y+n
- i;
__x+nly+n\
> J
Dy
side
V
'
D xy
)
tt(1
+ a^._
i
tt
and
also
it'.
318
(b) If
ACTUARIAL THEORY
the
[chap. xvi.
premium be payable
we have
Benefit side
/R - R
i
n\
a- + {*(! + xy
I
k)
+ c}(-JL.
V
xii
*+ n
,
-nM *+
,
D
x+% V+n
,
R _ Ry+n _ My+% _ R L y
- nM -nM
x+n:y+n \
,
Dv
Payment
side
*y
tt(1
+^ :Srj[)
7r
and
ir'
will
be found.
is
ignored.
interest
This
is
;
and if it does not, the office receives for its trouble on the premiums which it has received and now has to repay.
Thus in the case of the annual premium for a child's pure endowment to (,r) payable at the end of n years, with return of premiums in the event of previous death, the net premium is
simply found from
K =
vn
When the question is complicated by making the premium payable only so long as the father (jy) shall survive (see page 315), the net premium is taken as
vn
. a yn\
EXAMPLES
1.
The sum
of
is
deposited by each of
persons in a fund,
and accumulated at compound interest. a is paid on the death of each member, at the end of the year in which he dies, and at the end of n years the amount remaining in the fund is applied to the purchase of an annuity upon the life of each of the surviving members. Find the amount of the annuity.
Let the amount of the annuity be p. annuity of p to each of the survivors of
ago
is
Then the
/
value of an
pi
CHAP. XVI
II.
319
Hence
*( t
1 }
sD x -a(M x ^
x+n
Alternatively,
M x+n* )
_,_
Benefit side
annuity as before,
Payment
.
side
* ^
a;
t? Equating^
u we have r
=X
x+n' -
x+n p-
3 X
x+n
X
x+n'
~D
DX
= _^
*D - (M V,
M x_+nJ ^
)
Nx+n
,
as before
2.
If
of the
survivors and
by those who
is ~P x
= =
s-l
_ ft*
xn\\
v x+n
_L ~ Pxn\
N !S-1 -N x+n-1
v x+n
D x+n
Na;-l -N, ai+n-l
.
U*+
x+n
which
,
is
for
each of
the /x+n
survivors.
320
ACTUARIAL THEORY
3.
[chap. xvi.
is
P_
the single premium?
Explain
This is the single premium for an endowment assurance of 1 with the net premium returnable, since the value of such a
benefit
is
Axn + A xAxn\ ~. n
\
it
being A.
Hence A =
1-A-r xn\
^J-
for
Pxn =
\
dA-,
1
p_, A xn\
P
-,.
Now
;
Y-, -^p
is
But P
-,
will
(.r)
insure the
|
payment of
and after that, a fresh status of a similar kind being set and n up and the payments of premium continuing under the perpetuity, payment of 1 will be made on the failure of the second status and so on indefinitely. And this is the benefit asked for, since on payment of the endowment assurance 1 may be taken, and there remains A to set up a second similar contract, and so on indefinitely.
" Suppose the annual premiums to increase or decrease a sum every t years, and at the end of v intervals of / years each the premium to continue constant during the remainder of
4.
certain
life,
first
years "
M E + g( N
E +( - 1
N
tt
+ 2 -l+(
+ NS + ,
-l)
X-l
N s-l'?( N * +J -l + N
State the
correct.
+ N x + vt-l)
both answers are
different
conditions
under which
chap, xvi.]
TEXT BOOKPART
II.
321
This problem is discussed in Text Book, Articles 28, 29, and 35 of this chapter, and from what is shown there it will be observed that Jones's solution proceeds on the assumption that the premium increases or decreases by q per unit of the sum assured, while Chisholm assumes the increase or decrease to be Each answer in its own case is correct, q per unit of the premium. the question being stated ambiguously.
5.
for
of
(jy), all
Benefit side
y x
|
+ {it (1 + *) + c) +a
)
+ l! +i
Payment
side
ir
(1
ax
_xy +c
^HlSI
)
AndTr =
i
x +y- y+i
Dxy
6. Deduce a formula for the annual premium for an assurance on the life of (x) against (jf) for n years, with return of all premiums paid should (%/) predecease (x).
Benefit side
xy
- M-4 x+n:y+n
xy
<
/j
xy
Payment
whence
side
Nx ir
y-
-Nx+n~l:y+n-l
Dxy
(Mi - M-LV.
xy
x+n. y-\-nJ
,
_-) + c(U
>
xy
- R-rx+n:y+n
,-NT x+n-\:y+n-l J < +K )(Ri-R x+n:y+n _M x+w.y+n-l )_(l 1-) (N x-l:y-\ ^ ' K ^ xy
n
7.
endowment
Find the annual premium required to secure to (x) a pure of 1 payable at the end of 20 years, with return of two-
thirds of the
premiums
322
Benefit side
ACTUARIAL THEORY
[chap. xvi.
D g+20
X
2I
n
,
,A
,
c]
a;
+20
Payment
whence
side
ir
N x~l -N J+19 DX
N,-!- N
8.
life
+19
payments
for a whole-
year on the net premiums, up to and including the year of death, is to be allowed by the office at rate i, which is the rate realised by the office on its investments.
Benefit side
chap, xvi.]
II.
323
The benefit side is simply the present value payable at the end of the year of death.
9. Find the annual premium for an endowment assurance to payable at age Qc + t) or previous death, subject to the condition that interest for each year on the net premiums, up to and including the 2 th year or the year of previous death, is to be allowed by the office at rate i, which is the rate realised by the
(x)
office
on
its
investments.
Benefit side
M s~ M
r +t
+D
+t
D
Payment
whence
side
+t7r
,
S,-S, +t -*N. +f
\
!
D
_,,
,
R-R -M. +t
D
N - Nx+t ~^ = *- x ~^ D
M X - M x+t + D x+t
,,
,,
X
t
M X+t + D X+t
Na:-l - iS
.
_,_,
- iR
a; a;
= R
a;
Mx+t'
,
,)
x+t
,
= (1-)N
^
,
= Da+t + Na;+( ^ L
- N a;+(-l
_,_,
= Di+( -Ma:+( ,,
A proof of
assurance of
this
also
be given.
The
this
as
tir
2tt,
etc.,
up to
But in
case the benefit ceases then entirely, tir being receivable also if The benefit side is simply the the life completes that year.
years, or at the
end of
10. Find the annual premium for a pure endowment payable at age (x + 1) ; the premiums to be limited to n payments, and to be returnable in the event of death before age (x + i).
324
ACTUARIAL THEORY
Benefit side
[chap. xvi.
D R - R = -2 + {tt(1 + k) + c} -i_,_,
-jiM
'
!
,,
DX
Payment
side
ir
Nx-1 -Nsc+n-l Dx
D
,,
+ cfR - R
v
'
-M
a
,,)
x-1
x+n-1'
/V
^4.71
3;+^
Obtain a formula for the office annual premium, P, required on (x) for a term of n years, the assurance to cover (1) an advance of p made out of a trust fund at the beginning of each year, (2) the premiums actually paid under the policy, and (3) the legal expenses of the arrangement, say a.
11.
for a policy
Benefit side
p_J5
R - R*+ -M
,
!S
+a
Payment
side
M
'
Mx+n
x-I
DX
x+n-1
it
DX
R
whence
t
tt
=
tt(1
fp + cYR -
(N
and P
+ k) + c.
terms of commutation symbols and the rate of an expression for the annual premium for a deferred annuity to be entered on at age 65 on a life now aged 40, the premium to be returnable in case of death before 65, and the annuity to be payable half-yearly, and to be complete.
12. Obtain, in
interest,
Benefit side
= 40
D [ N(i5 + * M + (1
N-N 64 89
40
+ .>M B
= P
chap xvi.]
II.
325
whence P =
Required the net single premium for an insurance upon the compound interest during the
annum.
The
single
premium =
1^
{(1-04)C
+ (1-04)2C;c+1 + (1-04)3Ci+2
table
endowment assurances under a reduced by anticipation of future bonus. Investigate a formula for the annual reduction when the discounted bonus is
14.
office
An
proposes to grant
of
premiums
(a)
annum
of the
premium.
(F) A simple reversionary bonus of 1 per cent, per annum declared quinquennially and vesting when declared. It may be assumed that the office does not allow interim bonuses.
(a)
is
01
P'
_
xn\
5(
+DX + J
(6)
And
V.
bonus
.
01 X
M 2+15 +.
M x+a-6' J
,
fra
N x-l - N x+n~\
,
15. Obtain a formula for the office annual premium for an endowment assurance policy on {x) to mature in 20 years, the premium to be based on select tables, and to provide for a compound reversionary bonus of p per cent, per annum declared
quinquennially, with interim bonuses at the same rate after the 5 years, and the loading to provide for an initial commission of k per cent, on the sum assured spread over the whole term,
first
a constant of
/ per cent, on the sum assured, and a percentage of on the gross premium.
326
ACTUARIAL THEORY
The problem
to find the net
[chap. xvi.
premium
for such
an assurance
has been discussed in general terms on page 305. Here the particular case is treated, and the office premium also deduced.
First, to find the net
= IT
Hi - M M+6 +
2
M M+M)
+ + +
1+ (
(
^) M M + 10- M M+
(
i+ iS>)H 1+1 51
Too \ Too V
+
+
Payment
whence
" [x]
TOO V
T00J
side
tr
N M - N M+20
M+20
m T 100
v.
[*i+6
iooVs
100; ^
Ws
"w+io^
+
+
5p\ 2
5p \ s
1+ T%)^ D M+20-
M M + 20)}
&
premium
100a
_1 / + ~ l_J?L^
100
J_\
10(
Find the annual premium for a deferred annuity-due to first payment of which is to be made at age (x + n) with premiums returnable in the event of death before that age. If (x) survive the n years, the annuity is guaranteed for at least t years whether he live so long or not.
16.
(),
the
chap, xvi.]
II.
327
Benefit side
-^(a- +
X
ja,
(
+J
R *M + + {<1 + k) + c} *~ *'+""
ux
Payment *
side
wa. -,
xn\
Equating, ,
*+^ + .lVJ +
ir(l
cC
RJ - R.+. -* M ,+J
and
17.
ir'
+ k) + c.
table at 3i per cent, the annual premium an endowment assurance of 1 for a term of 30 years with a uniform reversionary bonus of 1 per cent, on the sum assured in respect of each year entered upon after the first.
at age at entry 30 for
Find by the
[M1
Benefit side
.
M [] - M
D
side
6Q
+ D60
Q1
[80]
Payment
= P
-
[30
-N ?
[30]
-
M
r
301
eo
+ D ao +
01
N
(10267-77 - 4671-51
-N
60
13028-86
+ 3006-5716 532933-7
16035-4316 532933-7
=
18.
-03009
Find by the O tM1 table at 3| per cent., for age at entry 40 with a term of 15 years, the annual premium for an endowment assurance of 1, together with a compound reversionary bonus of 1 per cent, per annum, which is to compound every 5 years, with an interim bonus at the same rate in the event of death during the 5 years calculated on the sum assured and bonuses in force at the beginning of the quinquennium.
328
ACTUARIAL THEORY
Benefit side
[chap. xvi.
j^[(MM - M B + DJ + -01(R
[40] *-
[40]
R[4()]+5 )
RJ
-M
Payment
whence
side
65 {
(1-05)3
-1} + D M { (1-05)3-1}]
N
= P
-N
D
[40]
P =
'[40]
""55
[( u
MW
5B
+ D 65 )+- 01 (Vr
o:+5 )
RJ
+ {(1-05)3 _1 (D 56 -M 66 )]
}
= "
352204-126234-5 V"
/ (8202-99- 5689-39
+ 9958-2) J
" =
19.
14268-1029 "225969-5
-06314
office single
of
premiums for pure endowments and without return of premium in event of previous death, are 70 and 65 respectively, find the
Given that the
100
office single
the
premium for the pure endowment with return premium in event of previous death.
of half
67,
As pointed out on page 299, it would be wrong to charge 10s., as that would suffice for the return of 35 (i.e., half of 70) and not of 33, 15s. in event of previous death. Instead, let S be the sum assured under a policy without return, and (100 S) the sum assured under a policy with return, That is so that the premiums on the two policies shall be equal.
(100-S)x-7 = Sx-65
S and 100
51-852 48-148
-S =
chap, xvi.]
329
policy will be 33-704, and the premium required under the joint policy will therefore be 67, 8s. 2d.
20. Find,
P '4o:i^ =
P'i:i5i
60
-55396,
life, aged 40 next birthday, of 1000, payable in the event of death within 10 years, with a return of all the premiums paid if he survive
that term
premium
is
to be
till
made
at the
end of 10
years,
and
(6) if it is
not to be
made
death.
Then()
.
P = lOOOP'i^ + lOPxP'^1,
10<>P'i:iol
i. 1_10P' 40:]0|
Now
but
may be taken
-08004.
this
method there
for a very
is
insufficient loading
on the pure
is
term assurance
much
larger figure
makes up
for this
1000 x -01475
Jl
LlLlLU'lt
330
ACTUARIAL THEORY
If in these formulas
[chap. xvi.
^W
21.
office
1000 A*
40:l0|
- 10A<M:10| *
V^
1000 A i
(6)
,-,
a 40:10|
-10^ 1UA
Which
'
40:10|
premiums
Under a certain "Reversible Premium" scheme, an undertakes to grant whole-life assurances, under which, after n years, the company pays the premiums to the assured, instead of receiving them from him, and this continues until the life drops, when the sum assured becomes payable. If n = 20, find
the
office
3 per
cent.,
annual premium at age 40 by the Text Book table at allowing for a loading of 15 per cent, of the net
5s.
premium, and
Benefit side
tt'N
DX
+
,
, x+n-1
,
DX
Payment
side
= =
whence
ir
'
40
+ -0025N 59
69
N89 -2-15N
11869-4
+ -0025
x 112093-8
458461 -2-15x112093-8
12149-6345 217459-33
=
and
t'
-05587
-05587 x 1-15
= = =
-0025
-06675
22. Find the annual premium for a pure endowment payable at age (* + n) the premiums to be limited to t, and to be returned with
;
compound
chap. xvi.J
Benefit side
II.
331
D,
M-M
z
+ n +jy
Mx+t-i,- M x+t
,,
,,
XX
+<;
-y
M-M * M
M*+
i
D
z
M-M
a;
M-M
z
+
where
s'-r, t\
+ (i +j7
is
^^d
M
,
,
a;
^- + (i
(
_,_,
D
+i)*'i,
x
M'
- M'
x+t
-ff -%-,
.
^}
-v
,
;*, calculated at rate J' while M' , M'x+n? and D' x+t x+t'
is
such that
1
, 1
+J
1+8
Payment
side
= v
Nx ~ -N^, ~ x+t
,
By
23.
may be
found, and
ir'
= tt{\ + k) + c.
Find the annual premium for a pure endowment payable r), the premiums alone to be returned if the life dies within s years, but the premiums to be returned with compound
at age (x + interest at rate^", if the life dies after s years.
Benefit side
D
-J?L
R - R - ,vM + + + {t(1 +k ) + c }_
,
{*(!+ k)+c}{(1+j)
,
M z+s - M x+r ^
L
+l|
D
a;
+ (1 + +
Payment
...
+( l +i y
M +'-!,-M x+r
,
_,_
j
X
side
ir
-N
X
j
tt'
whence by equating,
ir
may be
found, and
= w(l +k) + c.
332
24.
ACTUARIAL THEORY
[chap. xvi.
for
an
sum assured is 1 until all the premiums are paid up thereafter the sum assured is the amount of the premiums accumulated at compound interest at rate i from the dates of payment of the premiums until the end of the year of death, should death happen before the expiration of the If the life survive 20 years, the sum twentieth year of assurance.
assurance on (x) under which the
1,
is
to be entitled
an annuity,
per
annum upon
the total
amount of premiums
Benefit side
Mx p
\I
x+9
C^
j
*{
+
D
io
i
V + M
X
+ ,) +c}f
the expression " until death " being taken to imply a complete
annuity.
Payment
side
Nx ~
ir
Nx+9
X
_,_
And
7r
may be found by
25.
Given values of a
;
as
follows
at
3i per cent., 18*441 at 4 per cent., 17*155, find at 3 per cent, the annual premium for an assurance on (x) of 100, the sum assured to increase by 1 per annum for each year entered upon.
Here P =
100A x + (IA)
l
+ .
To
find
(I
A)
we may make
use
of
(W).-
-(1
CHAP. XVI.]
II.
333
We have
Rate of
Interest.
334
ACTUARIAL THEORY
Therefore the benefit
[chap xvi.
= =
?(}
-55338 -55338
+ P(W5) 2054
+ Px
2-362.
The payment
side
iQ .m)
= Px
13-207
Px
13-207
-55338
+ Px
2-362
-55338
10-845
=
The
27.
office
-05103
1-15
= -05868.
Use Lidstone's two approximate formulas to find by the premium for a joint-life endowment assurance on two lives aged 44 and 45 respectively, which shall increase by 1 per annum, i.e. 1 to be payable in the
[M]
event of the first death taking place in the first year, 2 if it happen in the second, and so on, 20 if it happen in the twentieth, also 20 if both survive the twentieth year.
are
pxyn\ = -i
and
chap, xvi.]
II.
335
11-869
=
28.
-720
aged 35 next birthday, has a child, aged 1 next assurance of 150 is to be paid on the child attaining the age of 21, provided the father be then alive. In the event of the father's death an annuity of 5 is to be paid annually until the child attains age 21, with a payment of 100 at that date.
father,
birthday.
An
The premiums
are to cease on the father's death, and to be returned on that of the child before reaching age 21. Deduce the formula for the annual premium.
Benefitside
150
/M-M
X
^ M-M
+5x T ^35
^a^ + 100^(1 - w pJ
M_M\
"t-
-r
JT
!\
+19F35
J5
Payment
side
N
-k
-^-N5ii D
85 :1
jt
sides,
may be
found, and
-k
= ir(l + ) + c.
by n equal annual payments and (c) the premium for an assurance to provide for the cessation of the annual payments and the extinction of the debt, if the debtor aged x die before the expiration of the n years. What should be the amount of the annual payment ?
is
debt
to be discharged
If the annual
n years,
we have
payments are made at the beginning of each of the the annual equal payment of principal and interest
to repay a loan of
in that time,
XT
^-{(M x -
M x+n-V + <M
,
,)
M x+n-v ^ )+
X+71-1
+i>"- 2 (M V
x
x+l->
,)}
>
X-l
Adding
this to
336
Alternatively,
ACTUARIAL THEORY
we may proceed
thus.
If the loan
[chap. xvi.
be repayable
by n equal instalments of
policy
if (x)
the
amount
payable
under
tne
the
die in the
first
year
is
a
"I
^TTi >
secon d
a - 2 r
policy
is
and so
on.
the
'
+C+.-i"n \
;
is
+Cx+n-2 aT^)
X-l
X+71-1
The two
C.(l+t>
+ "- 2 ) + C, +1 (l+i> +
+
C
2
i>
+"-)
Vf
,l
-2
+
<
as
+ Vn-2Q
a;
ic+m-1'
*-
x+n-2-1
'
*+l'
Find the annual premium required at age x to secure 100 for six years commencing on a child's sixteenth birthday the premiums are to be limited to (16 - x), and in the event of death before age 16, the whole premiums paid are to be returned, while if it occur between ages 16 and 21 a proportion of the premiums paid, decreasing in arithmetical progression from
30.
per
annum
;
to be returned.
chap, xvi.]
Benefit side
II.
337
ioo^^ + {<
X
+ K) +c}
R--^-^ 6 -^ M 18
{
x
Payment
whence
7r
side
rr
-i
j=r
found, and 7r' = 7r(l +k) + c. method of carrying through the transaction would be to have six policies each for 100 payable at ages 16, 17, 18, 19, 20, and 21 respectively, with return of premiums paid in the event
may be
A better
of previous death.
31.
Find
the
premiums under a
effected at age x,
payment required to redeem future endowment with returnable premiums, and payable at age (x + 1), which has been n years
single
child's
in force.
and it' are the net and office premiums for the original and if we write A and A' for the net and office single payments now required, we may take it that A must be equal to the value of the future premiums now to be forgone less the return in respect of these premiums, and plus the return in That is respect of the single payment.
If
ir
benefit,
,-Nx+t-l _ Nx+n-1 ,,
D~ x+n
"
,,
D x+n ^
+ {A(l+/c') + c'}-^
-L.
*-+!
_L,
x+n
Hence
.
,i:+t-l
x+t-V
,
'
x+n
x+t
'V.
'
r+t>
_,_,)
x+n
x+t'
premium required
A'
A(l+/c') +
c'.
338
32. If
ACTUARIAL THEORY
[chap. XVI.
you were furnished with the office annual premiums temporary assurances of 100 for from one to fifteen years at age x, and also with full tables of annuities, how would you arrive at the annual premium for an assurance of 1000 decreasing by one-fifteenth each year, and at a premium also decreasing by
for
one-fifteenth annually
per annum.
Benefit side
...
+P'^a^)
unit.
.^
etc.,
premiums per
'
"
Payment
and P may
side
P(%._r\
+ \:T\ + a,:T\ +
'
+a*:l|)
assurance,
be obtained therefrom.
practical
more
which, however, would not fulfil the condition that the premium should decrease by an equal amount each year, would be to get
(x) to effect fifteen policies, as follows
:
Term.
CHAPTER
XVII
Successive Lives
EXAMPLES
1.
AA A
v
(6)(l+0*As A A f
(a)
to be paid at the
(x).
moment
This represents the present value of 1 to be paid at the of death of (s), who is to be nominated at the moment
who
is
to
Show
of the
that the single premium for an assurance, with return premium along with the sum assured, is equal to the value
lives,
of
all
where the
be
so.
lives
are to
life
be nominated
possession.
in
Explain verbally
why
this should
The
is
single
premium
:
for
found as follows
Benefit side
Payment
and
Again, the value of
ages
is
side
= AX + B = B
AX
B = ,_*1
AX
all
Ai + (Ai)= + (Ai)3 + A
1-A.
ad
inf.
340
ACTUARIAL THEORY
[chap, xvii,
Now, under the assurance, we obtain 1 + B at the death of (x), whereof 1 will pay the fine falling due at his death, and B will set up a new policy of like nature on a life then aged x, which in turn will pay the fine at the second death, and provide B for a third policy, and so on, ad infinitum.
3. Find the value of an annuity during four successive lives the second, third, and fourth lives being nominated on the deaths
of the
a
first,
,.
+ A (l+a) + A A (l+a)+ A
d
'
1-AW AAAZ _ X y
d
4.
copyhold estate
is
held on two
it
drops,
by a
of a fine of 8.
lives
aged
The value
of the
fines
payable
is
on the succession of
lives
now aged 30
A 30 X A 10+ A 30 XA 10 ><A 10 +
.
'
"
= 8A 80 {1+A 10 + (A 10 ) +
8A
}
life
Similarly,
aged 35 we
have
Ao
The present value
of
all
the fines
is
B)
therefore
8(
A S0+ A B
A 10
Taking the
we have
6-68224
-71394
9-360
chap, xvn.]
II.
341
have the perpetual right of alternate presentation annual value of k. Assuming that D has the next right of presentation, that the present incumbent is aged y, and that his successors will all be aged x on appointment, find the sum which C should pay D to purchase his interest.
5.
C and
to a living of the
On
perpetual right
k{d
y
+ Ay (i + ax) + Ay A x Q + d x ) + A y
(A^ + d
. .
x)
Of
is
therefore equal to
/cA
y
Q + d ){l + (A f + (A y + kA$ + dJ
x
.}
Modifying this formula in accordance with Text Book, Article i.e. assuming a new presentation to be made at the moment of death, and the presentee to then enter upon a continuous annuity, we have
35,
AAy ax
1-(A) 2
CHAPTER
XVIII
Policy-Values
1.
policies
under
down
propose to deduce the retrospective values for whole-life and endowment assurance policies, and prove that they are equal to the corresponding prospective values.
We
Assume
at
that each of
an annual premium of P
at the
to
the end of n
n
)
+l
^+ r- +i i
+u-
l(
1+ o}
= px
_s
+ D s + n-l
yx-l- n
p
x
tfc+n
at rate
i+l^
'
'
x+n-i
Cx + Cx+1 +
v x+n
+Cx+ n -l
M x -M x+n
,
jjx+n
The fund in hand made up of the surplus of accumulated premiums over accumulated claims is therefore
p
x
,-Nic+n-1 Nx-l
,
M -M
x
s x-\-n
yx+n
yx+n
CHAP. XVIII
II.
343
viz.
/
we have
is
hand
xK
a:
x+n-l'
J)
x+n'
x+n
which
is
V x = Ax+n -P(l+ox+n' ^ ) x^
,
To prove the
we must assume
the rates of mortality and interest to be the same as those employed in the calculation of P
.
Now
P(N
x+n
PNx-l - M D~ x+n
x
+
,
M x+n -PNx+n-1
,
D~~ x+n
M
since
x-l
method
is
~"
x+n:t-n\
xt\^
x+n
-n-
{'
the retrospective method the value will be the same as for for P the whole-life policy with the substitution of P Thus
-r.
.
By
-y
Pxt (N x ri ^
I
xt\
J)
x+n
,
Now
P*-|( N,-i
+t )
(M +
-M^ + DJ-PJN,
g
:
,-N
_,_,,)
since
a;+:(-|
X
*|V.
+ ai+n
--1
M -M X+t +DX+t
Nx-l -N_,_, x+t,
_,_,
*\
344
ACTUARIAL THEORY
Others which should be worked out. similarly are
:
[chap, xviii.
Pure endowment
-5V I = Ax+n:t-n\ - P v
a*|
xt\^-
1, ( 1
+ a*+:t--lK tO
,
prospectively r r '
(N P i v -i - N +"- 1/ 'l
a;
")
retrospectively
Temporary assurance
V 1- = A
_
pi-fN v
^l
P1 -.(l+a
"- 1
n")
prospectively
)
-N +-i 1-(M
y
L_5
M 51
,
retrospectively
X 4-71
Limited-payment policy
(1)
When
n:t
<
<
prospectively rr
/
,
=
(2)
retrospectively
When
n'.t
n
x
or
>
,
= Ax+n
,P(N
prospectively J r r
,
= LA_*rl
Joint-life assurance
,)-(M -M ^ -N*+'- 1J * 1
,,
retrospectively
z+n
prospectively J r r
)
P CN -!
*iA
-!
N x+n-l:y+n-lJ - (M sy - M x+n:y+n-> V
)
retrospectively
x+n:y+n
Leasehold assurance
,
ij
'""- P
M(
1+8 rnrm)
Prospectively
= P-(l
+')*-.
retrospectively
occiir
later,
and
will
chap, xvni.]
2.
II.
345
The
down
(see
page 140).
is
<
n,
assumed to have
V
*
[x]
= A [x]+t -Pa
lxflxl+t
=
If
t
a
1
M+'
[X]
>
n
t
[x]
~'
x+t
[xf'x+t
= 1- %+t
%]
If the life presently
aged
Qv
+ 1)
is
assumed
to be
still
select the
reserve value
is
[x+t]
[x]%+t]
~ ~g
[X]
3.
is
as follows
= (nx+n +
VP x+n A x+n+1 )
- Px VPx+n( l + %+n+O
*?,+.
= <%+n + Px+n
Or, retrospectively,
P (N
n
-N
,)-(M
,
-M
,
) *
+ x
g
p
iC+7l
,P,-rU-( M ,- M
D
piV e-1 CN
l
i)
,
,
<U.
-N
rc+n''
*>,+
d
x +i v ^
+
,
9*+"
KV + V
346
Similarly,
ACTUARIAL THEORY
we have
for
1
[chap. xvnr.
pure endowments
y
n
1_
]_
J^
xt\
xt\
x+n:t-n\
_p
xt\
x+n
a- 1[
V
xT\
Px+n
x+n+1 i--l|
:
~~
Px+n\
^
fl
ar+m+l :t-n-i\'
= =
s\ Or, again,
-
vPx+-nS
V
x+n+1
~~
1
1
xT\
tt
x+n+l t-n-ifi
:
Px+n X m+1
1
,
rrtj
\^ + P^ = IP- g
tt
t> 1
")
P1 + t>lf|
.
x+n
pi(N
=
=
4.
P,+. x
pr _ '* x+n x
.
.
L"dx+n+1
xt P-
z-1
-N x+'
Tl+1
V xt|
'
By Te^
\-*x+n
-lx+ii
n+\
xJ
=
=
Therefore
(
vfl
via via
<-*x+n \
(I-
ra+1
V)+ n+1 V
x'
x>
Vi + Pax^ + i) = )(1 /
V, x
year,
From this we see that the reserve value at the beginning of the and the premium then paid, both accumulated to the end of
the year, are equal to the reserve value at the end of the year,
together' with a contribution towards the claims payable.
Now, if the mortality actually experienced agree with that assumed, the account will work out as follows for I policies, ' x+n * each for 1, existing at the commencement of the year
,
Claims payable
d,
+n
x+n
Reserve released
a;
Together
so that the claims payable are exactly met.
Profit or loss from mortality in an Insurance depends on a comparison of the claims payable
x+n
Office therefore
less the reserve
chap,
xvm
II.
347
and vice versa. Therefore mere comparison of the claims payable with the accumulations of premiums received is no test of profit or loss from
the
office,
mortality.
It is
since
at
claims
and to increase the reserve (apart from payment of expenses and distribution of profit). Further, however long the life live, even beyond his expectation at date of entry, there is a loss to the office in respect of his claim (unless indeed he live
used), since
is
the average reserve in hand at any time while the claim to be paid is 1. Every life assured on the books has to contribute towards
the deficit, and the profit or loss on mortality, as already stated, depends on how this deficit compares with the contribution.
we have
Here the reserve value accumulated for a year is equal to the reserve value at the end of the year, together with a contribution
towards the claims payable. In the case of an annuity, we have
<w(
1+
1+ "+.+i)-?.+.( 1+a.++i)
This formula was discussed in the notes on Chapter VII., page 120.
6.
(.v.+W + O
we
see that
w(
-+i v .) + .h-i
v.
V +P > = <
according as
Now,
of the
V +P
) is
(n+ l)th premium and B+1 V. the reserve value immediately Therefore the former before payment of the (n + 2)th premium.
is
> = < the latter, according as < = > the current mortality risk.
interest
on the reserve
is
348
It will
ACTUARIAL THEORY
be found
that, unless the policy has
[chap.
xvm.
been a considerable
number of years
fore
in force,
.
,V V + Px > n+1 x On n x been a long period in force (V,+ PJf may exceed q x+ Jl - n+1 VJ, ,,V that is the reserve value of the and therefore nVx +Px < n+1
,
a;
- +1 V.), and thereq x+n hand, where the policy has the other > r j
(l
Vi- +pi_
according as
> = <
And
it
will
be found (where
is
1
is
the reserve
and that
frequently exceeds
319, Table C.
endowment
xt\ xt\
according as
CV
But obviously
xF]
>
9x+n x + i V xT|
Ulfj +
since the latter
is
xf\
)*
>
%+n
n+1
a*]
negative.
i,
Therefore
Vi +P
xt\
xt\
<
n+1
,,Vi
xty
showing &
that
the reserve
last
two)
we have
V-+P-> T
a*
|
xt\
= <
n+1
xt\
according as
CV
that
is,
rfl
Ix+nV-n+lVxTi)
is
< = >
the
CHAP. XVIII.]
II.
349
6. As an illustration of how to ascertain profit or loss from mortality, let us assume in connection with the example worked
out on page 316 of the Text Book that the actual mortality experienced for the first five years was as shown below, and not according
to the Text
Book
table,
Age.
350
7.
[chap. xvih.
ACTUARIAL THEORY
By
Text Book formula (10)
-A
i_ a X
general reasoning.
This result
may be proved by
(x) to
Suppose
payable after deduction of the single premium shall be 1. That is, if B be the single premium the total sum assured is 1 + B, the loan on the policy is B, and the interest payable in advance on
this loan is
dB.
Then B = A^l + B)
whence
B =
A
-
-AX
is
~
1
therefore
is
The
single
is
premium, which
. .
also the
.
amount of
the loan,
1-A ^ ~ = 1 -A X
ja
The yearly
also the
interest payable in advance, which is annual premium for the net amount pay-
able,
is
....
at
1
is
=
-r
1-A.
is
death
-
the sum
^-, or
X
1.
A
X
Now,
under
must take
credit for
The
difference
is
..... .....
A
n
*
r^x
; s
Ax+n
,
rrs:
office
A 1-A A -A -^ x 1 -A X
,
which is the reserve required for an annual-premium policy under which the net amount payable is 1, and which has been n years in force. That is,
-A 1-A
_,_
chap, xvih.]
8.
II.
351
43,
laboured.
The proof of Teat Book, Articles 41 to The matter may be put more shortly.
seems rather
P'
x+n
-P' x
P'
x+n
+d
n
.
Vx
C- Kd
(P,
+0(i + x+n +
O
C
Now, according
is
as c
> = <
; '
Kd
(P,
n
and
+ .+d)Ci +
< = > n Vx
Or, again,
51
'
-PX
c+d l+K
+n
Therefore
7i
> = < n Vx
^
_
, "
px+n -px
p
,
px+n -px
,
c
_i
+d
P.+d x+n
c
"+ n
as
l+K
d
i
that
is,
> = <
+d
l+K
or as
a -
l+K
Kd
or, finally, as
> <
9. Text Book, Article 48, is very important, and has a wide bearing in a consideration of the effect that an increase in the mortality has on policy-values.
One
is
352
ACTUARIAL THEORY
[chap.
xvm.
But it is impossible to argue so larger reserves than the latter. fast ; for we see that, if in the expression
1we
increase
P +d
P
,
+d
tell
both
is
whether the
whole expression
examination.
found retrospectively,
^
I
,
1+
WiP
it is
+'')}
+^ +1 (i+f)-+...+d,
is
+1l . 1
}]
whole
increased,
quite true
that
n
Px
V. if
is
increased and
,,, x+1'
, x+V
etc., '
all
d. d
etc.,
proportionally
increased,
tending to decrease
and the
final result
may
Now,
be proportionally greater at the younger ages, the policy-value will be diminished, and if the increase be proportionally greater at the older ages, the policy- value will be augmented." Also, Dr T. B. Sprague, in his paper, " How does an increased mortality affect policy-values " (/. I. A., xxi. 109), says "It seems that we
:
may
fairly
(1) If
draw the following conclusions two tables show the same mortality
:
at
then the one which shows the higher rate of mortality will require
larger policy- values.
two tables show the same mortality at high ages, but an we proceed to younger ages, then the table which shows the lower mortality at younger ages will require
(2) If
increasing divergence as
larger policy-values.
(3) If
two
tables,
at
the middle ages, say about 50, but at younger ages the table A shows the higher mortality and at higher ages the lower mortality,
then table
tells us that "policy- values do not at all depend upon the absolute rate of mortality exhibited, but only
Finally,
Dr Sprague
TEXT BOOK PART
CHAP. XVIII.]
II.
353
upon the progression that the rate of mortality exhibits. It is the table in which the mortality increases the more rapidly, that
requires the larger policy-values."
10.
As shown
n
1
x X
+a
according as
l+o.
If,
+ax+n
at 3 per cent,
then,
it
experience with those of the worked out for each age as follows
of the
:
HM
M
,
a table should be
Ratio of annuities-due,
policy-values.
g O
1
ACTUARIAL THEORY
The matter becomes H M and
In this case
rather
354
[chap. xvih.
it is
desired
to
compare the
when
Vx
A x+n
H Ma
according as
a
^-^ M
x
> = <
^ n^i? Ma
H Ma
But when n
or
>
5,
H M and
according as
1
= < O m VX
71
HMa
a x+n
> = <
= <
nM
Ma
< >
that
is,
as
H -^ > M
a
Ma
H = M
M6
x -? a ^
ratios
H Max
^M O^a
and
H Y = OV
<
M5
a+rt
we can
for
tell,
by inspection of the
ratios, at
what ages
at entry
and
and
H M^
equal
Om
reserves.
It is
wrong
endowment assurances.
Comparison
V-
xt\
CHAP. XVIII .]
II.
355
V
x,
= V
will
be constant for
all
values of
1+a' X
1
i
-
+ a.
a'
x
1+k
= 1+K
1
whence
Then
+
1
a'
+a' X
x+n
= 1-
as required. *
But again
1
dx + i-i +
fl
1+K
aX - k
<
+%+l)
a
aX k
X
which
is
conclusions of Text Book, Articles 59 and 60, proved directly for the rate of mortality, q' x
The
may be
356
ACTUARIAL THEORY
If
[chap.
xvm.
'W-O-t)
N
x'
a'
= i_p + _^
The addition
to be
made
to
equal policy-values
are
be produced
x.
therefore
Now,
if
we make
a constant
addition of r to the rate of mortality, the increase will not be so rapid as is required to give equal policy-values. Therefore, on
the principles of Text Book, Article 48, the constant to q is to diminish policy-values.
effect of
adding a
Again,
will
if for
we substitute - r,
be increasing more rapidly in proportion than under the formula which produces equal policy-values and therefore on the principles of Text Book, Article 48, the effect of deducting a con;
stant from q
is
to increase policy-values.
it
will
ways.
(1)
normal
but becoming great in the later years of insurance. We should expect reserves under such a table to be greater than
first,
is
pro-
a constant
difference
throughout,
we
being
(3)
The
difference
between the extra rates of mortality and the at first, afterwards diminishing, and finally the two tables coincide. Here also the reserves
CHAP. XVIII.]
II.
357
under the table of extra mortality will be smaller than the normal, as the increase is proportionately greater at the younger ages.
The effect upon policy-values of an increase in the mortality under a table graduated by Makeham's formula, = A + Be*, may be considered briefly.
/j.
be increased, the
result, as
shown on page 232, is equivalent to increasing the and that, as proved in Text Book, Articles 69 and
rate of interest,
70, results in a lower policy-value. A lower policy-value is therefore the effect of a constant addition to the force of mortality. If, on the other hand, B be increased, the effect, as shown on page 233, is to increase the age, and therefore a higher policy-value will be given.
If
effect
cannot be
ascertained without further investigation, as the two increases operate in opposite directions in their effect on policy-values.
increased ages.
(2) The policies may be valued at the true age, precisely like normal policies of that age, each year's extra premiums being assumed to meet that year's extra claims. It is interesting to examine the extra rates of mortality which are assumed to underlie each of these methods. Suppose (x) to be a life charged the premium as at age x + r. Under the first method we then have
Years
358
ACTUARIAL THEORY
In examining the second method,
[chap, xviii.
we know that
i
for a
normal
life
CV. +
W+O =
That
is,
n+ i
V * + %U l -n + V x)
life
under
this
method
C.v,+p.+R)(i+0 =
where
is
actual
rate of mortality.
net premium and extra premium accumulated to the end of the year are assumed to be sufficient to meet the normal reserve at the end
of the year, and
make
Hence
,
R(l+i) (<?', -a )(1- ^V) * ' " x+n *x+n'\- n+1 x'
and
(*'
gfi+0
n+1
x
=
where
it is
R(l+tX
x+n+1
(#'
-q
desired to ascertain.
Since
R = Px+r - Px we have
,
Years
Elapsed.
II.
chap, xvin.]
359
59.
69, is
made
to
Conversely, the proof of Text Book, Article 59, may be shown to depend on the proposition that an increase in the rate of interest
decreases policy-values as proved in Text Book, Article 70.
Then
a'
p' + ^P>'.
p.(i
+V
2
a
,
W
+1
~ r)P.+i( 1 " r) +
at rate of interest J,
1
which
is
such that
=
1
:
1-r
V'
whence
<
,
1
-z
.
and
>
i.
l+a'
Now
= 1= 1-
1+a'
1
+a x+n l+a" X
calculated from the normal
=
But since / > i ^
n
i,
V" x
calculated at rate
i,
and therefore
< nV x
Hence
interest
;
it
is
px
at each age
by a constant percentage
that is, policy-values are diminished. a similar process it may be shown that the effect of increasing p by a constant percentage is to increase policy-values.
By
13.
The
may be
proved as follows
If a
X
<
x+1
,
then
i>P
V+ ax+ i)< ax +
vp
and
<
1
a *+i
+ (Ka.i X+1
x+l - i
I
-w *'
1
>
,
1+ax+l
that
is,
Px:i\ > T^
x+1
360
Again,
if
ACTUARIAL THEORY
ax
[chap, xviii.
<
x+l
<%
a
tx
l+aX
a
that
is,
Pi
;T1
>
P^
Further, if 3
<
a
1
then
that
Finally,
-'
is
l+a
a
+a
,
,,
P > P
-a
,
,V i
= -^
*
l+a
a
Therefore,
if
<
,,,
,V
is
negative.
in
14. Besides the two cases mentioned in Te.rf Z?oo, Article 73, which negative policy-values occur, the following may also be
:
noticed
(1) Reversionary
Annuity Contracts.
Here we have
n
Vay\x =
I
a
I
y+n\x+n
, , ,
- Pa ax+n:y+n y\x
|
, ,
/a x+n
\
ax+n:y+n
,
a -a \ ^A a _
a
y
it:j+n
It
premium
ages.
has already been pointed out (page 274) that the annual for such a policy may decrease with an increase in the
If this
negative result.
(2)
(s), (z)
(j/)
and
Under such
n
Vi
x+n'.y+n
x'.yz'
x+n: y+n
chap
xviii
II.
361
may be
less
15.- prove To r
V(>
7i
a:
"" V<>
*
/,.-!,P(W\ V *\ + ^J x (l
2m
)
e+ti
= A z-fft
-P(l a()
a:
2m
+^PW 2m
*
(since
PW
P. +
^PO-^ + 2m
1
d), see
page 196)
2m
a;
<c
=
Again
n
vfi + ^pc-A *\ 2m x
)
V^ xt
|
= Ax-\-n:r-n\
a?+m:r-|
xr\{ x+n:r-n\
2m
T>
J)
N
"
w +^z:ip(^i-^r a )j'i a r r A x+n:T^\ _/p_ + ^p(>fpi_ + <f)\ax+n:r-v,r 2m xr \\ xF\y xr\ V ' \ xr\
2m
(since
pg =
A
=
P-^P^P^ +
p_ a
OT "~*
.i.
rf),
Wl
_-:_
pwri- ^r-(pi_ +
*
f)a
,\
X+71
V*r|
2m
Or, better
y(0
n
xr\
_ a x+n:r-n\
A
i+m:r-n|
p('i^a(m )
xr\
x+n:r-n\
1
2m
362
(substituting for * &
ACTUARIAL THEORY
[chap.
xvm.
aW x+n'.r-n\
_. xr\
its
,-/p A^ x+n'.r-n\
I
ra-l p(m)/p
'
2m
*r
*+:r-n|
x+n:r-n\
a
as+:r-|
Pot| as+:r-n| _a
(
OT
I
2m
~ - P ^(P * 3+n:r-|
(
xr
V - + ^ip *^ V 1
Similarly,
V=
V
n+t
(n
V+^PWVi-,
being an integer and
t
16.
To
find
a fraction).
Vx
a
y
'
x+n+t
~^
y
x
I- 1\
x+n+t
Now
and
01
]
= a y
a
y
a
y
i|
Therefore, interpolating by
fraction of a year
first
differences,
where k
is
any
=
, ,
#e
Hence
and
1-(|
,|a
, x+n+t
,
,
x+n+t
,
,
n+t
,
i) '
(31).
17.
To
find
n+t
V, x
>
l (t
= -\ - m
)
n+t
V(>
x
= K+n+t ~ P* + {
^W
!!
+
)
*)}
* **M + P^
2m
= A. + ^.- p,v. + .+
kr p S*
-( p.+'0v^ P
= ( Ax+ n +t ~ F x a x+%+t) \ l +
~2m~
*7
chap, xvni.]
II.
363
(36), since
-Pax+n+\> x
)
= Ax+n+t -Pax+n+t x
if first differences
To
find
n+t +(
,V()
x
("H
k
V()
a;
= Az+n+S - P(m x
>
a( i -si x+n+t
I
m>
s\
j
''^^\
2m
+ F/- - s) *
\m
J
!!
- A, M+1 -{i',+=i
W.+<o}v.*+
+{ p .^W,^>}{(i-<>-(i-^)}
Hence
^VN
2
- P,(l - *1)
2m
+(
v
s
\m
2ot
J
n +f
*^
+d
J)
364
ACTUARIAL THEORY
The
third
[chap, xviii
and
assumed that
n+t
V(>
so
=
n-\-t
V x - Px\(l - ^-^)
ml
,
\m
-s)
J
noted that where the rathly premiums are instalment premiums, the third term will not appear in the expression for lm \ and therefore the value used in practice the exact value of x
It
may be
n+t
To
obtain
s),
we may
also
proceed by
interpolating between
/
(
pc\
nV() + -i-] and
p(m)
t+iVW
p(m)
Thus
VW n+t x
n-\
j,V()
x
=
Now,
'
fcV(>
+ sm(
J;+iV( m)-
VfM + F> - - S
(
substituting for o
TiJ
iVW m
a:
and
n-{
i+iVW x
m
their values as
(36),
we have
re
+t
vw
a;
fi
\
Itl
?t
re'
+ J n v *
1
+
Tfl
( +! V71
^V
-f
a;
v)\l + pwfx' \w J
re j
-*
f1
p(m)N
^
)
v +f- + * )(
is
^v
vU+pwf--^
may be
second
ignored;
term.
If
The
quantity
PjW
for
in
the
made the
formula (38).
18.
To
find
n+t
V-: xr
| \
V_ n+t
xr\
= a x+n+f.r-n-t "
P x l-t\lax+n+t
xr\
n-1
chap, xvni.]
II.
355
Now
_ =
i/m|
01
a a
y:m+0\
,
,1a;
Hence
of a year
interpolating
by
first differences,
where
k is
any fraction
i t|
a.
ym\
=
;
y:m+K\
T.-t\
'x+n+t:r-n-l\
"'
^x+n+f.r-n-t]
xr~\
~\ "
n+t:r-n-t\
n+t
xf\
x+n+t:r-n-t\ ~
x+
a:?]^
~0
we have
)
"
xr]
~n
xTy
xry<
x+n:r-n\
,
xr\
x+n:r-n\
,
<\
*+n+l:r--ll
*
_
x7]
x+ri+l:r-n-l y
-fA x+fl.:r-m|i-P-iax-\-n:r-n\,)} y ^
a;r
|
r")
V-
_p_( a
, ,
+ /(a
"H
19.
To
find
V^,
_^
(t
= -+
p(m)
xr\
)'
+'
V^
a:''
_ ^
i+l+t:r-K-|
|a (m)
s\
x+n+t :r-n--r-\
fc+J|
x+ji+Cr-ji-*!
- P "^( zr|\
(
aW x+n+t:r-n-t\
a
m
(P
*
x+n+f.r-n
-t\^
x+n+t:r-n-t\
J)
'
m~
2m
\
J
366
ACTUARIAL THEORY
A
[chap. xvni.
n+t
yW
xr\
_
'
x+n+t:r-n-t\
-l p(
ro)/-p
+ pfl +!
{
sr I SiCPfc I+ -)}{(i-0-(i-^)}
,.
w ~ 1 p(w)ffp.._i
2to
(W \I
*++*: r-*-*|
pi-^a ;
ct|
rc+m+(:r--i|
+d
m zlm(L- s
2m
XT
\\m
)
J
= n+t V xt\ - Pxr\\ - *1\ + ^zlpW-f Vi- - pi-6 - ^\ -(\ xr|\^ nl jj m J 2m iw|\+ r|
2m
\\m
The third and fourth terms of this expression are very and in practice it may be taken that
n+t
small,
yW
xr\
n+t
ax+n+t:r-n-t\
As was the case
Pxr\
x+n+t:r-n-t\
+ Pxr\
in these circumstances so
20.
To
find
,,
V
.
,
n+t-.r
V x = A x+n+t - r Px x.1-(|
x+n+t~r
8,
x+n+t:r-n-l\
r
x+n+t :r-n-t\
367
chap, xvin.]
II.
21.
To
find
V(),
x
'
(, \ f \
<\ <~S
/
, +*:
VW s
m +.A
J *++*:r--t|
W-l
2ot
r
T
,
jx
'
x+n+*:r--t|
+ =
OT-1
2ot
r
{A+ ! K 1 ^P(ftl^}{a-0-(i-'-i)}
*x\+n+t
:
x+n+t ~
r-n-t\
+ r "*( ~ V ~ r
pl
*(
^~
'
p(m)
*
f/p_l
\ V *++t:r--|
pi_x 1
j!r|^V+l:f-n-|
(1
_ A _ pi_/l _
<w|\
^ +1
\\
Jj
2m
\m
x
r
+':'
v-pfi- *T\ + x\ m
J
~
2m
r
pw( x
\+
vi- w|
pUi - m CTiy
^\
Jj
The
third
ignored, and
we
and fourth terms are again very small and may be shall have
n+f.r
vw
x
n+t:r
V x - px\ (i
r
^-^
m
J
:
Ax+n+t Pax+n+t r x
r-
n-1
h
*
j
Px C-s) \m J
to 119
as follows
x+n+t ~
j-
a\
~ Cn-t\ 3'x+n+t:r-n-l\
,
U<)
x
L, n+f.r
(1 U x - r P' x^ -c)(l- J\ m
368
ACTUARIAL THEORY
The formulas given
in
[chap.
xvm.
sections 15 to 22
were deduced by
No.
12).
Mr
J. J.
M'Lauchlan {Trans.
23. To find the reserve after n years of a pure endowment payable at age Qc + f), with return of premiums in the event of
previous death.
By
V =
-^l+{ir(\ +
D D x+n
,
K)
+ c}
d~~
By
policies
+2C
+3C +
...
+ bC
W1 +K
R -R - M ^ !" + C1J
,
we have
{
v (1 + k) + c} -!
R -R
^ -bM
,
ai-fm
The
reserve
is
therefore
tt(N
*
,-N
chap, xviii.]
II.
369
The two
T (N
"i^^ {N -
~
1
N-+ -
"
1
(1
^
+(
-{D, +i + C (R
-Rx+4 -m
_ ,M
x+J )
x+n-1
x+t-V J
*+
1ST
a;+?i
7r
x+n-l
-Nx+t-1
^
t)
since
, =
^+^<KzK fiI_tM^
As explained on page 318 the premium for this benefit is any account of the element of mortality. The premium charged would therefore be
usually calculated without taking
P_
The
accumulated at rate
reserve accordingly might be taken as the net premiums i to the date of valuation.
under a similar policy with the addition is to be returned with the premiums in event of death before age (x + 1).
24.
find the reserve
To
2A
370
ACTUARIAL THEORY
Prospectively, the reserve
,
,
[chap, xviii.
is
a;-f-?i
<M
+j{ir(l
+ ) +
^+i) Mj 2
c}
B
+.
is made up of the liability for return ot on past premiums and that on future premiums. The
former
is
equal to
<
x+n
x+U
x+n
x+t
i+<)
^
2
is
-+
2
1)
x+t
And
the latter
equal to
2R
-2R ,-(i-n)R
_(<-")('-+ 1)
>'
Together, as above,
D
<
J*
^
"^
M , + , + "\+n + 2 V. " 2 V s
is
R* +( -
^
2
x +t
The
D^ [>(N
value of
25.
-j{*(l + v
\"| M x+nf
as
if
the
To
premiums are
to be returned with
compound
1).
interest at rate
in
chap, xviii.]
II.
371
iVi +
x+n
+ K) + c}
_L
x+n
{(
+i>-,(M x+K -
M x+t
+ (1 +jY+\M x+n -
M x+j)
+ V+jY+XM x+n+1
^
-M x+t
x+n:t-n-\y
And
f
kil. W
X+
26.
years,
retrospectively
+ ,)+4
^
*
{[1+i)(Mr
M i+t)
X+tl
+ (l+i) 2 (M x+1 -
M + J+-
+(l+i)(Mi+ ,.
r Mj}
ir
These two should be proved equal, given the value of found on page 310.
as
To
years.
Three cases
(1) n
arise, viz.,
< = >
is
t.
<
,,
t.
_S!
a+7i
nM
+{.(!
+ K) + C
+R
-R
a;+?&
-tM
*g
ttN
'+*- 1
x+n
Retrospectively
jt(N
-N
x+n
,)
R-R, -M,
x+n
Now
l
>
a;
a-j-Ti
-M^)1 x+n'-l
*+
x+n
d x+n
1
["{N.-i "
t
+ K )( R , " R * +( -
M +$ ~ M +
* *
<
~< R * ~ R-+. ~ M
D^x+n
^M
+ ir t --
+ M x+ + 'C 1 + K )(nM x+n + \+n ~ K+t - tM x+t) - irN^J + <nM x+% + R +n - R, +( x+t )
since smce
x-l
(1 \
+ k)(r X . Bx+t J\
'
im x+t' )
372
(2) n
ACTUARIAL THEORY
=
t.
[chap. xvih.
Prospectively
Tr^a+f
,
71
'-
a;+{
Retrospectively
N-l - Nx+i-l
,
R-R^m,, *M
*+
+f
i+f
which may
(3)
easily
be proved
n>
t.
Prospectively
-^? - tt
x+n
-^^
,
a:+7?.
Retrospectively
^q + K
+c }_?
R-R^.-iM,, !+<
be proved
M * -M*
easily
t,
identical.
premiums received, and the mortality up to age (x + 1) may be ignored, as the premiums are returned in the event of death
previous to that age.
interest the
in
t
We may
premium
calculated
therefore find at what rate of by the exact formula will amount amount. That is, find j such that
8
10)
= A X+t jraX+t
, ,
The
reserve,
as tt(1
+j)s
...
27. To find the value of a similar deferred assurance, but with the condition that during the t years the premiums shall be paid only so long as another life (j/) survives.
(1)
(a) x
'
When
w/
<
t.
( y) still
alive, '
Prospectively
M
^1
x+n,
+M
+ K ) + el
J- {(B+ 1)(M
x+n
+ -'
Nx+t-i-.y+t-i N*J) \
D *+
/
D x+n:y+n
chap, xviii.]
II.
373
Retrospectively
7T
jt(1+k)+c}_^
x+n x+
X+n
*->
+n
x+n
(b) If (y)
died after
,
in
Mb-1'
m'
p)lx+n y'
cases out of
x+n
Prospectively
^+
a
.
,, (
+m{B-(l
+ K) + c} ^
M *+'- N +'-*
T
Retrospectively
N -l- N +-lx+n
w
+)c)+c}
R - R- ->-'" M x
l
+.
"x+n
(2)
When
t.
Q-l)
years, occurring in
cases out
01
x+t
,
,.
M
Prospectively
-j^ x+t
tt
~^l1
x+t
Retrospectively
N -i,-N ^+t-i
,,
,
ff
_ {T ( 1 +
K)
x+t
(6) If
(
x+t
(^)
died
.
after
m
I
(
,
< i)
,.
payments,
occurring
in
,P -
P )i
cases out of
M^
Prospectively
N
*"-
"f^
^,
+(
s+t
Retrospectively
v
(3)
N-N
x-l
+-! _
{a .( 1
+ K) +c} _
R-R.-mlVI, E
lp
When
><.
(<
1) years, occurring in
of
x+n
Prospectively
M _^+n_ N
7r
x-\-n
rl
x+n
374
Retrospectively
ACTUARIAL THEORY
[chap, xvfii.
T - x-l D
(6) If
(
3/
N-3ST, *'x+n-l
x+n
(y~)
.
l~(\
,A
R-R^,-/]VI x x
)
M-M
x+ t
3,+n
x+n
x+n
died
after
m (<
,
i)
payments,
occurring
in
M
Prospectively
N
~^
"
T)
Retrospectively
'N
i
x-l i
~ -N
a+m-1
71-1
D x+n
-mM
x+n
,,
x+n
reserves for limited-payment policies, endowment and temporary assurances have already been given, both by the retrospective and prospective methods, and the values of each by the two methods are equal.
28.
The
assurances,
classes
may be looked
a
n:t
yx _
x+n
Pa x+n:t-n\ x
t
N
.f-'Y)
x+n
_
xt\
= A x+n
^N +'-i ^
n
i
p
xt\
J)
x+n
+p_
xt\
Nx +t-i
,
T\
x+n
= A k+ji -P +
yi-
(P
a
o:(| r|
x+n
++
1-
<^
)N
J)
a:+7i
x+n
A
J)
= Ax+n
M Ei_pi_
xt\
x+n
N x +'T)
= Ax+n - P1 - a + x+n
xt\
f Pl_
xt
\
_P x
J)
+ tJ
x+n
x+t-i
x+n
chap, xvin.]
II.
375
Ax+n - Pa
+B P
,
first two terms are of the alone varying with the nature of the
N
The
coefficient.
constant
with a varying
This coefficient consists of two parts, the first of which shows the correction to be made on the second term for the value of the premium, and the second the correction to be made on the first term for the value of the sum assured. Thus in the case of temporary assurances, no premium will be received after age x + t, and therefore the value of all premiums after that age must be added to the liability ; further, no claims will be paid after that age, and therefore the value of a premium starting then which shall be sufficient to meet all these must be deducted.
29. These formulas
may
also
forms
,V
n;t
A x+n ,
Px ax+n + P_ti x
,
J)
x+n
,
x+n
P
x
f,P
x+n
A-
x+n
A-,Pa+
x+n
t
(,P
'
x+n
376
ACTUARIAL THEORY
= A a+w -
[chap.
xvm.
VL
xt
|
PV, a x+n ^ xt
\
CP 1 - - P * +tJ "'
K
'+ 1 - 1
jy
x+n
Xt]
Xt\^-
x+n
jy
x+n
r.
,
since
,,
Here each expression is of a perfectly general form independent of the value of t, except in so far as t determines the value of (P - P )N =-^ - Pa x+n H the premium for the benefit, A , where r ' x+n J)
, ,
x+n
premium
consideration.
30. The reserves for policies under many special schemes may be simply found by remembering the method by which the annual premium was calculated. For example
:
(a)
(r),
To
be guaranteed on the sum and thereafter the sum assured is to be payable, the office assuming rate of interest i in its calculations. It will be remembered (see page 148) that the
is
to
assured for
(x),
is
p^+O'-'K-k,)}
Therefore the reserve will be
n
x
'
(t)
|
(6)
To
is to be payable in t equal annual instalments, the first at the end of the year of death of (x). The annual premium for this benefit (see page 147) is
x^
chap, xviii.]
II.
377
be
V x x^l
t
31.
life
To
2 P.
years,
after
(1)
When n<
t,
the value
is
\+n ~ P (\+n + P ( N . - N ^ J - (M
-.
a *+
J
)
Prospectively
^^
!
*+y
*"
Retrospectively
When
P(N -?Z1
5zi
Retrospectively
To
an endowment assurance
end of
the
premium
(1) n
is
to
be P
< r. A x+n\t-n\
p (a x+n:t-n\ ^
|-
Prospectively
r-n\
i
) x+n;t-r\'
Retrospectively
D x+n
,
or
>
r.
Prospectively
A
Retrospectively
- 2Pa
:
D x+n
378
ACTUARIAL THEORY
[chap, xviii.
Again in each case the reserves by the two methods may be proved equal.
33.
To
die within
years.
t
Where
the debt
(x) is
t.
is
years.
Assuming that
(1)
rated up r years,
When
<
M, +r+ro(l-X) + XM +r+t
T)
77
x+r+n
,
,
x+r+n
(2)
When
or
>
t.
Ax+r+n
,
7T
a x+r+n
, ,
(6)
is
years,
t.
first
When
<
(*
_^
X
D x+r+n
When
n
x+r+n
or
>
<.
A
34.
7r
To
2 being payable
live
years, or 1 if
policy,
V =
= _
V-+Ax+n:t-n\
y
xt
|
Pia x+n:t-n\
xt\
j^
x+n
-n
A xt\
\
+ n:t ~ n
a
.
art
_ =
Similarly, to
V
n n
xt\
T A x+n:t-n]
4-
xt\^
Id
Vxt\J
"^
chap, win.]
policy,
that.
II.
379
being payable
V =
=
-,
art
I
I
xt\
V ^( 2 - Ai|)-(V
TO:
^-A^)
35. To find the value after n years of an annuity deferred years which was purchased by single payment.
(1) n
<
I.
Prospectively
Retrospectively
I
x a a zV (l+{) n J 1
1
^ x+n
_ isD XX ~ ~D x+n
1
1
The two
,|(iD
t\
!-'">+
(2) n
or
>
t.
Prospectively
Retrospectively
,\a
<
I
Dx
Nx+t -Nx+n
,
D
Again
tl
_,
D~
-NxW
,
,|D x -(Nx+t K x
D x+n
N D x+n
+n
36.
that the
(1)
To find the value of a similar annuity with the premium is to be returned if Qc) die within the t
condition
years.
<
t.
Prospectively
, t-n\
I
x+n
,
+{A(1+K)+C}A \ / x+n:t-n\
;
'
'
'
Retrospectively
AD
D x+n
,
>-{A(l + v
'
*) y
+ c}-S 1
'
M -M x+n D x+n ^
380
ACTUABIAL THEORY
latter
is
[chap, xviii.
But the
equal to
gi-
[A{D - (1 + K)(M x -
M x+ J} - c(M x - M x+n)]
x+n
N
=
,
J _,
+ WHk) + c)
x+n +{Afl
,
JVT
-M,,
since
,
A _
N
_
x
+ c(M-M
+ k)(m x _ J\
'
,)
x+n
t-n\
Iff
I
x+n
;
,
(1 ^
m x+t>
<
+
'
K)
'
>.
+ C}A-5x+n:t-n\
>
(2) n
or
>
<.
Prospectively
Retrospectively
A -g--{A(l + >) + c} 5
o:+?t
M* -M
p a+
+t
N --^-N^
,
,
a;+?i
is
equal to
+i
-N
+ J]
X-\-%
= IF"
A{
(1
+ )(M x -
M_)} - {N
+ c(M, -
M x+t
)}
+ N, + J
N
=a
37. To find the value at the end of n years of an assurance with a uniform reversionary bonus of b per annum declared every five years, an interim bonus of b' being granted in respect of each premium paid since the date of last investigation should the
life
re
to be a multiple of
5.
Whole-Life Policy.
1
J)
x+n
+ b'{\+ n
-m
+ + n +, + ^+n+,0
--
)}]-".x+n
chap, xvin.]
II.
381
for this
benefit
on
When
b'
= b, we
have
,
(1+6)M
+ bR
x+n
ir
having
its
appropriate value.
Endowment Assurance,
maturing at age
x+t j
-r
(x
+ i).
x+n+10
Dx+n
l-V
J\
x+n
x+t
*
\_
x +n+b
x+t>
+ M
+D
^,)
x+ t)n -
-v=^
-R
,
When V = 6, we have
[(1+6)(M ^ -
M
;
^,
+ 6{R
+ (/-YD
,-M,,)}!
x+n
ira.
" in these two formulas will have different values as found two benefits on page 303.
38.
for the
To
Whole-Life Policy.
M x+n+5
+ (1 + 5b)(M x+n+& -
M x+n+1Q
If
6'
= b,
+5 )
R^J
382
ACTUARIAL THEORY
[chap.
xvm.
Endowment Assurance.
D^l + 56)
+ (1+56)
{(M x+n
M x+M+5
+ (1 + 5bXM x+n+& -
M x+n+ J +
(M^-M^-Kl + S&^D^
+ 6'(R
+
...
+n +6'(l
xm
5^(R
i+( . 5
-R:c+i -5M^)}
+7[;
^
io)
If
6'
= 6,
V* + " V +
5
'
t-n
(D,
+(
- M, ,)}- TO<+ . !P +
39.
To
Premium
(a)
It
polic}'.
Cash Bonus.
premium
was
was found on page 306 that the deduction from the ordinary for a discounted bonus of k per annum of the premium
kV
N*+
~
.
class of
x-l
policy,
we must add
premiums
That
but
we must
also
make
at this rate
which
will not
be payable.
is
=
x
*+"+ 5+
J)
*+rc+io
+ ""
x+n
= =
x+n-1
V + H>'
(
x
^J
a:-l
+TC+2
V^
m+7S-r
chap, xviil]
II
383
(6)
Rx
An
made
as above
and we
a
have
Vx
Vx +6_L
It
x+w
-b
R x+n
a;
Dx+n
\
(R
,
R
,
N X+ll-1
(c)
N x-l' J
*+
...
be
Vx +
^-Va) + 6
+n ~
x+n
x-l
tt
b (R
R, +m+5) + *q + B *X V, + 5 ~ Rs +
+ 10) +
D x+n ^
r
"
6 (R,
+ro
- R, +m+ a) + Hi
56 X R
+ +6 -
+1 q)
x+n-1
H R, - R, +5 ) + Kl + 56XR
x-l
-R, +10 )+ +5
-)
does not fall to be that a surrender-value is as a discussed, but it may be remarked rule granted only where a benefit is certainly payable, as under whole-life assurances, endowment assurances, joint-life assurances, etc. It is customary to allow no surrender-value where the
40.
The
subject
of
surrender-values
only contingent, e.g., temporary insurances, where the sum assured is payable only should the life die within the term, a contingency which may or may not happen contingent insurance, (x) (x) against (y), where the sum assured is payable only should
benefit
is
;
die before
(j/),
384
ACTUARIAL THEORY
In the case of a pure
[chap, xviii.
of the premiums
is
in
the
event
of
is
previous
surrender-value
;
given,
since a benefit
but where
it
is
is
a pure
paid, as
endowment without
the benefit
is
In the case of the double-endowment assurance, the method by which the surrender-value is calculated requires special consideration, since it must not be overlooked that only half the
benefit
is
survivance.
41.
The
formulas (56) and (57) are founded, to apply to any kind of benefit.
First, let
may be
stated generally so as
W be
Then the
value of a benefit of
policy.
Second, the paid-up policy must equal the sum originally secured less that proportion of it which the future premiums
will cover.
we have
WA
V
1
(2)
Px+n
,
P =
-
x+t-l
N x-1 -N x+t-l
")
we have
^
(2)
/in
w N x+t-l
D x+n
_ N s+i-1 =
1
PC N \
x+n-1
N x+t-V
Dx+n
^x+t-1
N x+n-1 -N x+t-l
a a
we
xy
have
W K+* _ ax+n:
+J =
a x+n ~ x+n:y+J ~
P ( ! + aX +n:y+J
(2)
g+w
,
-x+n:y+n
, ,
+ ax+n:y+n
chap. xvm.J
II.
385
42. To find the paid-up policy to be issued after n years in lieu of a pure endowment policy payable at the end of t years with return of premiums in event of previous death.
contract
is
x+n
are to be returned in event of death before age x + t under the paid-up policy as under the original contract, and therefore we shall write
W
x+n
x+n
**~
x+n
.hence
" (N
43. Under a last-survivor assurance three cases arise in finding the paid-up policy.
(1) (x)
alive.
WA-x+n:y+n
or
Ax+n:y+n
P-
P. axy x+n:y+n
= i-_
'
x+n:y+n
WAy+n
or
(3) (y) dead.
= Ay+n - P- ay+n xy
=
1
3y+n
P-
WA x+n
or
= A x+n - P-ax+n ^ ^ xy
p-
44. It
policies
is
common
under limited-payment whole-life assurances and endowment assurances, the amount of each paid-up policy bearing the same proportion to the original sum assured as the number of premiums paid bears to the whole number payable.
2B
386
It
ACTUARIAL THEORY
[chap. XVIII.
sometimes happens however that the value of the guaranteed and the conditions
investigated.
may be
whole-life assurance by limited payments, where t premiums were originally payable and n have been paid, the
Under the
is
Assuming the
life
to be
still
we have
n A
2
-5,
_ ^
_ P
t*+]
*
a
[*]
[a;+m]
[i+n]:*-
according as
[*]*[*+]:-
>
I
""
<
[}
t)
[*+]
or according as
P
t
[as]
> = < ^ ^
1
I
Jt-nlx+n] P
1
The
Table at 3 per
cent,
illustrate
the point
Age
at
Entry.
CHAP. XVIII.
II.
387
The
Age
at
Entry.
(0
388
ACTUARIAL THEORY
this
is
[chap, xviii.
and
the lump
to be
sum
Femium
is
But
N -N
=^
^^
>
(1
+i)s as shown
x+n
on page 295.
Suppose an
office
assurance on paying
the
difference
in
endowment premiums
policy-holders to pay premiums, the difference between the premiums being allowed to accumulate as a debt against the policy, which will be deducted from the sum assured on payment
endowment assurance
only
the
whole-life
No policies will be taken out under the second scheme, for under the former just as good a benefit is secured for the same premium, with the additional advantage that the accumulated difference in the premiums will be deducted only at maturity and not at previous death. To put the two classes on an equality, the amount to be charged at the end of m years in the first scheme should be altered to
/p
^
p
xm\
\ x'
x-l
J)
x+tn-1
x+m
Another illustration of the same absurdity may be given. Suppose the assumed conditions to apply to all classes of assurance. The life assured would then be well advised to take out a temporary assurance which will give him the sum assured in the event of death during the term at the lowest premium. Then at the end of the term, if he survives, he alters to endowment assurance, and pays the accumulated difference
which
is
clearly wrong.
chap, xviii.]
II.
389
The
correct
/p
>
to
be paid by him
,
is
N x ~ -N as+ro-l _
, "
p
1
_1_
N x-1 -N x+m-\
)
xm\
xm\'
J)
x+m
xm\
x+m
=
Thus he provides the payment of
1,
From
we have
p ~ p x:n+t\
V n x:n+t\
a
x+n:t
Vx
_ ^a x:n+t\'1 x+n:t\
_
1
fp x+n:t\
^
_
%
V%
"""
x:n+t\
a x+n:t\
= Px+n:t\
From
paid
this expression
V
a
x+n:t\
we observe that the future premium to be the endowment assurance premium at the present age, future less the reserve value of the existing policy spread over the
is
premiums. Again, we
in
may
argue as follows
As
no premiums are to be
1
+ t), and
which
will
then be
(P x +
rf)%^
X+lb
(.V
+ d )(*x+n-\+n:T\)
~ ax+n:T\
a x+n
Spreading this
loss
over
the
future
we have
a
pX
Now
altered
let
?x
to find the
sum
390
chap, xvm.]
II.
391
At
we have
B
from which y 2
*\
P(N *v
"2
-N Vl~ lJ
n
may be
obtained.
similarly at the following investigations.
y v y v ys
etc.,
be altered into an endowment assurance, be the ages at which the sum assured will be the other symbols have the same meaning as
We
have at the
first
investigation
N
J)
may
obtain y v
At the next
investigation
N
B 2 A x =
from which y 2
(P +d) >
V-
"-^
-N
H
J)
^
,
may be
found.
And we may
EXAMPLES
1.
Given
P25 =
-01521,
P42 = -02654,
a42
= 15-5679,
find
the
age 25, which value of a whole-life policy for 1500 and to which a reversionary bonus of has been 17 years in force,
effected at
383
is
attached.
Value of policy
=
= =
1883 x
i2 )
(1883 x
+ 15-5679)
= =
392
2.
1,
ACTUARIAL THEORY
Give
as
CHAP. XVIII,
many
formulas as you
know
for
xt\
x+n:t-n\
xt\^
x+n:t~n-l y
^
pxt\^ x-1 (N
_,_
D x+n ^
*
xt\
'>
x+n:t-n-\\ J
x+n
t-n\
~~
xT\
A
P
+ a'x+n
^
t-n-iy
A
1
(l
K
^U
x-\-n:t-n\' x+
1+ax+n:t1 +a a;
:
x:t-l\
x+n:t-n-l
l+a x:tl
= 1A.
x+n:t-n\
A. xt\
P z-\-n:t-n\i+d ;
,
'
P x+n:t-n\
,
xt\
Px-t-n\t-n\i+<* 7
=
l'irtlX
1
l
V a:+l:t-i|)'
and
,V
'( 1
*+-l:<-+l|'
3.
-,.
when
the rate
of interest
zero.
Vx
1+a 1 +a
(when
interest
is
zero)
1+ex+n l+e
chap. xviii.J
II.
393
y_
__
+ax+n:t-n-l
= (when
n:t
interest is zero)
+e l+ex:t=T\
,V
= (when
since
interest
is
zero) 1
l+. x+n-.t-n-i\
+ ex:T=T\
when
interest
is
,P
'
"
A
=
1
-=
l+(l
x:t^\
1+e*:*
zero.
It will
life
assurance
<(in
4.
be observed that the formula for limited-payment wholeis the same as for endowment assurance, so long as the limited-payment assurance.
in force, the
Under a policy taken out at age x which has been n years sum assured and bonuses amount to S. Prove that
is
equal to
(s
+ ?x +
~
J
A x+n - ( Px + -A
+.
- P,(l + %+ J
C A, x+n
P(l-A x+n' ) xV
_,_
fs
etc.,
Find the values separately is 17-52789. sums assured, and of the future net premiums, of the aggregate
The sum of
their values
having given
A 40 = -379434.
we have
By
394
Therefore
ACTUARIAL THEORY
2A,^
[chap. xvih.
40+71
= = = =
(17-52789 x -620566)
+ (44
x -379434)
10-87721
16-69510
27-57231
which
is
And
the value
<
_jV
j,
and give
the
V "IX
if
1
<
<;
71-1
V+1
3+"
a
x+l
,
x +n
x+1
,
X X
a
if
a
a
x+n
if
x+n
< %+!
is very unusual, but does occur at the infantile ages of all mortality tables, and at very advanced ages of some mortality tables which have been badly graduated, e.g. the Carlisle Table.
which
Find the reserve value after n years of a pure endowment + f), with premiums limited to r and to be returned in event of death before age (x + 1).
7.
The
(1) n
< r.
nM ^ + R*+* - R *+<-._ rM D *+ ^ _.*+ + {-(! + K ) + c v ' D^ D ,-N s-fr-l N %+n-l
, ,
Prospectively
f
J _,
'd
}
'
'
'
x+n
chap, xvm.]
II.
395
Retrospectively
v
(2) n
-{ ff (l +){) + c }_*
R*+" - nM *+"
>
r.
Prospectively
J _, _+' + r ^(l + K + c ) J_^^
M *f
Retrospectively
N, -
N r4- - 1 r
+
1
-{ a -(i +
K)
R -R - rM **: +? + c }_;
_,.
In each case the values found by the two methods may be proved equal, and it will form a useful exercise to do this as shown for other similar problems.
Find the annual premium to secure an endowment assurance maturing at the end of t years, with a guaranteed bonus of 2 per cent, for each year completed and also the reserve value at the end of n years.
8.
to {),
Benefit side
M -M x+t + D x+t
x
,
,,
DX
Payment
side
2 + .no
,
Rx+1
DX
,
N J-l - N X+t-1 ^ DX
,
M
The
M, + + D x+ + -02 {R
, ,
+1
- R, +i
(I
N ,-i- N.+-i
reserve value after n years
is
Prospectively
M s + ,- M s +( + D * +( D 1+71
.no
"
+ .+
+ . + l-
R. + -(
<
M x+
+ <D +
D *+
,
_p
N x+n-l -Nx+t-1
x+n
396
Retrospectively
ACTUARIAL THEORY
[chap. xvhi.
p e
Nx-l - N x+n-1
,
_,_
d~ x+n
- M x+n d~ x+n
,
r\n
02
Find in terms of commutation columns the value after n of a policy for a deferred annuity, payable half-yearly, maintained by annual premiums, to be entered on at age (x + z).
9.
years
cases,
0(8)
n <,
=,
>
z.
tt
+1D
<z.
(o) Prospectively
N* +
'
+4-D x+ *
*
N
tt
p x+n
1
-Jthl^L
-N
**=i
x+n
,
(6) Retrospectively
(2) n
z.
(a) Prospectively
N *+' +iD ^
*
X+Z
*+'
(6) Retrospectively
N "~ 1 -N
T
a:+i,
~, 1
ir
(3) re>z.
(o) Prospectively
N +n +4-D *+*
*
10. What annual premium should be charged for an assurance of 1000 to (.r), the premium being successively reduced by the first premium and ceasing altogether after the tenth payment ?
of
What
is
CHAP. XVIII.]
398
ACTUARIAL THEORY
Or
again, the single
[chap. xvrn.
premium
is
Find
J,
such that
1+ J
J,
l+i
4.
Then the
single
&
premium r
after
t
= A'^
years
calculated at rate
is
(1
+jJA' x+t
l+a X
.
policy after
years
is
(1
+j)*A
Pa
policy
for
at
n n
dead
Vay\x =
i
ax+n
13. Find an expression for the value at the end of n years of a contingent insurance payable if the survivor of (x) and (if) die before (z). It
(x)
alive.
Then
Pi (l+ax+n:y+n:z+ns 1 xy.z^-
If (x)
is
dead,
n
Vi = xy'.z
A-J
is
y+n:z+n
dead,
And,
similarly, if (y)
Vixy'.z
J = A x+n:z+n
Pi (I + ax+n:z+n' xy:z K
14. Obtain by the retrospective method a formula in terms of annual premiums for V 1 - , and prove by general reasoning and
algebraically that
y
*
P -Pi-, xn\
a:
P r xn\
chap, xvm.]
II.
399
,-N
)-(M
jj x+n
pi
400
15.
ACTUARIAL THEORY
Given
at
[chap, xviii.
31 per cent. * r
for the
Vx =
-50084, and 7
),
Px+n =
-05917, '
find the
premium
age at entry (P
assured
to
(A
),
Since
chap, xviii.]
II.
401
whole-life policy was effected n years ago at age x, and is now to be reduced by half, the value of the rest of the policy being applied in reduction of the annual premium.
17.
the
sum assured
Thus,
iPa
-^
x+n
R-KP.+.-PJ
= px -!?_, * x+n
(6)
policy of \)
divided
Thus, 3
= px -I? x+n ^ *
(c)
Or we may reason
must equal the value of a sum assured of \ less the value of the future premiums. Thus, if P be the future annual premium,
n
V x = 1A x+n - Pa x+n ^ ^ *
,
and
Pax+n =
U
*
*
x+n
- nV x
>
x+n
,
x+n
x*
>
x+n
hence
P = Px - APx+n *
18. (x) and (y), who are insured under a joint-life policy for 1000, desire at the end of n years to have it converted into two What premiums will be single-life assurances for 500 each.
The
(x)'s J
*
joint-life
is
^V^
of which
share
Vxy
and
( y)'s \J /
Vxy
1
Now, if from the making up the whole value of the policy. premium payable by (x) at his present age for a 500 policy we deduct his interest in the old policy-value spread over the whole
2c
402
of his
life,
ACTUARIAL THEORY
we
shall arrive at an equitable
for (z)'s
[chap. xvih.
him.
Thus we have
new
policy for
1000
500Px+n
2-J2 a x+n
policy the
And
similarly for
(/)'s
new
,
premium
is
1000 Vi
500P
!LJ*
y+
v+n
19.
A whole-life
and has accumulated bonus additions of 450. proposed to devote part of the bonus to convert the policy (including the remainder of the declared bonus) into an endowment
thirty years in force,
It is
Using the H table at 3 per cent., assurance maturing at age 65. and ignoring the question of loading, find how much bonus will remain attached to the policy after the alteration has been made.
The
office
30
V20 + 450A 5Q
If
be
the amount of bonus to be surrendered this will be reduced to and it will require to have in hand for 1000 V +(450- X) A
,
the
new
contract
The difference between these two reserves must be the present value of the bonus to be surrendered. That is
XA
60
50:15|
+ 53-70
= =
337-783
337,
At
will
chap, xvin.]
20.
403
of a child's
Give the prospective and retrospective values after n years endowment policy effected at age x, payable at age (.r + 1), with premiums to be payable only so long as the father (y) lived along with (x) and to be returnable in event of death of (x) Prove the formulas identical. before age (x + f).
Prospectively
If the father
is
alive to-day,
which
will
happen
in
x jp
D^
T\
- i+
'
Mi+^o + cjr
ry
I
/V
x +n
x+u
'y+TiV
x+n+\
M x+t')+
..
x+n 1+71
N i+n-l:;/+ro-l -N i+t-l:y+t-l
x+n:y+n
If the father died after n
payments
^ +m(
7l
_1
P - n Py )
!/
cases,
x+rt
x+n
1)
payments
x+n { n _ 2 P y ~ n . x Py )
cases,
1 +
,t(1
+ k) + C ^
^p ^
etc.
:
etc.
payment
j+b (1
-py)
'-*
cases,
n i + {,r(l +
z+71
,c)
+ C }-*g
z+7t
The sum
of
all
these cases
is
ULd^ x+n
+ {,r(1 + K) + c}
M...-M...
M.,-M
+py^-jT
x+n
"
M
+ 2Py p
-M
D~ d~
t
, +t
x+n
M...-M.,,
x+n
M x+ , +1 -M j+
*+
M,+ -x-
M ,+A
I+ "
_
i+7i-l:a+7i-l
s+ t-liy+t-l
D~
404
Retrospectively
ACTUARIAL THEORY
[chap, xviii.
*{jx (i
+iy+ix+1
i pv (i +iy- +ix+2 x 2 py {\
+o-2 +
..
/M ' -
_,_
B, + .
+ y
M _-M
%-h>'
+'
,
n-l"y
v x+n
,-N
/
,
i
/M
<
-M
v x+n
^
^y
M ,,-M
v x+n
^z+m
'
>
\ N
2"y
yX+n
-l"j/
v x+n
final expressions identical, we must first from which the value of the premium was Adapting that expression to the present case,
we have
-rr+Ki + ) + <H
1
__,
M x - M x+t ^
D
g+t-1
+py
M^.-Ikf, * +1 +t
D
a+<\
J
'
+ ,p,
M, ,,-M,, +
'
+--
^t-lPy
N x _ _ x-l-.y-l -N x+t-1-.y+t-l
D ay
Therefore
+e
+ {t (1 +
+ c} {(M x -
M x+t
+ Py (M x+1 -
M x+j
+ iPy (M x+i -
M x+t +
)
+ t-lPy( Mx + t-l~
M +t
)}
irfN ^
a-l:y-l
-N a;+-l:!/+(-l^
)
D
?
J)
:Ej/
Also
it is
to be noted that
D xy
is
of the form
vHx I
chap,
xvm
II.
405
Now
rD
,,
Ujr*-'* Mi + ) + }(
/M x+n - M * + j
,
+v
,
M-M
'+
M
^zPy
M
^
^nfy
x
J)
M
^ n+lPy
f)
-M
x+n
+
-,
\
x+n
x+n
,
M s+t-1 - M s+ i\
J _,
^t-lPy
J)
x+n
^ W nl'y
>.
y \.
-M
+''
,)+
+ n"j/\ x+n p (M
,
,)
_,_,
+ =
8
v(M
-M
1
"M-irfN
-N
D
^
i
x+n:y+n
?~|
y
-*
i-K + W
+ K) + c H(MI -
M i+J
1
+ ^(M >+1 - M, +( )
+ 2^( M ,+2-
, +i
)+ +
Py(
M x+t-l- M x+t)\
J)
-'"'V^x-l-.y-l'
x+t-l:y+t-U
_ - + 7r W x -l:-l
v.
x+m-l:!/+.-l)
7"
xy
+ 2Py(. M x+2=
M x+J+
, ,
+n-lPy(
M x+n,
Mx+J}]
,
Ni-l:-l -N jc+-l:y+n-l
*
IT
,
x+ts
f^Q T ^ T c \ v >
I
/
I
/M - M +
yx+n
T -fy
,
M +l M + ,,u a:+
T
4-
. .
V ^n-l-fj/
M X+%
,
,w a!+
M X+ ^
.
1
which
21.
is
G. H. Ryan formed for a particular purpose a hypo3 per cent. thetical mortality table by adding -01 to the that the policy-values by such a mortality P at all ages. Show
Mr
406
ACTUARIAL THEORY
By
this hypothetical table
[chap. xvnr.
y/
'
2;
F x+n F X F x+n +d
(
p, ,+-oi)-(P,+-oi)
+
px+n -px
,
HM
-P P P x-\-n +d
, ,
Therefore
V < V
I.
and
w.
22.
life
Each of
1
policy for
an annual premium of P
How much required to be held to-day in respect of the survivors. of this is required for the lives that are still " select," and how much for the now " damaged " lives ?
The
total reserve required is
[x]+n\
[x]+n
~
,
\x]\x\+v)
still select.
are survivors, I, of these I, * [x+n\ [aj+w required for them will accordingly be
,
,
Now
The
reserve
[a:+]V
lx+n]
[x]
[x+ny
of the
,.
/.
lives are the "damaged," and they The reserve required for them will be
[]( [*]+""
lx+ny
r
+ V{
,
[x]+n+l~ [x+n]+lJ~*~
,(N
,, [x]+n
r
'
'
'
_ ~
(j
\ v
(M [x]+n r ,
M [x+ny 0-P
[x]^
-N.[x+ny , ,)
y\x]+n
Ix+nV
D [x]+n - D [x+n]
chap, xviii.]
II.
407
The
for the
(A
-Pa
=
~)
+ (l
-I
~ V M+ n
[*+]) [*]+
[i(
N ri+n ~ N ri+i)
[+>i]
+ .]-
MN , + ,
[
__
M M+ -P N
[s]
[afl+n
is granted at an annual aged x, with the option of continuance at the end of the term as an endowment assurance, maturing at age (x + n + 1), on payment of the normal yearly premium at age (x + n\ Find expressions for the value of the policy on a select basis, (1) at the end of the (n - l)th year, and (2) at the end of the ( + l)th year, assuming the option to have been exercised.
23.
premium
to a life
first
n years
is
p
while the
is
M -M [x]+n
[x]
CP V* []+:
[x]
N [x]+n
r ,
->
[*]+
premium P[x+n]:t\
(1)
thereafter for
The
is
PCN
M N M+ .-i)-( M M
-
M W + -i)
+
l)th year, the option
(2)
The
[*]++! :*-l
_ p [x+n]:t\
I
[a;]++l:t-l
24. If in the
effect is
formula a
= A + Be*
(2)
the value of
be
1,
what
("^
408
(1) If c
ACTUARIAL THEORY
=
1,
[chap, xviii.
then
yu.
= A + B, which
is
constant for
all
values
of
x.
as to
mortality
=
jx
-\-
(see
and
A = ^=
=
(see
Therefore
<>P
i
p+d
/*
=
(3) ^ '
(>V
n
IX.
+8
^^ + 8
=
which is obviously correct, as the premium for each year will meet the year's risk, and there will be no reserve to accumulate.
Prove that the expected death-strain under a whole-life an annual premium payable throughout life, increases with the duration of the assurance if, at all ages on the
25.
policy, subject to
and
rate of interest,
A2 a
is
algebraically
>
iAa.
The expected
effected at age x
death-strain in the (n
is
+ l)th
in
(1
),
and
(1
).
The
be increasing,
m+2
x>
"x+n*-
~n+l
x+n+V*
that
is, if
a ^
^2+J
x
<
*"
J^+l
x
a x+n+2~Px+n+i a'x+n+2
%+n+l - V + l >x+n
< >
"x+n+1 ~
+')V+1
that
is, if
iAa
which
is
chap, xvni.]
II.
409
26.
its
At the commencement
l
of a certain year a
books
assured for
and who
will
mortality q x
+ w^ and
be subject throughout the year to a special rate of in respect of the claims which occur amongst
them, the company undertakes to pay only the reserve values at the end of the year. On the assumption that the extra mortality will cease at the end of the year, and that it will not prejudicially affect the lives remaining assured, state under what conditions the company will make a profit from the arrangement, and find an expression for the amount of such profit. (Assume the premiums due at the beginning of the year.)
The
office will
^v.- + p
to
I
,-J( 1 +) =
* H X +l V -. + d.
meet
its
is sufficient to
claims and
stated the
+w ) = d +w
.
I.
I Further, the survivors will be/ (d +w l) = l ,Vx-n ' x xx x x x' x+l Therefore to meet its actual claims and the reserves for the survivors the office should have in hand at the end of the year
n+l
,w
Vj+l
x
l
x/n+1
x-n
%Jn+\
x-n
=
The
/
n x+l
Ti+1
,,v x-n +d x x
?i+l
,,v
x-n
office will
therefore
make
profit, if
.+l
x .+l V .-n + d.
that
is,
if
fractional.
27.
The
actual
claims for the year in an office exceed the Does the difference represent the loss from
This difference does not represent loss from mortality. The value of office has in hand for each policy on its books a reserve A comparison merely between greater or smaller. certain amount,
410
actual
loss
ACTUARIAL THEORY
[chap. xvih.
and expected claims cannot therefore indicate the profit or from mortality. The loss to the office through the death of any single life assured is not the sum assured, as would be implied in such a comparison as that suggested, but the difference between the sum assured and the above-mentioned reserve. It is this difference, then, that must be taken account of, if we are to make a true investigation into the profit or loss from mortality. The reserve held by the office at the beginning of the year and the net premium then paid, both accumulated to the end of the year, provide two things
:
(1)
The
and
(2)
The
total
the
contributions
to
mortality
would require to be compared with the net loss to the office in respect of the claims, i.e., the difference between the sums assured and the reserve values as described above, the balance between these totals representing profit or loss from mortality. It is indeed conceivable that the actual claims in an office might exceed the expected, and nevertheless a profit from For the claims might have occurred chiefly mortality result. among old assured lives where the reserve values were considerable, and the actual loss to the office consequently small. On the other hand, the actual claims might be well within the expected, and yet there might be a loss from mortality, due to the fact that the claims occurred chiefly amongst recently assured lives where the reserves in hand were small. In this connection it may be pointed out that in the annual reports issued by insurance companies, one may sometimes observe
a table giving the distribution of the claims experienced according
to the age attained at death.
little
Such a
pany.
obvious that
a variety of
class of
and the
insurance
busineso,
effected.
company transacting
whole-life
and that chiefly at the younger ages at entry, but doing a large endowment assurance business, would tend to compare unfavourably in such a comparison with another office doing very
little
endowment assurance
amount
We
could not conclude merely for this reason that the profit from
first
company
is
less
chap, xviii.]
II.
411
28. Assuming that an office had on its books at the commencement of a year a group of 1000 lives aged 40, each of whom was insured under a policy for 100 (without profits) payable at age 55 or death, and effected exactly 10 years previously at an annual premium of 3, 14s. also assuming that 10 of these become claims (payable at the end of the year of death) during the year, the
;
remainder being still in force at the end of the year that the office earns 4 per cent, interest on its funds, spends 10 per cent, of
;
its
H
?
3 per cent
net valuation
find
How much
interest
;
(1) profit
by the group during the year. from mortality (2) profit from
;
(3) profit
from loading
From Hardy's
100
,o
we
find
V SO:25J =
=
=
100A :1
lH-
100P30: 2
-^0:i5i
66-847 -3-244x11-383
29-921
100
ll
VM:i =
= =
:i
.l:iii
as follows
Fund
29921
Less
10 per cent
for
expenses
3700 370
3330
33251
Add
also
rate realised
....
liability,
cent., the
1330
34581 1000 33581
990 x 33477
33142
by the group
439
412
ACTUARIAL THEORY
Total profit, as before
.
,
,
[chap.
Made up
(1)
thus
......
chap, xvin.]
II.
413
we
equation, as
follows:
net
premiums
is
are
used
throughout;
five
A^ and
years' duration,
table
but
when
five or
H M(6)
taken.
five years
H
five
reserve
is
less
more than
as follows
:
years' duration
formulas,
y(H M
n.
and
HM
( 6 ))
_ ~
and
It will
VM
that
the
H
.
and
H
Dr
used.
all
Now Px
is
less
and thereafter
thereafter
It
greater.
Hence the
and
H
an
reserve
is
greater than the select reserve for ages at entry up to 43, and
is less.
may be mentioned
office
and
Dr
CHAPTER XIX
Life Interests
and Reversions
1. In practice it will be found that Life Interests are usually payable with a proportion to date of death, and therefore in such a case, though Text Book formula (1) is commonly used, a more
*. = a'x + $ A'x
v-V F F X +d +t F X +d
F
F +d
X
'-4
A policy
must then be taken out
for
, ,
and we have
Amount paid
to vendor
.....
.
FX
T
,
P.+ d
First
premium on
policy
^
1
p,
X
4)
Total outlay J
+ tl ^ +d F
s
"i
II )
chap, xix.]
II.
415
be applied in payment of
One
d(l
year's interest on total outlay
.
*j
At death there
is
received
Sum
Proportionate payment of
life interest
Together
....
payment of
which
is
to be applied in
416
3.
ACTUARIAL THEORY
The problem as stated
in Text Book, Article 13,
is
[chap. xix.
much more
frequent in practice than the problem to find the value of the life interest, and therefore it will be well to state the matter from
that point of view.
Since =;
P +d
life
purchases a r
=
life interest
of
1,
sum of
1 will
purchase a
interest of
F -^+d
\
a;
.,
J
effected
is
for
^
policy
Then we have
Amount paid
First
to vendor
.....
1
premium on
Total outlay
is
for
One
year's interest
on
total outlay
chap, xix.]
4.
(2), as
II.
417
Jellicoe.
lives
mentioned in Text Book, Article 51, was given by Mr Charles It is assumed under it that an annuity for the joint is actually purchased or set up in the books of the office.
that if the
Dr Sprague, arguing
is
number of
no such procedure is required, or, as a matter of fact, carried out, suggested formula (5), where one rate of interest is assumed throughout, and which, without the correction for payable if (jj) die first, reads
sufficiently large,
1-(P' +d,.,)(l+a
y\ x
,..)
F * +d,_ w
interest
till
Or,
interest
if
the
life
1_(F +d,.,0(1+ a
y\ x
,.)
P'
+d...
(t)
life
interest
we might
use the
v\z
\
a %y
P'
P'
+d
2)
l
a
*u
^ l-(P>^)(l+%)
Fx + d
)
V
*
-(P +tQ(l +
p-^
X
which agree with formulas (16) and (17) of Text Book, Chapter XIV.
If
now we
of
P'
1,
give
^ -
(1
+ a^)
1
for for
an annual reversionary
a
similar
charge
we
shall
give
this
charge
of
+d
0(i
I
r-(F, +
f
In
case
policy
must be
effected
2d
418
ACTUARIAL THEORY
to vendor
[chap. xix.
Amount paid
First
.....
. .
P..
premium on
policy
i-(p; + <0(i+v> F x +d
.
-cp.+^ci+o
-
Total outlay
i-(p;+rf)(i
+%)
P'
+ rf
death,
is
l-(F. + d)(l+0
which provides
for
One
on
year's interest
total outlay
.
-(F. + ^l+a^)
p'
Annual premium on
policy
l-(P, + d)(l+^)
F +d (P's+^+y)
j^r,
At
(x)'s
is
received
, .
,
r
xy'
which repays
The
total outlay
i-(F.+9(i+0
^
And one
year's in-
terest thereon
i-(P>rfXi+v>
l-(F+d)(l+0
5.
Jellicoe's
while Sprague's formula (9) rejects this as not in accordance with customary practice, and adopts one rate of interest throughout, assuming that reversions will be purchased in sufficient numbers to
chap, xix.]
II.
419
might throw out the average on which the latter argument rests, but this merely indicates that the office roust avoid contracts of such size, just as they have a, limit for the amount of assurance on any one life. As before, let us consider the reversion which can be purchased for a given sum, as that is the more usual problem. A reversion of 1 is purchased for 1 - d (1 + a ) therefore 1 will purchase a
;
reversion of
-=
r^ T 1-dQ+aJ
And an
annuity of
-,
l-<l+<0
must
be purchased.
Then
Amount
paid to vendor
Price of annuity
......
....
Total outlay
420
ACTUARIAL THEORY
Now
if
1,
[chap. xix.
l-(P
then
,;l
+rf)(l+a
will
purchases a
a
contingent reverreversion
of
(ij)
sion
=
of
purchase
contingent
^-=57^
-j-j-
for whicli
amount a
must be
effected.
Also an annuity of
-(?l
y^+ d
xy
ll
P' 1
+d
l
X +%)
1
must
be purchased.
Accordingly we have
Amount
First
paid to vendor
policy
...
.
pa
^
premium on
7=r7;
^-^
+d ___S!___ ^
P' 1
j
Total outlay
_ (P
a^
-tt
xy
)(1
+%)
,.
.
P'^+d -(je'i
""
'
+d)(l -^
+a "xyJ
'
which
will provide
One
year's interest
on
-
totalout
^
. .
i-ovocn-,)
?_
Annual
policy
premium on
.
i-(Pl+0(i+O
P'i xy
+d
i-(P'i, + <0(i+O
If (x) dies
falls in,
first,
the
if
and
in reversion,
amounting to
i-(P^ + rf)(i + %)
+d)(l+a
^-y-
which gives
Total outlay
'
l-(P'i
-
One
year's
.
interest
.
.
thereon
j=-
^.
l-(PX + rf)(l
!/
+%
chap, xix.]
II.
421
7.
The method
to
reversions presents
of book-keeping to be used in connection with some difficulties. There are three common
methods
(1)
be chosen from.
is
formulas
upon which Jellicoe's from the annuity department an annuity to pay premium and interest or interest alone, as the case may be. The amount available to purchase these annuities is the difference between the sums in reversion and their present value it must be added tc the amount invested in reversions, and will there appear as an asset, while it will also be entered as a liability by being included in the annuity fund.
proceed,
of
actually
There
purchasing
The
the necessary however, Sprague's formulas be used and this method followed, the annuity will have,, to be purchased on, say,
annual income.
is
department.
(2) Interest at
value of the reversion, and taken credit for in the revenue account.
But the annual increase in the value of the reversion is not so if only a few reversions were to fall in during a quinquennium a large sum might have to be written
great as a year's interest, and
off
Where
the business
is
new
no great extent
safest
this
The
method
is
in the
value of the reversion, and take credit for the whole difference between the fund in reversion and its value when it falls in. Such a stringent method means, of course, that this form of investment
may show
proportion.
EXAMPLES
per 1. Determine the present value of an annuity-certain of 1 years, which is to pay during its continuance a given annum for n rate of interest on the purchase money, and to replace the purchase
money
term
On the
TTi
P' rr.+d
422
ACTUARIAL THEORY
is
[chap. xix.
where d
end of
2.
be
realised,
and
P',^
is
the the
1 at
A sum
reversionary
life interest to
required to find
what annual charge on the life interest must be given, and for what sum (35) must be assured, the office premium on his life being 2, 8s. lid. per cent., and interest being taken at 5 percent., with the joint-life annuity based on the Carlisle Table.
will
tf)
be
10000(-02446 + -04762) -(-02446 + -04762)8-143
1-(P' + <9(1
+ + .) -
=
and the amount of the policy 10000
1745
13.
24210.
-58695
charge must be placed on funds, over which an absolute held payable at the death of a person aged 65, in conThe Carlisle Table with sideration of a sum down of 10,000? 5 per cent, interest is to be used.
What
is
reversion
The charge
is
10000
10000
A 65
4.
~ =
-58262
17164.
of 20,000 is desired, to be secured over funds falling aged 30 should he be alive at the death of his mother aged 60. Find the amount of the necessary charge on the funds, = "01354. The Carlisle Table is to be having given that P'^
to a person
.
A sum
i0
joint-life annuity,
and
is
to
be
The charge
is
20000
i-CP's^eo +
^+^eo)
~
=
CHAPTER XX
Sickness Benefits
EXAMPLES
I.
premium
age 65.
for a
week
at age x, to cease at
Out of
during the
number
,
constantly sick
etc.
first
year
is
Therefore
,
26 x 2d
26 x 2d
etc.,
+ vdx+1+
+ tfl*-dj
is
to each person
52(1+0*^5+^ D
M
52(l+t)*2.
-^
at
- M
D
age x to provide the
following benefits
(a)
(6)
(c)
25
at death.
A A
Benefit side
= =
25
Payment
side
XX ^
)
+ -5
'
+ * + 26
x+n
'
X
x+n
P being
424
ACTUARIAL THEORY
Equating and solving,
[cHAr xx.
P =
N.-N.+. + iC ."
P
is
And
^~.
3.
20
at death.
of 1 per week for the first six months' sickness, 10s. per week for the second six months, and 5s. per week thereafter, the whole benefit to cease at the end of n years.
sickness allowance
(c)
deferred annuity of
5s.
per
week
to
be entered upon at
on 20
M(l+j)* ' X
_
s-
+*
,
N
+ 13
x-jx-i-n
+AD x * x+n
Payment
side
P^
p
X
'
~
contribution
is
CHAPTER XXI
Construction of Tables
1.
A
i
table of log
formed
as
shown
at rate
may be checked
i,
For at rate
~ ll g D = x
And
at rate^',
~
'
log
Dx at
A
rate j
^ ~ ^ %+
is
'*
2.
table of
A may
way
logarithms in a
similar to that in
formed as
shown
Ax =
=
% + vP A x+1
+i
^-i) + ^A
where
II
=
Px
Hence
[t](log
A x+1 -logU x)
we have
Au
and
A
the
logv.
From
as
as tabulated (for
the
Text Book table at pages 499 and 501); enter Gauss's table
difference
with
argument,
and
to
the
result
add
426
lo g
ACTUARIAL THEORY
[chap. XXI.
n W -2
Aw
0.
and
lo S vPa>-2>
;
and
We
haVe
l0 S
A o>-2,
Fr m
log
deduct logII w
add log II U
age
and logvp u3 and we have logA u and so on, to Then take the antilogs, and the table of A is formed.
of
ic
The
table
A
.
the table of a
A X + A3+1 +
---
+K-l =
- da + (V - da +(-*-!) X) X +l)+---
3.
P given
in
Text Book,
Article
we might
as
Or
we should
enter with
+ a, and from
Thus
Age
(1)
chap, xxi.]
II.
427
always the same,
is
on the
and d on the
fixed
plate with
by
(l+a
the the
-.)
and
-j
will result.
On
K Aaj+l:-l|' Ax+2:-2|' n
.
-,
.,
etc.
For
,
,
- d(l + a
-;)
= A + d(a
-,
-a
-,)
etc.
etc.
5.
Aa
we
may
For
= l-f**
Therefore, putting
sively
on the fixed
by a
etc.,
operation,
we
-^ a
X
-lly a
X
etc.,
the complements
6.
The
at,
may be similarly
arrived
= 1% V-r xr\
xr\
lt+1
V xr\ = nVxr\
x+n
-n- 1|
x+n+1
r-
n-2
l+ax:r-l
428
ACTUARIAL THEORY
A
preliminary table, as for the tabulating of
[chap. XXI.
A^,
must there-
fore
be formed, consisting of
x:r-l\
-,;+l:r-2|
ir+l:r
a
a
x+2:r-S\
x+Z:r-i\
x+2:r-a\
etc.
1+a
on the
will
by these differences
give us ,V 1
V -;, 3 xr\'
etc.
The
1
I
results
.
may be checked by
. .
addition for
_ Vxt + 2 V xr -+
|
+ r-1 Vrr|
ax+\:r-2\
a
x:r-l
a
\
+2:r-3|
1+ax:r-l\
r
(.
1+aa;:r-l|
'
...
+
a
"x:r-l|
1+a ~x:r-H
'
a >,:=l\-(. .+l:7=\
1
+a,+i:7=t\ + + a*:^
x+ ,-,-.r)
7. The construction of tables of policy-values for limitedpayment policies is a slower process, as the premiums have to be valued separately from the sums assured and the difference taken. As a preliminary, a table of differences of annuity-values should be formed, as in the case of endowment assurances.
Years
in force.
chap. xxi.J
II.
429
Putting P on the fixed plate, and multiplying by b t 1, we get the value of the premiums outstanding at the beginning of the last year of premium payment, i.e. Then the successive multi-
plication of
and their continued addition will give the value of the premiums outstanding at the beginning of each year down to the second. For
n
?x by the
_ Pax+k-2:2| x
x
=
m,
p
i
-i-
P n i j+-2:l|
i+vi-3:sl
""
x*x+n-2:T\
+n
x^
ax+n~3:2\~
"x+n-i-.T^
etc.
etc.
The
results
may be checked by
The value of the premiums must be deducted from the corresponding assurance value to get the value of the policy. The total may be checked by addition, for it should be equal to (A , + A X-\-t. + + A 1'), less the above summation of the ^ X-j-ib
.
.
2.-1-1,
The value
is,
of
EXAMPLES
1.
Show
in detail
how
premiums
for
without constructing
the
life
table.
Assuming a
by a
constant
addition of -01 to q
how
the required
premiums could
be approximately obtained
px from
- 2 downwards.
.
From
a column of
log vp
430
ACTUARIAL THEORY
Then
logvp a2
lo gP
[chap, xx r.
= logw2
fl
W log a -2 l0 g^ l0 g a W -4 + W
B -J +
etc.
= % a 0>-$
l
a,-3
l0 S
a W -4
etc.
,
a a% etc. column pass to the values of a u Enter annual-premium conversion tables with these values, and
this last
From
obtain
process
P
:-
10
2'
to
etc.
The
the
Age
CHAP. XXI.]
If;
II.
431
we
shall obtain
good approximations
if
we
annual-premium conversion table with 4 per cent, annuities as found by the method in the first half of the question, thus
1+
<W
<*%>
(s%)
SmCe
"^
"W)
a PP ro ximately.
2.
From
.
a table of
VQ
""
table of a
Since
"- 1 V
%~
l+o.
l+a
is
^
-
VQ
etc., find
log(l -
log(l
V
fl
),
t0 each of
+aQ )
and the
results
are log(l
these,
+ax ),
etc.
log(l
+a g ),
1
log(l
+ag ),
etc.
and deduct
a
B
,
are
The
Age
attained
Printed by