2023/4/15 23:47 6 of 6 - Assignment - Practice

6 of 6 Finish Assignment

For a fully discrete 3-year endowment insurance of 100,000 on (60), you are given:

Z is the present value random variable for this insurance.

I.

II. μx is the force of mortality for a life age x under the Standard Ultimate Life Table.
∗

III. μ60+t = 0.8μ60+t + 0.01

∗

IV. i = 0.05

Calculate the standard deviation of Z .

13% A 1,050

47% B 1,100

Exhibit

Solution

Written Solution
First, calculate the survival probability:

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 t
2023/4/15 23:47 6 of 6 - Assignment - Practice

tp60 = exp − 0 μ60+sds

( ∫ )

t
= exp − 0 (0.8μ60+s + 0.01)ds
( ∫
∗
)

t t
= exp −0.8 0 μ60+sds − 0 0.01ds
( ∫
∗
∫ )

t 0.8
= exp − 0 μ60+sds ⋅ exp(−0.01t)
[ ( ∫
∗
)]

= (tpSULT
60 ) ⋅ exp(−0.01t)
0.8

Thus, we have:

1 p60 = (1 pSULT
60 ) ⋅ exp(−0.01 ⋅ 1)
0.8
= (1 − 0.003398)0.8 ⋅ exp(−0.01 ⋅ 1)
= 0.987358
2p60 = (2pSULT
60 ) ⋅ exp(−0.01 ⋅ 2)
0.8
= [(1 − 0.003398)(1 − 0.003792)]0.8 ⋅ exp(−0.01 ⋅ 2)
= 0.974567
Next, calculate the possible values of Z . Note that:
If (60) dies within the first year:
The PV is Z = 100,000v = 95,238.09524

The probability is q60 = 1 − 0.987358 = 0.012642

If (60) survives the first year and dies within the following year:

The PV is Z = 100,000v2 = 90,702.94785

The probability is 1 q60 = p60 − 2p60 = 0.012791

|

If (60) survives the first two years:

The PV is Z = 100,000v3 = 86,383.75985

The probability is 2p60 = 0.974567

Summarize the PV's and the corresponding probabilities in a table:

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2023/4/15 23:47 6 of 6 - Assignment - Practice

Z Probability
95,238.09524 0.012642
90,702.94785 0.012791
86,383.75985 0.974567
Z
To find the standard deviation of , we can use the data table and stat function on the TI-30XS
MultiView. Enter the following into the data table:

L1 L2

95,238.09524 0.012642
90,702.94785 0.012791
86,383.75985 0.974567
σ=
Finally, use the 1-Var stat function with "DATA" as L1 and "FRQ" as L2, the resulting standard
deviation is 1,096.28 .

Coach's Remark:

When an insured reaches the final year of an endowment insurance policy (the 3rd year in
this case), regardless of whether the insured lives or dies, he or she will still get 100,000,
either as a death benefit or as a pure endowment for surviving. In other words, surviving
past the end of the second year is a sufficient condition to guarantee that 100,000 will be
paid.

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