SOCIETY OF ACTUARIES

EXAM MLC Models for Life Contingencies

EXAM MLC SAMPLE SOLUTIONS

The following questions or solutions have been modified since this document was
prepared to use with the syllabus effective spring 2012,

Prior to March 1, 2012:

Questions: 151, 181, 289, 300
Solutions: 2, 284, 289, 290, 295, 300

Changed on March 19, 2012: Questions: 20, 158, 199 (all are minor edits)

Changed on April 24, 2012: Solution: 292

Changed on August 20, 2012: Questions and Solutions 38, 54, 89, 180, 217 and 218
were restored from MLC-09-08 and reworded to conform to the current presentation.
Question 288 was reworded to resolve an ambiguity. A typo in Question 122 was
corrected. Questions and Solutions 301-309 are new questions

Changed on August 23, 2012: Solution 47, initial formula corrected; Solution 72,
minus signs added in the first integral

Changed on December 11, 2012: Question 300 deleted

Copyright 2011 by the Society of Actuaries

MLC-09-11 PRINTED IN U.S.A.

Question #1
Answer: E

2 q30:34  2 p30:34  3 p30:34

2 p30   0.9  0.8   0.72

2 p34   0.5  0.4   0.20
2 p30:34   0.72  0.20   0.144
2 p30:34  0.72  0.20  0.144  0.776

3 p30   0.72  0.7   0.504

3 p34   0.20  0.3  0.06
3 p30:34   0.504  0.06   0.03024
3 p30:34  0.504  0.06  0.03024
 0.53376

2 q30:34  0.776  0.53376

 0.24224

Alternatively,

2 q30:34  2 q30  2 q34  2 q30:34

b
 2 p30q32  2 p34q36  2 p30:34 1  p32:36 g
= (0.9)(0.8)(0.3) + (0.5)(0.4)(0.7) – (0.9)(0.8)(0.5)(0.4) [1-(0.7)(0.3)]
= 0.216 + 0.140 – 0.144(0.79)
= 0.24224

Alternatively,

2 q30:34  3 q30  3 q34  2 q30  2 q34

 1  3 p30 1  3 p34   1  2 p30 1  2 p34 
 1  0.504 1  0.06   1  0.72 1  0.20 
 0.24224

(see first solution for 2 p30 , 2 p34 , 3 p30 , 3 p34 )

MLC‐09‐11 1
Question #2
Answer: E

1000 Ax  1000  Ax1:10  10 Ax 

 
 1000   e 0.04t e 0.06t (0.06)dt  e 0.4 e 0.6  e0.05t e 0.07t (0.07)dt 
10 

 0 0 
 1000 0.06  e0.1t dt  e 1 (0.07)  e 0.12t dt 
10 

 0 0 
 0.10 t 10 0.12 t  
 1000 0.06   e0.10   e1 (0.07)   e0.12  
  0  0 

 1000  0.06 1  e 1   0.07 1 

 0.12 e 
 0.10 
 1000  0.37927  0.21460   593.87

Because this is a timed exam, many candidates will know common results for
constant force and constant interest without integration.


For example Ax1:10  1  10 Ex 
 
10    
10 E x e

Ax 
 

With those relationships, the solution becomes

1000 Ax  1000  Ax1:10  10 Ex Ax 10 

 1000 
0.06 
 1 e
 0.06  0.04 

  0.06  0.04 10
 0.06  0.04 10 
e  
0.07  

 0.07  0.05  

 
 1000  0.60  1  e 1  0.5833 e 1 
 
 593.86

MLC‐09‐11 2
Question #3
Answer: D

  1
E  Z    bt v t t p x  x t dt   e0.06 t e 0.08 t e 0.05 t dt
0 0 20
1  100  0.07 t   5
    e  
20  7  0 7

 
 2  1 1 
E  Z 2    bt vt t px  x t dt   e0.12t e 0.16t e 0.05t dt   e0.09t dt
0 0 20 20 0
1  100  0.09t  5
   e  
20  9   0 9
2
5 5
Var  Z       0.04535
9 7

Question #4
Answer: C

Let ns = nonsmoker and s = smoker

qxb  kg pxb  kg qxb gk px k

ns ns s s
k=
0 .05 0.95 0.10 0.90
1 .10 0.90 0.20 0.80
2 .15 0.85 0.30 0.70

A x:2   v qx   px  qx 1

1 ns ns ns ns
v2
1 1
 0.05 0.95  0.10  0.1403
1.02 1.022

A x:2  qx   v2 px  qx 1

1 s s s s
v
1 1
 0.10   0.90  0.20  0.2710
1.02 1.02  2

A1x:2  weighted average = (0.75)(0.1403) + (0.25)(0.2710)

= 0.1730

MLC‐09‐11 3
Question #5
Answer: B

 x    x1   x 2    x 3  0.0001045

px   e0.0001045t

t


APV Benefits   e  t 1,000,000 t px    x  dt
 1
0
  t
500,000 t px    x  dt

 e
2
0

  e  200,000 t px    x  dt
 3
0
1,000,000  0.0601045t 500,000  0.0601045t 250,000  0.0601045t
 
2,000,000 0
e dt  
250,000 0
e dt 
10,000 0
e dt

 27.5 16.6377   457.54

Question #6
Answer: B


EPV Benefits  1000 A40:20
1
  k E401000vq40k
k  20

EPV Premiums   a40:20   k E401000vq40k
k  20
Benefit premiums  Equivalence principle 
 
1
1000 A40:20   k E401000vq40k   a40:20   k E401000vq40k
k  20 20

  1000 A40:
1
20
/ a40:20
161.32   0.27414  369.13

14.8166   0.27414 11.1454 
 5.11

While this solution above recognized that   1000P40:20

1
and was structured to take
advantage of that, it wasn’t necessary, nor would it save much time. Instead, you
could do:

MLC‐09‐11 4
EPV Benefits  1000 A40  161.32

EPV Premiums = a40:20  20 E40  k E60 1000vq60  k
k 0
  a40:20  20 E40 1000 A60

  14.8166   0.27414 11.1454     0.27414  369.13

 11.7612  101.19
11.7612  101.19  161.32
161.32  101.19
  5.11
11.7612

Question #7
Answer: C

ln 1.06 
A70   A70   0.53  0.5147
i 0.06
1  A70 1  0.5147
a70    8.5736
d 0.06 /1.06
 0.97 
a69  1  vp69 a70  1     8.5736   8.8457
 1.06 
 2
a69    2  a69    2   1.00021 8.8457   0.25739
 8.5902

Note that the approximation ax   ax 

m  m  1 works well (is closest to the exact
2m
answer, only off by less than 0.01). Since m = 2, this estimate becomes
1
8.8457   8.5957
4

Question #8 - Removed

Question #9 - Removed

MLC‐09‐11 5
Question #10
Answer: E

d = 0.05  v = 0.95

At issue

   
49
A40   v k 1 k q40  0.02 v1  ...  v50  0.02v 1  v50 / d  0.35076
k 0

and a40  1  A40  / d  1  0.35076  / 0.05  12.9848

1000 A40 350.76
so P40    27.013
a40 12.9848

E  10 L K 40  10   1000 A50  549.18   27.013 9.0164   305.62

Revised Revised
 P40 a50

where

   
24
  v k 1 k q50
Revised Revised
A50  0.04 v1  ...  v 25  0.04v 1  v 25 / d  0.54918
k 0

and
Revised
a50  1  ARevised
50  / d  1  0.54918 / 0.05  9.0164

Question #11
Answer: E

Let NS denote non-smokers and S denote smokers.

The shortest solution is based on the conditional variance formula


Var  X   E Var  X Y   Var E  X Y    
Let Y = 1 if smoker; Y = 0 if non-smoker
1  AxS

E aT Y  1  axS   
1  0.444

 5.56
0.1
1  0.286

Similarly E aT Y  0  0.1
 7.14

E  E  aT Y    E  E  aT 0    Prob  Y=0   E  E  aT 1   Prob  Y=1

  7.14  0.70    5.56  0.30 
 6.67

MLC‐09‐11 6
  
E  E aT Y     
2
  7.14  0.70   5.56  0.30 
2 2

 44.96
 
Var E aT Y    44.96  6.672  0.47
E  Var  aT Y     8.503 0.70    8.818  0.30 
 8.60
 
Var aT  8.60  0.47  9.07

Alternatively, here is a solution based on

 
Var(Y )  E Y 2   E Y   , a formula for the variance of any random variable.
2

This can be
 
transformed into E Y 2  Var Y    E  Y   which we will use in its conditional
2

form

 
E aT
2
 
NS  Var aT NS   E aT NS 
    
2

Var  aT   E  aT    
2 2
 E  aT 
 
E  aT   E  aT S  Prob S  E  aT NS  Prob  NS
 0.30axS  0.70axNS



0.30 1  AxS   0.70 1  A  NS
x

0.1 0.1
0.30 1  0.444   0.70 1  0.286 
   0.30  5.56    0.70  7.14 
0.1
 1.67  5.00  6.67

 
E  aT
2
 E  aT 2 S  Prob S  E  aT 2 NS  Prob  NS
 

 
 0.30 Var aT S  E  aT S    
2


0.70 Var aT NS  E aT NS    
2

 0.30 8.818   5.56    0.70 8.503   7.14  
2 2
   
11.919 + 41.638 = 53.557

Var  aT   53.557   6.67   9.1

2

MLC‐09‐11 7
 1  vT
Alternatively, here is a solution based on aT 

1 v  T
 
Var aT  Var   
  
  vT 
 Var   since Var  X  constant   Var  X 
  


Var vT   since Var  constant  X   constant 2
 Var  X 
 2

Ax   Ax 
2 2

 which is Bowers formula 5.2.9

2

 
This could be transformed into 2Ax   2 Var aT  Ax2 , which we will use to get
2
Ax NS and 2AxS .

2
Ax  E  v 2T 

 E  v 2T NS  Prob  NS  E  v 2T S  Prob  S

  
  2Var aT NS  Ax NS   Prob  NS
2

 

   
  2Var aT S  AxS   Prob  S
2

 
  0.01 8.503  0.2862   0.70

  0.01 8.818   0.4442   0.30

  0.16683 0.70    0.28532  0.30 
 0.20238

Ax  E  vT 

 E  vT NS  Prob  NS   E  vT S  Prob  S

  0.286  0.70    0.444  0.30 
 0.3334

MLC‐09‐11 8
 Ax   Ax 
2 2

 
Var aT 
2
0.20238  0.33342
  9.12
0.01

Question #12 - Removed

Question #13
Answer: D

Let NS denote non-smokers, S denote smokers.

Prob T  t   Prob T  t NS  Prob  NS  P rob T  t S  P rob  S

  
 1  e0.1t  0.7  1  e0.2t  0.3 
 1  0.7e0.1t  0.3 e0.2t

S0 (t )  0.3e0.2 t  0.7e0.1t
Want tˆ such that 0.75  1  S0  tˆ  or 0.25  S0  tˆ 

0.25  0.3e2t  0.7e0.1t  0.3 e0.1t

ˆ ˆ
 
ˆ 2
 0.7e0.1t
ˆ

Substitute: let x  e0.1t

ˆ

0.3x 2  0.7 x  0.25  0

0.7  0.49   0.3 0.25  4

This is quadratic, so x 
2  0.3

x  0.3147

e0.1t  0.3147
ˆ
so tˆ  11.56

MLC‐09‐11 9
Question #14
Answer: A

At a constant force of mortality, the benefit premium equals the force of

mortality and so   0.03 .
 0.03
2
Ax  0.20  
2   2  0.03
   0.06
Ax   Ax  0.20   13 
2 2 2

Var  0 L     0.20
 a   
2 0.06 2
0.09

 0.03 1 1 1
where A    a 
  0.09 3    0.09

Question #15 - Removed

Question #16
Answer: A

A40 161.32
1000 P40    10.89
a40 14.8166
 a   11.1454 
1000 20V40  1000  1  60   1000  1    247.78
 a40   14.8166 
 20V  5000 P40  (1  i)  5000q60
21V 
P60


 247.78  (5)(10.89)   1.06  5000  0.01376   255
1  0.01376

[Note: For this insurance, 20V  1000 20V40 because retrospectively, this is identical
to whole life]

Though it would have taken much longer, you can do this as a prospective
reserve. The prospective solution is included for educational purposes, not to
suggest it would be suitable under exam time constraints.

1000 P40  10.89 as above

1000 A40  4000 20 E40 A60:5
1
 1000 P40  5000 P40  20 E40 a60:5   20 E40  5 E60 a65

MLC‐09‐11 10
 1
where A60:5  A60  5 E60 A65  0.06674
a40:20  a40  20 E40 a60  11.7612
a60:5  a60  5 E60 a65  4.3407
1000  0.16132    4000  0.27414  0.06674  

 10.89 11.7612    510.89  0.27414  4.3407     0.27414  0.68756  9.8969 

161.32  73.18  128.08  64.79


1.86544
 22.32

Having struggled to solve for  , you could calculate 20 V prospectively then (as
above)
calculate 21V recursively.

20V  4000 A60:5

1
 1000 A60  5000 P40 a60:5   5 E60 a65
  4000  0.06674   369.13   5000  0.01089  4.3407    22.32  0.68756  9.8969 
 247.86 (minor rounding difference from 1000 20V40 )

Or we can continue to 21V prospectively

21V  5000 A61:4

1
 1000 4 E61 A65  5000 P40 a61:4   4 E61 a65
l65 4  7,533,964 
where 4 E61  v    0.79209   0.73898
l61  8,075, 403 

1
A61:4  A61  4 E61 A65  0.38279  0.73898  0.43980
 0.05779
a61:4  a61  4 E61 a65  10.9041  0.73898  9.8969
 3.5905

21V   5000  0.05779   1000  0.73898  0.43980 

  5 10.89  3.5905   22.32  0.73898  9.8969 
 255

Finally. A moral victory. Under exam conditions since prospective benefit

reserves must equal retrospective benefit reserves, calculate whichever is simpler.

MLC‐09‐11 11
Question #17
Answer: C

Var  Z   2 A41   A41 

2

A41  A40  0.00822  A41  (vq40  vp40 A41 )

 A41  (0.0028 /1.05   0.9972 /1.05  A41 )
 A41  0.21650

2

A41  2 A40  0.00433  2 A41  v 2 q40  v 2 p40 2 A41 
 
2
 2 A41  (0.0028 /1.052  0.9972 /1.052 A41 )
2
A41  0.07193

Var  Z   0.07193  0.216502

 0.02544

Question #18 - Removed

Question #19 - Removed

MLC‐09‐11 12
Question #20
Answer: D

 x    x1t   x 2t

 0.2 xt   x 2t

  x 2t  0.8 xt

1 k
  0.2 k t 2 dt 0.2
qx   1 px   1 e  1 e  0.04
'1 '1 0 3

k
3  ln 1  0.04  /  0.2   0.2041
k  0.6123

 2
px   x  dt  0.8 px   x   t  dt
2  2  

2
2 qx 0 t 0 t

 0.8 2 qx   0.8 1  2 px 

 
 
 x t  d t
2

px   e 0

2
2
 k t2 d t
e 0

8 k
 e 3
 8   0.6123
 e 3

 0.19538

 2
2 qx  0.8 1  0.19538   0.644

MLC‐09‐11 13
Question #21
Answer: A

k min( k , 3) f(k) f  k    min( k , 3)  f  k    min  k ,3 

2

0 0 0.1 0 0
1 1 (0.9)(0.2) = 0.18 0.18 0.18
2 2 (0.72)(0.3) = 0.216 0.432 0.864
3+ 3 1-0.1-0.18-0.216 = 1.512 4.536
0.504
2.124 5.580

E  min( K ,3)  2.124


E  min  K ,3 
2
  5.580
Var  min( K ,3)  5.580  2.1242  1.07

Note that E  min( K ,3)  is the temporary curtate life expectancy, ex:3 if the life is
age x.

Question #22
Answer: B

e    e   
 0.1 60  0.08 60
S0 (60) 
2
 0.005354
e     e   
 0.1 61  0.08 61
S0 (60) 
2
 0.00492
0.00492
q60  1   0.081
0.005354

MLC‐09‐11 14
Question #23
Answer: D

Let q64 for Michel equal the standard q64 plus c. We need to solve for c.
Recursion formula for a standard insurance:

20V45   19V45  P45  1.03  q64 1  20V45 

Recursion formula for Michel’s insurance

20V45   19V45  P45  0.01 1.03   q64  c  (1  20V45 )

The values of 19 V45 and 20V45 are the same in the two equations because we are
told
Michel’s benefit reserves are the same as for a standard insurance.

Subtract the second equation from the first to get:

0   1.03 (0.01)  c(1  20V45 )

(1.03)  0.01
c
1  20V45 
0.0103

1  0.427
 0.018

MLC‐09‐11 15
Question #24
Answer: B

K is the curtate future lifetime for one insured.

L is the loss random variable for one insurance.
LAGG is the aggregate loss random variables for the individual insurances.
 AGG is the standard deviation of LAGG .
M is the number of policies.

 
L  v K 1   aK 1   1   v K 1  
 d d

E  L    Ax   ax   Ax  
1  Ax 
d
 0.75095 
 0.24905  0.025    0.082618
 0.056604 
 
 
2 2
Var  L    1  
 d
 2
Ax  Ax2  
 1 
0.025 
 0.09476   0.24905   0.068034
 0.056604 
2

E  LAGG   M E  L   0.082618M
Var  LAGG   M Var  L   M (0.068034)   AGG  0.260833 M
L  E  LAGG   E  LAGG  
Pr  LAGG  0   AGG  
  AGG  AGG 
 0.082618M 
 Pr  N (0,1)  
 M  0.260833 

0.082618 M
 1.645 
0.260833
 M  26.97

 minimum number needed = 27

MLC‐09‐11 16
Question #25
Answer: D

1  v K 1
Annuity benefit: Z1  12,000 for K  0,1, 2,...
d
Death benefit: Z 2  Bv K 1 for K  0,1, 2,...
1  v K 1
New benefit: Z  Z1  Z 2  12,000  Bv K 1
d
12,000  12,000  K 1
 B v
d  d 

2

Var( Z )   B 

12,000 
d
 Var v

K 1
 
12,000
Var  Z   0 if B   150,000 .
0.08

In the first formula for Var  Z  , we used the formula, valid for any constants a and
b and random variable X,

Var  a  bX   b 2 Var  X 

Question #26
Answer: A

 x t: y t   x t   y t  0.08  0.04  0.12

Ax   xt /   xt     0.5714
 
Ay   y t /  y t    0.4
 
Axy   x t: y t /  x t: y t    0.6667
 
a xy  1/  x t: y t    5.556

Axy  Ax  Ay  Axy  0.5714  0.4  0.6667  0.3047

Premium = 0.304762/5.556 = 0.0549

MLC‐09‐11 17
Question #27
Answer: B

P40  A40 / a40  0.16132 /14.8166  0.0108878

P42  A42 / a42  0.17636 /14.5510  0.0121201

a45  a45  1  13.1121

E  3 L K 42  3  1000 A45  1000 P40  1000 P42 a45

 201.20  10.89  12.12 13.1121
 31.39

Many similar formulas would work equally well. One possibility would be
1000 3V42  1000 P42  1000 P40  , because prospectively after duration 3, this differs
from the normal benefit reserve in that in the next year you collect 1000P40 instead
of 1000P42 .

Question #28
Answer: E

E  min T ,40    40  0.005  40   32

2

32   t f  t  dt   40 f  t  dt
40 w

0 40

  t f  t  dt   t f  t  dt  40 .6 
w w

0 40

 86   tf  t  dt
w

40

 tf  t dt  54
w

40

  t  40  f  t  dt  54  40 .6   50
w

e 40  40

s  40  .6

MLC‐09‐11 18
Question #29
Answer: B

d  0.05  v  0.95

Step 1 Determine px from Kevin’s work:

608  350vpx  1000vqx  1000v 2 px  px 1  qx 1 
608  350  0.95  px  1000  0.95 1  px   1000  0.9025  px 1
608  332.5 px  950 1  px   902.5 px
px  342 / 380  0.9

Step 2 Calculate 1000 Px:2 , as Kira did:

608  350  0.95  0.9   1000 Px:2 1   0.95  0.9  

1000 Px:2 
 299.25  608  489.08
1.855

The first line of Kira’s solution is that the expected present value of Kevin’s benefit
premiums is equal to the expected present value of Kira’s, since each must equal
the expected present value of benefits. The expected present value of benefits
would also have been easy to calculate as
 
1000  0.95 0.1  1000  0.952  0.9   907.25

Question #30
Answer: E

Because no premiums are paid after year 10 for (x), 11Vx  Ax 11

One of the recursive reserve formulas is 

 hV   h  1  i   bh1qx h
h 1V
px  h


 32,535  2,078  1.05  100,000  0.011  35,635.642
10V
0.989
 35,635.642  0  1.05  100,000  0.012  36,657.31  A

11V  x 11
0.988

MLC‐09‐11 19
Question #31
Answer: B
 t 
The survival function is S0 (t )   1   :
 
Then,
 x  t 
ex  and t px   1  
2   x
 105  45
e45   30
2
105  65
e65   20
2

 40 40 60  t 40  t
e45:65   t p45:65dt    dt
0 0 60 40

1 FG
60  40 2 1 3 IJ 40

60  40
60  40  t 
H 2
t  t
3 K 0

 1556
.

   
e 45:65  e 45  e 65  e 45:65
 30  20  1556 .  34

In the integral for e45:65 , the upper limit is 40 since 65 (and thus the joint status
also)
can survive a maximum of 40 years.

Question #32
Answer: E

 4   S0 (4) / S0 (4)


d
  e4 / 100 i
1  e4 / 100

e4 / 100

1  e4 / 100

e4
  1.202553
100  e4

MLC‐09‐11 20
Question # 33
Answer: A

L ln px big OP  qb g LM ln e  OP

q xbi g  q xb g M
bi g

M ln p b g P x M ln e-b g P
N x Q N


Q
 bi g
 q xb g 
 b g

 x b g   x b1g   x b 2 g   x b 3g  15
.

q xb g  1  e   b g  1  e 1.5

=0.7769

q xb 2 g 
b0.7769gb g  b0.5gb0.7769g
2

 b g .
15

 0.2590

Question # 34
Answer: D

22 A 60  v 3  2 p 60  q 60  2 
B B B
pay at end live then die
of year 3 2 years in year 3

v4  3p 60  q60 3
pay at end live then die
of year 4 3 years in year 4

1 1
 1  0.09  1  0.11  0.13  1  0.09  1  0.11 1  0.13  0.15
1.03 1.03
3 4

 0.19

MLC‐09‐11 21
Question # 35
Answer: B

a x  a x:5 5 E x a x 5

1  e 0.07b5g
a x:5   4.219 , where 0.07     for t  5
0.07

5 Ex  e 0.07b5g  0.705

1
a x 5   12.5 , where 0.08     for t  5
0.08

b
 a x  4.219  0.705 12.5  13.03gb g
Question #36
Answer: D

p x   p ' x  p ' x   0.8  0.7   0.56

 1 2

1  
 ln p ' 1 

x
 q   since UDD in double decrement table
 
qx
 ln p    x
 x 
 ln  0.8  
  0.44
 ln  0.56  
 0.1693
0.3qx 
1

0.3 q x  0.1   0.053
1

1  0.1qx 


To elaborate on the last step:

 Number dying from cause 

 
q 1
 1 between x  0.1 and x  0.4 
0.3 x  0.1
Number alive at x  0.1

Since UDD in double decrement,

l x   0.3 qx 
 1


l x  1  0.1qx 
 


MLC‐09‐11 22
Question #37
Answer: E

1 1
The benefit premium is     0.04  0.04333
ax 12
oL  v T  (0.04333  0.0066)aT  0.02  0.003aT
 1 vT 
 
v T
0.04693    0.02
  
 0.04693  0.04693
 v T 1    0.02
   
2

   0.04693 
Var  o L   Var v T 1 
    0.1(4.7230)  0.4723


Question #38
Answer: D

 0.7 0.1 0.2   0.52 0.13 0.35 

   
T   0.3 0.6 0.1  T   0.39 0.39 0.22 
2

 0 1   0 1 
 0  0

Actuarial present value (APV) prem = 800(1 + (0.7 + 0.1) + (0.52 + 0.13)) = 1,960
APV claim = 500(1 + 0.7 + 0.52) + 3000(0 + 0.1 + 0.13) = 1800
Difference = 160

Question # 39 - Removed

MLC‐09‐11 23
Question # 40
Answer: D

Use Mod to designate values unique to this insured.

b g b g b gb g
a60  1  A60 / d  1  0.36933 / 0.06 / 106
.  111418
.

1000 P60  1000 A60 / a60  1000b0.36933 / 111418

. g  3315
.

A60Mod  v q60d
Mod
 p60
Mod
A61  i .
1
106
.
01376 b gb g
 0.8624 0.383  0.44141

d i b
a Mod  1  A60Mod / d  1  0.44141 / 0.06 / 106 g
.  9.8684

d
E 0 LMod  1000 A60Mod  P60a60
Mod
i
 1000 0.44141  0.03315 9.8684 b g
 114.27

Question # 41
Answer: D

The prospective reserve at age 60 per 1 of insurance is A60 , since there will be no
future premiums. Equating that to the retrospective reserve per 1 of coverage, we
have:
s40:10
A60  P40  P50Mod s50:10  20 k40
10 E50

1
A40 a40:10 a A40 :20
Mod 50:10
A60    P50 
a40 10 E40 10 E50 10 E50 20 E40

016132
. 7.70 7.57 0.06
0.36913    P50Mod 
b
14.8166 0.53667 0.51081 gb g
0.51081 0.27414

0.36913  0.30582  14.8196 P50Mod  0.21887

1000 P50Mod  19.04

MLC‐09‐11 24
Alternatively, you could equate the retrospective and prospective reserves at age
50. Your equation would be:

1
A40 a40:10 A40:10
A50  P50Mod a50:10   
a40 10 E40 10 E40

1
where A40:10
 A40 10 E40 A50
 016132
. b
 0.53667 0.24905 gb g
 0.02766

d
0.24905  P50Mod 7.57  ib g 140.16132 
7.70

0.02766
.8166 0.53667 0.53667

1000 P50Mod 
b1000gb014437
. g  19.07
7.57

Alternatively, you could set the expected present value of benefits at age 40 to the
expected present value of benefit premiums. The change at age 50 did not
change the benefits, only the pattern of paying for them.

A40  P40 a40:10  P50Mod 10 E40 a50:10

FG 016132 I
H 14.8166 JK b7.70g  d P ib0.53667gb7.57g
.
0.16132  Mod
50

1000 P50Mod 
b1000gb0.07748g  19.07
4.0626

Question # 42
Answer: A

d xb 2g  qxb2 g  lxb g  400

b g
d xb1g  0.45 400  180

d xb 2 g
q x b 2 g 
400
  0.488
l b g  d b1g 1000  180
x x

pxb2 g  1  0.488  0.512

MLC‐09‐11 25
Note: The UDD assumption was not critical except to have all deaths during the
year so that 1000 - 180 lives are subject to decrement 2.

Question #43
Answer: D

Use “age” subscripts for years completed in program. E.g., p0 applies to a person
newly hired (“age” 0).

Let decrement 1 = fail, 2 = resign, 3 = other.

Then q0b g  1 4 , q1b g  15 , q2b g  1 3
1 1 1

q0b2 g  1
5, q1b2 g  1
3, q2b2 g  1
8

q b3g  1
0 10 , q b 3g  1
1 9, q b 3g  1
2 4

b gb
This gives p0b g  1  1 / 4 1  1 / 5 1  1 / 10  0.54 gb g
p1b g  b1  1 / 5gb1  1 / 3gb1  1 / 9g  0.474
p2b g  b1  1 / 3gb1  1 / 8gb1  1 / 4g  0.438
So 1b0 g  200, 11b g  200 b0.54g  108 , and 1b2 g  108 b0.474g  512
.
q b1g  log pb1g / log pb g q b g
2 2 2 2

q2b1g  logc h / logb0.438g 1  0.438

2
3

 b0.405 / 0.826gb0.562g

 0.276

d2b1g  l2b g q2b1g

b gb
 512 . 0.276  14 g
Question #44 - Removed

MLC‐09‐11 26
Question #45
Answer: E
 x
For the given life table function: ex 
2
1
k qx 
x
  x 1
1   x 1 k 1
Ax   v k 1 k qx  v
  x k b
k b
a  x
Ax 
x
1  Ax
ax 
d


e50  25    100 for typical annuitants

e y  15  y  Assumed age = 70

a30
A70   0.45883
30
a70  9.5607
500000  b a70  b  52, 297

Question #46
Answer: B

10 E30:40  10 p30 10 p40 v10 d p v id p v ib1  i g

10 30
10
10 40
10 10

 b E gb E gb1  i g
10
10 30 10 40

 b 0.54733gb0.53667 gb179085
. g
 0.52604

The above is only one of many possible ways to evaluate 10 p30 10 p40 v10 , all of
which should give 0.52604

a30:40:10  a30:40 10 E30:40 a3010:4010

b g b gb g
 a30:40  1  0.52604 a40:50  1
 b13.2068g  b0.52604gb114784
. g
 7.1687

MLC‐09‐11 27
Question #47
Answer: A

Equivalence Principle, where  is annual benefit premium, gives

1000 A35  ( IA)35    a35

1000 A35 1000  0.42898

 
d b gi
a35  IA 35 (1199143
.  616761
. )
428.98

582382
.
 73.66

We obtained a35 from

1  A35 1  0.42898
a35    11.99143
d 0.047619

Question #48 - Removed

Question #49
Answer: C

 xy   x   y  014
.
 0.07
Ax  Ay    0.5833
   0.07  0.05
 xy 0.14 0.14 1 1
Axy     0.7368 and a xy    5.2632
 xy   014 .  0.05 0.19  xy   0.14  0.05

P
Axy

Ax  Ay  Axy

b g
2 0.5833  0.7368
 0.0817
a xy a xy 5.2632

MLC‐09‐11 28
Question #50
Answer: E

 20V  P20 1  i   q40 1  21V   V

21

b0.49  0.01gb1  ig  0.022b1  0.545g  0.545

b1  ig  b0.545gb1  0.022g  0.022
0.50

 111
.

 21V  P20 1  i   q41 1  22V   22V

b0.545.01gb111
. g  q b1  0.605g  0.605
41

0.61605  0.605
q41 
0.395

 0.028

Question #51
Answer: E

1000 P60  1000 A60 / a60

b gb g
 1000 v q60  p60 A61 / 1  p60 v a61

 1000bq  p A g / b1.06  p a g

60 60 61 60 61

 c15  b0.985gb382.79gh / c106

.  b0.985gb10.9041gh  33.22

Question #52 - Removed

MLC‐09‐11 29
Question #53
Answer: E

g   ln(0.96)  0.04082
 x02t: y t  0.04082  0.01  0.03082
h   ln(0.97)  0.03046
 x01t: y t  0.03046  0.01  0.02046
00
 01
0
5
02 03

5 p xy  5 p xy  exp    x  t : y  t   x  t : y  t   x  t : y  t dt  e
5(0.06128)
 0.736

Question #54
Answer: B

Transform these scenarios into a four-state Markov chain, as shown below.

from year t – 3 from year t – 2 Probability that year t will

State
to year t – 2 to year t – 1 decrease from year t - 1
0 Decrease (D) Decrease (I) 0.8
1 Increase Decrease 0.6
2 Decrease Increase 0.75
3 Increase Increase 0.9

 0.80 0.00 0.20 0.00 

 0.60 0.00 0.40 0.00 
The transition probability matrix is  
 0.00 0.75 0.00 0.25
 
 0.00 0.90 0.00 0.10 
Note for example that the value of 0.2 in the first row is a transition from DD to DI,
that is, the probability of an increase in year three after two successive years of
decrease.

The requested probability is that of starting in state 0 and then being in either state
0 or 1 after two years. That requires the first row of the square of the transition
probability matrix. It can be obtained by multiplying the first row of the matrix by
each column. The result is [0.64 0.15 0.16 0.05]. The two required probabilities are
0.64 and 0.15 for a total of 0.79. The last two values in the vector do not need to
be calculated, but doing so provides a check (in that the four values must sum to
one).

Alternatively, the required probabilities are for the successive values DDID and
DDDD. The first case is transitions from state 0 to 2 and then 2 to 1 for a
probability of 0.2(0.75) = 0.15. The second case is transitions from 0 to 0 and then
0 to 0 for a probability of 0.8(0.8) = 0.64 for a total of 0.79.

MLC‐09‐11 30
Question #55
Answer: B

lx    x  105  x
 t p45  l45t / l45  (60  t ) / 60

Let K be the curtate future lifetime of (45). Then the sum of the payments is 0 if
K  19 and is K – 19 if K  20 .

F 60  K IJ  1
 1  GH
60

20 a45 
60 K

K  20


b40  39...1g  b40gb41g  13.66
60 2b60g

Hence,

c h c
Prob K  19  13.66  Prob K  32.66 h
b g
 Prob K  33 since K is an integer

 ProbbT  33g

l78 27
 33 p45  
l45 60

 0.450

MLC‐09‐11 31
Question #56
Answer: C


2
Ax   0.25    0.04
  2


Ax   0.4
 

d IAi x
 z 
0 s
Ax ds

z 
E
0s x
Ax ds

 zd
0

ib g
e 0.1s 0.4 ds

F e I
 b0.4 gG
0.1s


H 01. JK
0.4
 4
01
.
0

Alternatively, using a more fundamental formula but requiring more difficult

integration.

c IA h x
 z 

0
bg
t t px  x t e  t dt

 z 

0
t e0.04 t b0.04g e 0.06t
dt

 0.04 z
(integration by parts, not shown)


0
t e 0.1t dt

t 1 FG
e 0.1 t
 IJ
 0.04
01

. 0.01 H 0 K
0.04
 4
0.01

MLC‐09‐11 32
Question #57
Answer: E

Subscripts A and B here distinguish between the tools and do not represent ages.

We have to find e AB

z 10 FG 1  t IJ dt  t  t 2 10
eA 
0 H 10K 20 0
 10  5  5


eB  z FGH
0
7 t IJ
K
1  dt  t 
7
t2
14
7

0
 49 
49
14
 35
.


z FGH 7 t IJ FG 1  t IJ dt  z FG 1  t  t  t IJ dt
7 2
e AB 

1
7 K H 10K H 10 7 70K
0

7
t2 t2 t3
t  
20 14 210 0

49 49 343
 7    2.683
20 14 210

   
e AB  e A  e B  e AB

 5  35
.  2.683  5817
.

Question #58
Answer: A

 xt  0.100  0.004  0.104

t pxb g  e 0.104 t

Expected present value (EPV) = EPV for cause 1 + EPV for cause 2.

z0
5
2000 e 0.04 t e 0.104 t 0100
. b g z 5
dt  500,000 e 0.04 t e 0.104 t 0.400 dt
0
b g
  2000  0.10   500, 000  0.004    e 0.144t dt 
2200
 
1  e 0.144 5  7841
5

0 0.144

MLC‐09‐11 33
Question #59
Answer: A

R  1  px  q x

1 1 1
 xt  k  dt
since e 0  e 0
k     xt dt   k dt
S  1  px  e 0

1 1

 e 0 e 0
  xt dt  k dt

So S  0.75R  1  px  e  k  0.75q x

1  0.75q x
e k 
px
px 1  qx
ek  
1  0.75q x 1  0.75q x

k  ln
LM 1  q OP
x

N1  0.75q Q x

MLC‐09‐11 34
Question #60
Answer: C

A60  0.36913 d  0.05660

2
A60  0.17741
and 2
A60  A60
2
 0.202862
  
Expected Loss on one policy is E  L     100,000   A60 
 d d

2

Variance on one policy is Var  L      100,000   2 A60  A60
 d
 2

On the 10000 lives,
E  S   10,000 E  L    and Var  S   10,000 Var  L   
The  is such that 0  E  S  / Var  S   2.326 since   2.326   0.99
   
10,000   100,000   A60 
d  d   2.326
  
100 100,000   2 A60  A60
2

 d

   
100   100,000     0.36913
d  d 
 2.326
 
100,000    0.202862 
 d

0.63087  36913
d  0.004719

100,000 
d
 
0.63087  36913  471.9  0.004719
d d
 36913  471.9

d 0.63087  0.004719
 59706
  59706  d  3379

MLC‐09‐11 35
Question #61
Answer: C

1V   0V    1  i   1000  1V  1V   q75
 1.05  1000q75

Similarly,
2 V   1V     1.05  1000q76

3V   2V     1.05  1000q77

 
1000 3V  1.053  1.052    1.05  1000  q75 1.052  1000 1.05  q76  1000  q77 *



1000  1000 1.052 q75  1.05q76  q77 
1.053  1.052  1.05



1000 x 1  1.052  0.05169  1.05  0.05647  0.06168 
3.310125
1000  1.17796
  355.87
3.310125

* This equation is an algebraic manipulation of the three equations in three

unknowns  1V , 2V ,   . One method – usually effective in problems where benefit
= stated amount plus reserve, is to multiply the 1V equation by 1.052 , the 2V
equation by 1.05, and add those two to the 3V equation: in the result, you can
cancel out the 1V , and 2V terms. Or you can substitute the 1V equation into the
2 V equation, giving 2 V in terms of  , and then substitute that into the 3V
equation.

Question #62
Answer: D

A281:2  z2  t

0
e 1 72 dt


1
72
d i
1  e 2  0.02622 since   ln 106
. b g
 0.05827

FG IJ
71
a28:2  1 v
72H K  19303
.

3V  500,000 A281:2  6643 a28:2 = 287

MLC‐09‐11 36
Question #63
Answer: D

Let Ax and a x be calculated with  x t and   0.06

Let Ax * and a x * be the corresponding values with  x t
increased by 0.03 and  decreased by 0.03

1  Ax 0.4
ax    6.667
 0.06
ax  ax
*


t
     x s  0.03 ds 0.03t
 Proof: ax  0 e
* 0
e dt

t

e 
   x s ds 0.03t 0.03t
 0
e e dt
0
t
 0
  xs ds
 e e 0.06 t dt
0

 ax 

Ax*  1  0.03 a x*  1  0.03 a x

b gb
 1  0.03 6.667 g
 0.8

MLC‐09‐11 37
Question #64
Answer: A

bulb ages
#
Year 0 1 2 3
replaced
0 10000 0 0 0 -
1 1000 9000 0 0 1000
2 100+2700 900 6300 0 2800
3 280+270+3150 3700

The diagonals represent bulbs that don’t burn out.

E.g., of the initial 10,000, (10,000) (1-0.1) = 9000 reach year 1.
(9000) (1-0.3) = 6300 of those reach year 2.

Replacement bulbs are new, so they start at age 0.

At the end of year 1, that’s (10,000) (0.1) = 1000
At the end of 2, it’s (9000) (0.3) + (1000) (0.1) = 2700 + 100
At the end of 3, it’s (2800) (0.1) + (900) (0.3) + (6300) (0.5) = 3700

1000 2800 3700

Expected present value   
.
105 . 2 105
105 . 3
 6688

Question #65
Answer: E


e25:25  z
15
0 t
p25 dt 15 p25 z
0t
10
p40 dt

FG z IJ e
z Kz
15
15 .04 t  .04 ds 10 .05t
 dt  e
e
H dt
0
0 0


1
.04
d
1  e .60 .60
i  e LMN.051 d1  e .50
iOPQ
 112797
.  4.3187
 15.60

MLC‐09‐11 38
Question #66
Answer: C

5 p 60 1 

e1  q je1  q jb1  q gb1  q gb1  q g

60 1 60  2 63 64 65

 b0.89gb0.87gb0.85gb0.84gb0.83g
 0.4589

Question # 67
Answer: E

1
12.50  a x       0.08      0.04
 


Ax   0.5
 
 1
2
Ax  
  2 3

2
Ax  Ax2
e j
Var aT 
2
1 1

 3 4  52.083
0.0016

S.D.  52.083  7.217

MLC‐09‐11 39
Question # 68
Answer: D

v  0.90  d  010 .
Ax  1  dax  1  010b gb g
. 5  0.5

5000 Ax  5000vqx
Benefit premium  
ax


b5000gb0.5g  5000b0.90gb0.05g  455
5

ax 10
10th benefit reserve for fully discrete whole life  1 
ax
ax 10
0.2  1   ax 10  4
5

b gb g
Ax 10  1  dax 10  1  010
. 4  0.6
10V  5000 Ax 10   a  b5000gb0.6g  b455gb4g  1180
x 10

Question #69
Answer: D

v is the lowest premium to ensure a zero % chance of loss in year 1 (The present
value of the payment upon death is v, so you must collect at least v to avoid a loss
should death occur).
Thus v = 0.95.
bg 2
b g
E Z  vqx  v 2 px qx 1  0.95  0.25  0.95  0.75  0.2
 0.3729
d i b g 2
b g
E Z2  v 2qx  v 4 px qx 1  0.95  0.25  0.95  0.75  0.2
4

 0.3478

b g d i c b gh
Var Z  E Z2  E Z
2
b
 0.3478  0.3729 g 2
 0.21

MLC‐09‐11 40
Question #70
Answer: D

Expected present value (EPV) of future benefits =

  0.005  2000  0.04  1000  /1.06  1  0.005  0.04  0.008  2000  0.06 1000  /1.062
 47.17  64.60
 111.77

EPV of future premiums  1  1  0.005  0.04  /1.06  50

 1.9009  50 
 95.05
E  1 L K 55  1  111.77  95.05  16.72

Question #71 - Removed

Question #72
Answer: A

Let Z be the present value random variable for one life.

Let S be the present value random variable for the 100 lives.

E ( Z )  10  e  t e  t  dt
5


 10 e  (   )5
 
 2.426

d i
E Z 2  102
FG  IJ e b g  2   5
H 2   K
 10 G
F 0.04 IJ de i  112330.8
H 0.16 K
2
.

Var b Z g  E d Z i  c E b Z gh
2 2

 11233
.  2.4262
 5.348

bg bg
E S  100 E Z  242.6
VarbSg  100 Varb Zg  534.8
F  242.6
 1645
.  F  281
534.8

MLC‐09‐11 41
Question #73
Answer: D

Prob{only 1 survives} = 1-Prob{both survive}-Prob{neither survives}

b ge
 1 3p50  3p 50  13p50 1 3p 50 j
b gb gb gb gb gb g b
 1  0.9713 0.9698 0.9682 0.9849 0.9819 0.9682  1  0.912012 1  0.93632
 
gb g
 0.912012 0.936320
 0.140461

Question # 74 - Removed

Question #75 - Removed

Question # 76
Answer: C

This solution applies the equivalence principle to each life. Applying the
equivalence principle to the 100 life group just multiplies both sides of the first
equation by 100, producing the same result for P.

EPV  Prems   P  EPV  Benefits   10q70v  10 p70 q71v 2  Pp70 p71v 2

P
b10gb0.03318g  b10gb1  0.03318gb0.03626g  Pb1  0.03318gb1  0.03626g
108
. . 2
108 . 2
108
 0.3072  0.3006  0.7988 P
0.6078
P  3.02
0.2012

(EPV above means Expected Present Value).

MLC‐09‐11 42
Question #77
Answer: E

Level benefit premiums can be split into two pieces: one piece to provide
term insurance for n years; one to fund the reserve for those who survive.

Then,
Px  Px1:n  Px:n1 nV

And plug in to get

0.090  Px1:n  0.00864 0.563 b gb g

Px1:n  0.0851

Another approach is to think in terms of retrospective reserves. Here is one such

solution:


V  Px  Px1:n 
n sx:n 

 Px  Px1:n  aE
n
x:n

 P
ax:n
 Px  Px1:n 1
x:n
ax:n


P  P 
x
1
x:n

P  x:n
1

e
0.563  0.090  Px1:n / 0.00864 j
Px1:n  0.090  0.00864 0.563 b gb g
 0.0851

MLC‐09‐11 43
Question #78
Answer: A

b g
  ln 1.05  0.04879

x
Ax   t px  x t e  t dt
0
x 1  t
 e dt for the given mortality function
0 x
1
 a
  x x

From here, many formulas for the reserve could be used. One approach is:

Since

a50 18.71  1  A50 

A50    0.3742 so a50     12.83
50 50   
a60
19.40  1  A40 
A40  
 0.3233 so a40     13.87
60 60   
P  A40  
0.3233
 0.02331
13.87
reserve   A50  P  A40  a50    0.3742   0.0233112.83   0.0751.

Question #79
Answer: D

Ax  E vTx   E  vTx NS   Prob  NS  E vTx S   Prob  S 

 0.03   0.6 
   0.70     0.30
 0.03  0.08   0.06  0.08 
 0.3195

FG 0.03 IJ  0.70  FG 0.06 IJ  0.30  01923

Similarly, 2 Ax 
H 0.03  016
. K H 0.06  016
. K
. .

F I 2
Ax  Ax2 01923
.  0.31952
H
Var aT
b gK 
x 2

0.082
 141
..

MLC‐09‐11 44
Question #80
Answer: B

2 q80:84  2 q80  2 q84  2 q80:84

 0.5  0.4  1  0.6   0.2  0.15  1  0.1

= 0.10136

Using new p82 value of 0.3

0.5  0.4  1  0.3  0.2  0.15  1  0.1

= 0.16118

Change = 0.16118 – 0.10136 = 0.06

Alternatively,
2 p80  0.5  0.4  0.20

3 p80  2 p80  0.6  0.12

2 p84  0.20  0.15  0.03

3 p84  2 p84  0.10  0.003

2 p80:84  2 p80  2 p84  2 p80 2 p84 since independent

 0.20  0.03   0.20  0.03  0.224

3 p80:84  3 p80  3 p84  3 p80 3 p84
 0.12  0.003   0.12  0.003  0.12264
2 q 80:84  2 p80:84  3 p80:84

 0.224  0.12264  0.10136

Revised
3 p80  0.20  0.30  0.06

3 p 80:84  0.06  0.003   0.06  0.003

 0.06282
2 q 80:84  0.224  0.06282  0.16118

change  0.16118  0.10136  0.06

Question #81 - Removed

MLC‐09‐11 45
Question #82
Answer: A

b g  pb1g pb2g
p50
5 5 50 5 50

FG 100  55IJ e b gb g
 0.05 5

H 100  50 K
 b0.9gb0.7788g  0.7009

Similarly
b g  FG 100  60IJ e b g b g
 0.05 10
10 p50
H 100  50 K
 b0.8gb0.6065g  0.4852

b g  pb g  pb g  0.7009  0.4852

5 5 q50 5 50 10 50

 0.2157

Question #83
Answer: C

Only decrement 1 operates before t = 0.7

1b g  b0.7g qb1g  b0.7gb010

. g  0.07 since UDD
0.7 q40 40

Probability of reaching t = 0.7 is 1-0.07 = 0.93

Decrement 2 operates only at t = 0.7, eliminating 0.125 of those who reached 0.7

q40 b gb
b2g  0.93 0125
.  011625
. g

MLC‐09‐11 46
Question #84
Answer: C

vq80 v 3 2 p80q82
e j
 1 2 p80v 2  1000 A80 
2

2

FG 0.83910 IJ  665.75  FG 0.08030  0.83910  0.09561IJ

H
 1
. 2
106 K H 2b106
. g 2b106
. g K 3

b
 174680
. g b
 665.75   0.07156 g
b167524
. g  665.75
  397.41

3,284 ,542
Where 2 p80   0.83910
3,914 ,365

b gb
Or 2 p80  1  0.08030 1  0.08764  0.83910 g

Question #85
Answer: E

At issue, expected present value (EPV) of benefits


  bt vt t p65  dt
0 65  t

  1000  e0.04t  e0.04t  t p65 65  t  dt



0

 1000 t p65 65  t  dt  1000  q65  1000
0

EPV of premiums   a65  

FG 1 IJ  16.667
H 0.04  0.02 K
Benefit premium   1000 / 16.667  60
2V  z
0

b g
b2u v u u p67  65 2  u du   a67

 z
b g b gb
1000 e0.04b 2 uge 0.04u u p67  65 2  u du  60 16.667 g
z
0

 1000e0.08
0 u

b g
p67  65 2  u du  1000
 1083.29  q67  1000  1083.29  1000  83.29

MLC‐09‐11 47
Question #86
Answer: B

(1) ax:20  ax:20  1 20 Ex

1  Ax:20
(2) ax:20 
d
(3) Ax:20  A1x:20  Ax:201
(4) Ax  A1x:20  20 Ex Ax 20

b gb g
0.28  A1x:20  0.25 0.40

A1x:20  018
.

Now plug into (3): Ax:20  018

.  0.25  0.43

1  0.43
ax:20   1197
Now plug into (2):
b g
0.05 / 105
.
.

Now plug into (1): a x:20  1197

.  1  0.25  1122
.

Question #87 - Removed

Question #88
Answer: B

ex 8.83
ex  px  px ex 1  px    0.95048
1  ex 1 9.29
ax  1  vpx  v 2 2 px  ....
a  1  v  v 2 2 px  ...
x:2
ax:2  ax  vq x  5.6459  5.60  0.0459

v 1  0.95048  0.0459
v  0.9269
1
i   1  0.0789
v

MLC‐09‐11 48
Question #89
Answer: E

One approach is to enumerate the possible paths ending in F and add the
probabilities:
FFFF – 0.23 = 0.008
FFGF – 0.2(0.8)(0.5) = 0.080
FGFF – 0.8(0.5)(0.2) = 0.080
FGHF – 0.8(0.5)(0.75) = 0.300

The total is 0.468.

An alternative is to use matrix multiplication. The desired probability is the value in

the upper left corner of the transition probability matrix raised to the third power.
Only the first row needs to be evaluated.

The first row of the matrix squared is [0.44 0.16 0.40 0.00], obtained by multiplying
the first row by each column, in turn. The first row of the matrix cubed is obtained
by multiplying the first row of the squared matrix by each column. The result is
[0.468 0.352 0.080 0.100]. Note that only the first of the four calculations in
necessary, though doing the other three and observing that the sum is 1 provides
a check.

Either way, the required probability is 0.468 and the actuarial present value is
500v3 (0.468)  500(0.9)3 (0.468)  171 .

Question #90 – Removed

MLC‐09‐11 49
Question #91
Answer: E

1 1
60M  
75  60 15
1 1 3 1
60F        85
  60 15 5 25
t
t
M
p65  1
10
t
t
F
p60  1
25

Let x denote the male and y denote the female.

e x  5  mean for uniform distribution over  0,10  
e y  12.5  mean for uniform distribution over  0,25  
10  t  t 
e xy   1   1   dt
0
 10   25 
10  7 t2 
  1  t  dt
0
 50 250 
 7 2 t3  10
7 1000
 t  t    10   100 
 100 750  0 100 750
4 13
 10  7  
3 3

    25 13 30  75  26
exy  ex  e y  exy  5     1317
.
2 3 6

MLC‐09‐11 50
Question #92
Answer: B

 1
Ax  
 3
 1
2
Ax  
  2 5

c h
P Ax    0.04

F P c A hI A  A
Var b Lg  G 1 
2

H  JK e j
x 2 2
x x

F 0.04 IJ FG 1  FG 1IJ IJ
 G1 
2 2

H 0.08 K H 5 H 3K K
F 3I F 4 I
G J G J
2

H 2 K H 45K
1

5

Question #93
Answer: A

Let  be the benefit premium

Let kV denote the benefit reserve at the end of year k.
For any n,  nV    1  i    q25 n  n1V  p25 n  n1V 
 n 1V

Thus 1V   0 V    1  i 

2V   1V   1  i    1  i     1  i    
s2
3V   2V   1  i     
s2   1  i    
s3 
By induction (proof omitted)
n V   
sn
For n  35, n V  a60 (expected present value of future benefits; there are no future
premiums)
a60   
s35
a60  a 
 For n  20, 20 V   
s20   60  
s

s35    20
 s35 

MLC‐09‐11 51
Alternatively, as above
 nV    1  i   n1V
Write those equations, for n  0 to n  34
0 :  0V    1  i   1V
1:  1V   1  i   2V
2 :  2V   1  i   3V

34 :  34V    1  i   35V
34 k
Multiply equation k by 1  i  and sum the results:
 0V    1  i 35   1V   1  i 34   2V   1  i 33     34V    1  i  
1V 1  i   2 V 1  i   3V 1  i     34 V 1  i   35V
34 33 32

35 k
For k  1, 2, , 34, the k V 1  i  terms in both sides cancel, leaving

0V 1  i 35   1  i 35  1  i 34    1  i   35V

Since 0V  0
 s35  35V
 a60
(see above for remainder of solution)

MLC‐09‐11 52
Question #94
Answer: B

t qy t px  x t  t qx t p y  y t
 x  t: y  t 
t qx  t p y  t px  t q y  t px  t p y

For (x) = (y) = (50)

50:50 10.5  
 10.5 q50  10 p50  q60  2 
 0.09152  0.91478 0.01376  2   0.0023
 10.5 q50  10.5 p50   2   10.5 p50 2  0.09152  0.90848 2    0.908482

where
p50 
1
2  l60  l61   12 8,188,074  8,075, 403  0.90848
10.5
l50 8,950,901
10.5 q50  1  10.5 p50  0.09152
8,188,074
10 p50   0.91478
8,950,901

10.5 p50   50  10.5   10 p50  q60 since UDD

Alternatively, 10t  p50  10 p50 t p60

10t  p50:50   10 p50   t p60 

2 2

p60   10 p50   t p60 

2 2
10t  p 50:50  2 10 p50 t

 2 10 p50 1  tq60    10 p50  1  tq60  since UDD

2 2

Derivative  2 10 p50 q60  2  10 p50  1  tq60  q60

2

Derivative at 10  t  10.5 is
2  0.91478 0.01376    0.91478 1   0.5  0.01376    0.01376   0.0023
2

p 50:50  2 10.5 p50   10.5 p50 

2
10.5

 2  0.90848    0.90848 
2

 0.99162
dp

 (for any sort of lifetime)  dt    0.0023  0.0023
p 0.99162

MLC‐09‐11 53
Question #95
Answer: D

 xt   x1t   x 2t  0.01  2.29  2.30


P  P  vt t px   x 2t dt  50, 000 vt t px   x1t dt  50, 000 vt t px   xt dt
2 2
0 0 2
2 0.1t 2.3t 2 0.1t 2.3t 
P  P e e  2.29dt  50, 000 e e  0.01dt  50, 000 e0.1t e2.3t  2.3dt
0 0 2
 2 2.4    2 2.4  2 2.4 

1 e 1 e e
P 1  2.29    50000  0.01  2.3  
 2.4   2.4 2.4 
P = 11,194

Question #96
Answer: B

e x  p x  2 p x  3 p x  ...  11.05

Annuity  v 3 3 p x 1000  v 4 4 px  1000  104

.  ... b g

1000b104
. g
k 3 k
 v k px
k 3

 1000v 3  k px
k 3

F 1 IJ
 1000v be  0.99  0.98g  1000G
3

H 104
. K
 9.08  8072
3
x

Let  = benefit premium.

e
 1  0.99v  0.98v 2  8072 j
2.8580  8072
  2824

MLC‐09‐11 54
Question #97
Answer: B

 a30:10  1000 A30  P IA 30

1
:10 b g
 10 b ge 10 A30 j
1000 A30

b g
a30:10  IA 3010
1
:
 1010 A30


1000 0102
. b g
7.747  0.078  10 0.088 b g
102

6.789
 15.024

Question #98
Answer: E

t
For the general survival function S0 (t )  1  ,0t  ,


z FG1  t IJ dt
  30
e 30 
0 H   30K
L t OP
 Mt 
2
  30

N 2b  30g Q 0
  30

2
100  30
Prior to medical breakthrough   100  e 30   35
2

 
After medical breakthrough e  30  e 30  4  39

    30
so   39 
e30     108
2

Question #99
Answer: A

L  100, 000v 2.5  4000a3 @5%

= 77,079

MLC‐09‐11 55
Question #100
Answer: D

  accid   0.001
 total   0.01
  other   0.01  0.001  0.009


Expected present value   500,000 e0.05t e0.01t  0.009  dt
0


10 50,000 e0.04t e0.05t e0.01t  0.001 dt
0

 0.009 0.001 
 500, 000    100, 000
 0.06 0.02 

Question #101 Removed

Question #102
Answer: D

1000  19V  20 Px 1.06   qx 19 1000 

1000 20V  1000 Ax  20 
px 19


 342.03  13.72 1.06   0.01254 1000   369.18
0.98746
1  0.36918
ax  20   11.1445
 0.06 /1.06 
Ax  20 369.18
so 1000 Px  20  1000   33.1
ax  20 11.1445

MLC‐09‐11 56
Question #103
Answer: B
k
  k
1
 e 0  e 0
    xt dt  2  xt dt
k px
2
   x1t dt 
k

  e 0 
 
  k px  where k px is from Illustrative Life Table, since  1 follows I.L.T.
2

6,616,155
10 p60   0.80802
8,188,074
6,396,609
11 p60   0.78121
8,188,074
b g  p b  g  p b  g
q60
10 10 60 11 60

 b 10 p60 g b
2
11 p60 g 2
from I.L.T.
 0.80802 2  0.781212  0.0426

Question #104
Answer: C

1
Ps   d , where s can stand for any of the statuses under consideration.
a s

1
as 
Ps  d
1
ax  ay   6.25
01.  0.06
1
axy   8.333
0.06  0.06

axy  axy  ax  ay

axy  6.25  6.25  8.333  4.167

1
Pxy   0.06  018
.
4.167

MLC‐09‐11 57
Question #105
Answer: A

z b
d 0b g  1000 e  b   0.04 gt   0.04 dt
0
1
g
 1000 1  e  b   0.04
e g j  48

e  b   0.04 g  0.952
  0.04   ln 0.952 b g
 0.049
  0.009

z
d 3b1g  1000 e 0.049 t 0.009 dt
4
3
b g
0.009  b 0.049 gb 3g  b 0.049 gb 4 g
 1000
0.049
e e e j
 7.6

Question #106
Answer: B

This is a graph of lx  x .
 x would be increasing in the interval 80, 100 . b g
The graphs of lx px , l x and lx2 would be decreasing everywhere.

Question #107
Answer: B

Variance  v30 15 px 15 qx Expected value  v15 15 px

v30 15 px 15 qx  0.065 v15 15 px
v15 15qx  0.065  15 qx  0.3157

Since  is constant

15 q x 
 1   px 
15

 px 
15
 0.6843
px  0.975
qx  0.025

MLC‐09‐11 58
Question #108
Answer: E

 p
1 i
1 11V
A
  10V
A
0 
qx 10
px 10
1000
x 10

 p
1 i
 2 11V
B
  10V
B
 B 
qx 10
px 10
1000
x 10

 p
1 i
1   2  11V
A
 11V B   10V
A
 10V B   B
x 10

 101.35  8.36 
1.06 
1  0.004

 98.97

Question #109
Answer: A

2
EPV (x’s benefits)   v k 1bk 1 k px q x  k
k 0

b g b gb g
 1000 300v 0.02  350v 2 0.98 0.04  400v 3 0.98 0.96 0.06b gb gb g
 36,829

Question #110
Answer: E

 denotes benefit premium

19V  EPV future benefits - EPV future premiums
1
0.6       0.326
108
.

11V 
b
10V   108
.  q65 10gb g b gb g
p65


b5.0  0.326gb108
. g  b010
. gb10g
1  010
.
=5.28

MLC‐09‐11 59
Question #111
Answer: A

Expected present value Benefits 

 0.8 0.110,000    0.8 0.9  0.097  9,000 
1.062 1.063
 1, 239.75

  0.8   0.8  0.9  

1, 239.75  P 1   
 1.06 1.062 
 P  2.3955 
P  517.53  518

Question #112
Answer: A

1180  70a30  50a40  20a30:40

b gb g b gb g
1180  70 12  50 10  20a30:40
a30:40  8
a30:40  a30  a40  a30:40  12  10  8  14
100a30:40  1400

Question #113
Answer: B

z 
a  a f t dt 
 t
bg z
 1  e 0.05t

0.05
1
2
te  t dt
bg

1
0.05 zb


te
t
i
 te 1.05t dt

1 LM b g FG
 t  1 et 
t 1 IJe 1.05t
OP 


0.05 N .H
105

.
105 2K Q 0

1 L F 1 I O
2

 M1  G . JK PP  185941
0.05 MN H 105
.
Q
20,000  185941
.  37,188

MLC‐09‐11 60
Question #114
Answer: C

Event Prob Present Value

x0  0.05 15
x 1  0.95 0.10   0.095 15  20 /1.06  33.87
x2  0.95 0.90   0.855 15  20 /1.06  25 /1.062  56.12

E  X    0.0515   0.095 33.87    0.855  56.12   51.95

E  X 2    0.05 15    0.095  33.87    0.855  56.12   2813.01

2 2 2

 
Var  X   E X 2  E  X   2813.01   51.95   114.2
2 2

Question #115
Answer: B

Let K be the curtate future lifetime of (x + k)

k L  1000v K 1  1000 Px:3  aK 1

When (as given in the problem), (x) dies in the second year from issue, the curtate
future lifetime of  x  1 is 0, so
1L  1000v  1000 Px:3 a1
1000
  279.21
1.1
 629.88  630

The premium came from

A
Px:3  x:3
ax:3
Ax:3  1  d ax:3
1  d ax:3 1
Px:3  279.21   d
ax:3 ax:3

MLC‐09‐11 61
Question #116
Answer: D

Let M = the force of mortality of an individual drawn at random; and T  future

lifetime of the individual.

Pr T  1 n
 E Pr T  1 M s
 z

0
Pr T  1 M   f M  d bg
 zz
2 1
0 0
1
e   t dt d
2
 zd
2
0
1  e i 21 du  21 d2  e 2
i 21 d1  e i
1  2

 0.56767

Question #117
Answer: E

For this model:

1/ 60 1
 40(1)t   ;  40
(1)
 20  1/ 40  0.025
1  t / 60 60  t
1/ 40 1
 40(2)t   ; 40
(1)
 20  1/ 20  0.05
1  t / 40 40  t
 
40  20  0.025  0.05  0.075

MLC‐09‐11 62
Question #118
Answer: D

Let   benefit premium

Expected present value of benefits =

b gb g b gb gb g b gb gb gb
 0.03 200,000 v  0.97 0.06 150,000 v 2  0.97 0.94 0.09 100,000 v 3 g
 5660.38  7769.67  6890.08
 20,32013
.

Expected present value of benefit premiums

 ax:3 

b gb g
 1  0.97v  0.97 0.94 v 2 
 2.7266 
20,32013
.
  7452.55
2.7266

1V 
b7452.55gb106
. g  b200,000gb0.03g
1  0.03
 1958.46

Initial reserve, year 2 = 1V  

= 1958.56 + 7452.55
= 9411.01

Question #119
Answer: A

Let  denote the premium.

L  bT v T   aT  1 ib g T
 v T   aT
 1   aT
E L  1   ax  0   1
ax

 L  1   aT  1 
aT

 ax  1  v Td i
ax  ax


b
v T  1   ax

g
v T  Ax
 ax 1  Ax

MLC‐09‐11 63
Question #120
Answer: D

(0, 1) (1, 0.9)

(1.5, 0.8775)

(2, 0.885)

tp1

1 2
t

1 p1  (1  01
. )  0.9
2 b gb g
p1  0.9 1  0.05  0.855

b
since uniform, 1.5 p1  0.9  0.855 / 2 g
 0.8775


e1:1.5  Area between t  0 and t  15
.
FG 1  0.9 IJ b1g  FG 0.9  0.8775IJ b0.5g

H 2 K H 2 K
 0.95  0.444
 1394
.

MLC‐09‐11 64
Alternatively,

e11: .5  z
1.5
0
t p1dt

 z
1
p dt 1p1 x
0 t 1 0 z 0.5
p2 dx

 zb
1
0
1  01 g
. t dt  0.9
1
z0
0.5
b1  0.05xgdx
0.5
 t  0.12t  0.9 x  0.052 x
2 2

0 0
 0.95  0.444  1394
.

Question #121
Answer: A

b g
.  5233
10,000 A63 112
A63  0.4672

Ax 1 
b g
Ax 1  i  qx
px

A64 
b0.4672gb105
. g  0.01788
1  0.01788
 0.4813

A65 
b0.4813gb105
. g  0.01952
1  0.01952
 0.4955
Single gross premium at 65 = (1.12) (10,000) (0.4955)
= 5550

b1  ig 2

5550
5233
i
5550
5233
 1  0.02984

Question #122A
Answer: C

Because your original survival function for (x) was correct, you must have
 x t  0.06   x02t: y t   x03t: y t   x02t: y t  0.02
 x02t: y t  0.04

Similarly, for (y)

 y t  0.06   x01t: y t   x03t: y t   x01t: y t  0.02
 x01t: y t  0.04

MLC‐09‐11 65
The first-to-die insurance pays as soon as State 0 is left, regardless of which state
is next. The force of transition from State 0 is
 x01t: y t   x02t: y t   x03t: y t  0.04  0.04  0.02  0.10 .

With a constant force of transition, the expected present value is

  0.10
0    0 e e (0.10)dt  0.15
 t 0.05 t 0.10 t
e t p 00
xy ( 01
x  t : y  t  02
x  t : y  t  03
x  t : y  t ) dt 

Question #122B
Answer: E

Because (x) is to have a constant force of 0.06 regardless of (y)’s status (and vice-
versa) it must be that  13
x  t: y  t   x  t: y  t  0.06 .
23

There are three mutually exclusive ways in which both will be dead by the end of
year 3:

1: Transition from State 0 directly to State 3 within 3 years. The probability of this
is
3
3 0.02 0.10t
3
0 t p  dt  0 e 0.02dt   0.10 e 0  0.2(1  e )  0.0518
00 03 0.10 t
0.3
xy x  t: y t

2: Transition from State 0 to State 1 and then to State 3 all within 3 years. The
probability of this is
3 3
 x  t : y  t dt   e
pxy00  x01t: y t 3t p13 0.10 t
t 0.04(1  e 0.06(3t ) )dt
0 0
3
3 0.04 0.10t 0.04e0.18 0.04t
  0.04 e 0.10 t
e 0.18 0.04 t
e    e  e
0 0.10 0.04 0
0.3 0.18 0.12
 0.4(1  e )e (1  e )  0.00922

3: Transition from State 0 to State 2 and then to State 3 all within 3 years. By
symmetry, this probability is 0.00922.

The answer is then 0.0518 + 2(0.00922) = 0.0702.

MLC‐09‐11 66
Question #122C
Answer: D

Because the original survival function continues to hold for the individual lives, with
a constant force of mortality of 0.06 and a constant force of interest of 0.05, the
expected present values of the individual insurances are

0.06
Ax  Ay   0.54545 ,
0.06  0.05
Then,
Axy  Ax  Ay  Axy  0.54545  0.54545  0.66667  0.42423

Alternatively, the answer can be obtained be using the three mutually exclusive
outcomes used in the solution to Question 122B.

  0.02
1: 
0
e 0.05t t pxy00  x03 t: y t dt   e 0.05t e 0.10t 0.02dt 
0 0.15
 0.13333

 
 e 0.05t t pxy00  x01t: y t  e 0.05 r r p11
x  t : y  t  x  t  r : y  t  r drdt
13
0 0
2 and 3:   0.04 0.06
  e 0.05t e 0.10t 0.04  e 0.05 r e 0.06 r 0.06drdt   0.14545
0 0 0.15 0.11
The solution is 0.13333 + 2(0.14545) = 0.42423.

The fact that the double integral factors into two components is due to the
memoryless property of the exponential transition distributions.

MLC‐09‐11 67
Question #123
Answer: B

5
q35:45  5 q35  5 q45  5 q35:45
 5 p35q40  5 p45q50  5 p35:45q40:50
b g
 5 p35q40  5 p45q50  5 p35  5 p45 1  p40:50
 p q  p q  p  p b1  p p g
5 35 40 5 45 50 5 35 5 45 40 50

 b0.9gb.03g  b0.8gb0.05g  b0.9gb0.8g 1  b0.97gb0.95g

 0.01048

Alternatively,

6 p35  5 p35  p40   0.90 1  0.03  0.873

6 p45  5 p45  p50   0.80 1  0.05   0.76

5 q35:45  5 p35:45  6 p35:45

  5 p35  5 p45  5 p35:45    6 p35  6 p45  6 p35:45 
  5 p35  5 p45  5 p35  5 p45    6 p35  6 p45  6 p35  6 p45 
  0.90  0.80  0.90  0.80    0.873  0.76  0.873  0.76 
 0.98  0.96952
 0.01048

Question #124 – Removed

Question #125 - Removed

MLC‐09‐11 68
Question #126
Answer: E

Let Y = present value random variable for payments on one life

S   Y  present value random variable for all payments
E Y  10a40  148166
.

Var Y  10 2 d 2
A40  A40
2
i
2
d
d
 100 0.04863  016132
. 2
106
. / 0.06 ib g 2

 70555
.
E S  100 E Y  14,816.6
Var S  100 Var Y  70,555
Standard deviation S  70,555  265.62

By normal approximation, need

E [S] + 1.645 Standard deviations = 14,816.6 + (1.645) (265.62)
= 15,254

Question #127
Answer: B

Initial Benefit Prem 

e
5 A30  4 A301 :20 j
5a30:35  4a30:20


b
5 010248
. g b
 4 0.02933 g
b g b
5 14.835  4 11959
. g
0.5124  011732
. 0.39508
   0.015
74.175  47.836 26.339

Where
1
A30:20 e j
 A30:20  A30:201  0.32307  0.29374  0.02933
and
1  A30:20 1  0.32307
a30:20    11959
d FG IJ
0.06
.
H K
106
.

Comment: the numerator could equally well have been calculated as

A30  4 20 E30 A50 = 0.10248 + (4) (0.29374) (0.24905) = 0.39510

MLC‐09‐11 69
Question #128
Answer: B

0.75 b gb g
px  1  0.75 0.05
 0.9625
0.75 b gb g
p y  1  0.75 .10
 0.925
0.75 qxy  1 0.75 pxy

 1 b p gd p i since independent
0.75 x 0.75 y

= 1- b0.9625gb0.925g
 01097
.

Question #129
Answer: D

Let G be the expense-loaded premium.

Expected present value (EPV) of benefits = 100,000 A35
EPV of premiums = Ga35
EPV of expenses =  0.1G  25   2.50 100   a35
Equivalence principle:
Ga35  100,000 A35   0.1G  25  250  a35
A35
G  100,000  0.1G  275
a35
0.9G  100,000 P35  275

G
100  8.36   275
0.9
 1234

MLC‐09‐11 70
Question #130
Answer: A

The person receives K per year guaranteed for 10 years  Ka10  8.4353K
The person receives K per years alive starting 10 years from now 10 a40 K

b
*Hence we have 10000  8.435310 E40a50 K g
Derive 10 E40 :

A40  A4010
1
:
 b 10 E40 gA50

A40  A40
1
:10 0.30  0.09
10 E40    0.60
A50 0.35

1  A50 1  0.35
Derive a50    16.90
d .04
104
.

Plug in values:
c b gb
10,000  8.4353  0.60 16.90 K gh
 18.5753K
K  538.35

MLC‐09‐11 71
Question #131
Answer: D


z11 FG1  t IJ dt  t  t 2 11
STANDARD: e25:11 
0 H 75K 2  75 0
 101933
.

e z
1
 0.1ds
MODIFIED: p25 0
 e.1  0.90484


: 
e2511 z1
p dt
0 t 25
 p25 z FGH
10
0
1
t
74
dt
IJ
K
 z 1 0.1t
0
e
IJ
dt  e 0.1
K z FGH
10
0
1
t
74
dt

1 e F t I
0.1
 e Gt 
2 10

H 2  74JK
0.1

01
. 0

 0.95163  0.90484b9.32432g  9.3886

Difference =0.8047

Question #132
Answer: B

Comparing B & D: Prospectively at time 2, they have the same future benefits. At
issue, B has the lower benefit premium. Thus, by formula 7.2.2, B has the higher
reserve.

Comparing A to B: use formula 7.3.5. At issue, B has the higher benefit premium.
Until time 2, they have had the same benefits, so B has the higher reserve.

Comparing B to C: Visualize a graph C* that matches graph B on one side of t=2

and matches graph C on the other side. By using the logic of the two preceding
paragraphs, C’s reserve is lower than C*’s which is lower than B’s.

Comparing B to E: Reserves on E are constant at 0.

MLC‐09‐11 72
Question #133
Answer: C

Since only decrements (1) and (2) occur during the year, probability of reaching
the end of the year is
b1g  p60
p60 b gb g
b 2g  1  0.01 1  0.05  0.9405

Probability of remaining through the year is

b1g  p60
p60 b 2g  p60 b gb gb
b3g  1  0.01 1  0.05 1  010 g
.  0.84645

Probability of exiting at the end of the year is

q60b3g  0.9405  0.84645  0.09405

Question #134 - Removed

Question #135
Answer: D

EPV of regular death benefit  zb


gd ib gd i
100000 e- t 0.008 e-  t dt

zb
0



0
gd ib gd i
100000 e-0.06t 0.008 e-0.008t dt
b g
 100000 0.008 / 0.06  0.008  11,764.71

EPV of accidental death benefit  zb

30
gd ib gd i
100000 e- t 0.001 e-  t dt

zb
0


30
0
gd ib gd i
100000 e-0.06t 0.001 e-0.008t dt
 100 1  e-2.04 / 0.068  1,279.37
Total EPV  11765  1279  13044

MLC‐09‐11 73
Question #136
Answer: B

b gb g b gb
l 60 .6  .6 79,954  .4 80,625 g
 80,222.4
b gb g b gb
l 60 1.5  .5 79,954  .5 78,839 g
 79,396.5

80222.4  79,396.5
0.9 q 60 .6 
80,222.4
 0.0103

Question #137 - Removed

Question #138
Answer: A

b g  qb1g  qb2g  0.34

q40 40 40

b g p40
 1  p40 b g
1 2

 b 2g
0.34  1  0.75 p40

 b 2g  0.88
p40
 b 2g  012
q40 . y

 b 2g  2 y  0.24
q41
b gb g
b g  1  0.8 1  0.24  0.392
q41
l b g  2000b1  0.34gb1  0.392g  803

42

MLC‐09‐11 74
Question #139
Answer: C

bg
Pr L  '  0  0.5
Pr 10,000 v K 1   ' aK 1  0  0.5
From Illustrative Life Table, 47 p30  0.50816 and 48 p30 .47681

Since L is a decreasing function of K, to have

b g
Pr L    0  0.5 means we must have L    0 for K  47.b g
b g
Highest value of L   for K  47 is at K = 47.
b g
L   at K  47  10,000 v 471    a471
 609.98  16.589 
b g b
L    0  609.98  16.589    0 g
609.98
    36.77
16.589

Question #140
Answer: B

b g
Pr K  0  1  px  01
.
Prb K  1g  p  p  0.9  0.81  0.09
1 x 2 x

Prb K  1g  p  0.81
2 x

E bY g = .1  1.09  187
. .81  2.72  2.4715
E dY i = .1  1 .09  187
2 2
. .81  2.72  6.407
2 2

VARbY g  6.407  2.4715  0.299 2

MLC‐09‐11 75
Question #141
Answer: E

E  Z   b Ax
since constant force Ax   /(    )
b b  0.02 
E(Z)    b/3
   0.06 
Var  Z   Var b v T   b 2 Var v    b 2  2
Ax  Ax2 
     
2
b  2
 
   2      
 
 2 1  4 
 b2     b2  
10 9   45 

Var  Z   E  Z 

4 b
b2   
 45  3
4 1
b     b  3.75
 45  3

Question #142
Answer: B

b g b g c AA h
In general Var L  1  P
2 2
x
2
x

c h
Here P Ax 
1
ax
1
   .08 .12
5
F .12 I 2

So Var b Lg  G 1  J c A  A h .5625
H .08K
2 2
x x

F b.12gIJ c A  A h
and Var b L *g  G 1 
5
2

H .08 K
4 2 2
x x

So Var b L *g 
b1  g b0.5625g .744
15 2
8

b1  g 12 2
8

E L *  A .15a  1  a b .15g  1  5b.23g  .15

x x x

E L *  Var b L *g .7125

MLC‐09‐11 76
Question #143 - Removed

Question #144
Answer: B

Let l0b g  number of students entering year 1

superscript (f) denote academic failure
superscript (w) denote withdrawal
subscript is “age” at start of year; equals year - 1

p0b g  1  0.40  0.20  0.40

l2b g  10 l2b g q2b f g  q2b f g  01

.

q2b w g  q2b g  q2b f g  10 b

.  0.6  01 g
.  0.3

l1b gq1b f g  0.4 l1b g 1  q1b f g  q1b w g

e j
q1b f g  0.4 1  q1b f g  0.3
e j
q1b f g 
0.28
 0.2
14
.

p1b g  1  q1b f g  q1b wg  1  0.2  0.3  0.5

b g  q b w g  p b  g q b w g  p b g p b g q b w g
w
3 q0 0 0 1 0 1 2

b gb g b gb gb g
 0.2  0.4 0.3  0.4 0.5 0.3

 0.38

MLC‐09‐11 77
Question #145
Answer: D

e25  p25 (1  e26 )

e26N  e26
M
due to having the same 

p25N  exp     25M t  0.1(1  t )dt   p25

1
M 0.05
e
 0 
e25N  p25N (1  e26 )  e 0.05 p25
M
(1  e26 )  0.951e25M
 9.51

Question #146
Answer: D

E YAGG  100E Y  100 10,000 a xb g

F c1  A hI  10,000,000
 100b10,000gG
H  JK
x

 Y  Var Y  b10,000g 1 c A  A h
2
2
2
x x
2


b10,000g b0.25g  b016
. g  50,000


b
 AGG  100 Y  10 50,000  500,000 g
0.90  Pr
LM F  E Y AGG
0
OP
N  AGG Q
F  E YAGG
 1282
. 
 AGG
.  AGG  E YAGG
F  1282

F  1282
. b g
500,000  10,000,000  10,641,000

MLC‐09‐11 78
Question #147
Answer: A

1
A30:3  1000vq30  500v 2 1 q30  250v3 2 q30
2 3
 1  1.53   1   1.61   1   1.70 
 1000     500    0.99847     250    0.99847  0.99839   
 1.06  1000   1.06   1000   1.06   1000 

 1.4434  0.71535  0.35572  2.51447

1
 1 2  0.00153 
 2 
1 1
a30:1  1 2  1 2   1  2 q30     0.97129   1  
1
 1.06  2 2  2 
1 1
   0.97129  0.999235 
2 2
 0.985273
2.51447
Annualized premium 
0.985273
 2.552

2.552
Each semiannual premium 
2
 1.28

Question: #148
Answer: E

b DAg 1
80:20 eb g j
 20vq80  vp80 DA 1
8119
:

q80 .2
20 .2
13 
bg
 b g
.8
DA 8119
1
:
106
. 106
.

b g
 DA 8119
1 
b g . 4
13 106
 12.225
:
.8
q80 .1 b g b gb
DA801 :20  20v .1  v .9 12.225 g
2.9b12.225g
  12.267
106
.

Question #149 - Removed

MLC‐09‐11 79
Question #150
Answer: A

px  exp 
LM z t ds OP
 exp ln 100  x  s b g t

100  x  t
t
N 0 100  x  s Q 0
100  x

   
e50:60  e50  e60  e50:60

e50 z
50 50  t
dt 
1 LM
50t 
t2 OP  25 50

0 50 50 N 2 Q 0

1 L t O
z
2 40
40  t
M 40t  P  20
 40
e60 dt 
0 40 40 N 2Q 0

z G
F 50  t IJ FG 40  t IJ dt  z 1 d2000  90t  t idt
40 40

H 50 K H 40 K
2
e50:60
0 20000

1 F I  14.67
3
 G
2000 H
2000t  45t 
3 JK
t 2 40
0


e50:60  25  20  14.67  30.33

Question #151
Answer: C

Ways to go 0  2 in 2 years
0  0  2; p   0.7  0.1  0.07
0  1  2; p   0.2  0.25   0.05
0  2  2; p   0.11  0.1

Total = 0.22
Binomial m = 100 q = 0.22
Var = (100) (0.22) (0.78) = 17

MLC‐09‐11 80
Question #152
Answer: A

For death occurring in year 2

0.3  1000
EPV   285.71
1.05
For death occurring in year 3, two cases:

(1) State 2  State 1  State 4: (0.2  0.1) = 0.02

(2) State 2  State 2  State 4: (0.5  0.3) = 0.15
Total 0.17

0.17  1000
EPV =  154.20
1.052

Total. EPV = 285.71 + 154.20 = 439.91

Question #153 - Removed

Question #154
Answer: C

Let  denote the single benefit premium.

  30 a35   A351 :30

 30 a35

e A
35:30
 A35
1
:30 j
a65

1  A35
1
:30
1  A35
1
:30


b.21.07g9.9
b1.07g
1.386

.93
 1.49

MLC‐09‐11 81
Question #155
Answer: E

.5  e z

0 .4
e F e2 x j dx
0.4 p0
0

LM e22x OP.4
.4 F 
e N Q0
.4 F F e 2 1 I
0.8

e H K
.5  e .4 F .6128

bg
 ln .5  .4 F .6128
 .6931  .4F .6128
 F  0.20

Question #156
Answer: C

 9V  P  1.03  qx 9b  1  qx9  10V

 qx 9  b  10V   10V
 3431.03  0.02904 872   10V
 10V  327.97
b   b  10V   10V  872  327.97  1199.97
 1   1 0.03 
P  b   d   1200   
 ax   14.65976 1.03 
= 46.92
9V  benefit reserve at the start of year ten – P = 343 – 46.92 = 296.08

Question #157
Answer: B

d = 0.06  V = 0.94

Step 1 Determine px
668  258vpx  1000vqx  1000v 2 px  p x 1  qx 1 
668  258  0.94  px  1000  0.94  1  px   1000  0.8836  px 1
668  242.52 px  940 1  px   883.6 px
px  272 / 298.92  0.91

MLC‐09‐11 82
Step 2 Determine 1000 Px:2
668  258  0.94  0.91  1000 Px:2 1   0.94  0.91 

1000 Px:2 
 220.69  668  479
1.8554

Question #158
Answer: D

100,000  IA 40:10  100,000 v p40  IA 41:10  10 v10 9 p41 q50   A40:10

1

1

1
100,000  see comment 
  8,950,901  
 10   
0.16736  
0.99722  9, 287, 264 
 100,000   0.00592 
1.06  1.0610 
 
 
  0.02766  100,000 

=15,513

1
Where A40:10  A40  10 E40 A50
 0.16132   0.53667  0.24905 
 0.02766

Comment: the first line comes from comparing the benefits of the two insurances.
At each of age 40, 41, 42,…,49  IA40:10 provides a death benefit 1 greater than
1

 IA141:10 . 1
Hence the A40:10 term. But  IA41:10 provides a death benefit at 50 of 10,
1

while  IA40:10 provides 0. Hence a term involving 9 q41  9 p41 q50 . The various v’s
1

and p’s just get all expected present values at age 40.

MLC‐09‐11 83
Question #159
Answer: A

1000 1V   1  i   qx 1000  1000 1V 

40  80 1.1  q x 1000  40 
88  40
qx   0.05
960


G  expenses 1  i   1000qx
1 AS
px


100   0.4 100   1.1  1000  0.05
1  0.05
60 1.1  50
  16.8
0.95

Question #160
Answer: C

At any age, px    e 0.02  0.9802

1

qx    1  0.9802  0.0198 , which is also qx  , since decrement 2 occurs only at the
1 1

end of the year.

Expected present value (EPV) at the start of each year for that year’s death
benefits
= 10,000*0.0198 v = 188.1

px   0.9802*0.96  0.9410



Ex  px v  0.941 v  0.941*0.95  0.8940



EPV of death benefit for 3 years 188.1  E40 *188.1  E40 * E41 *188.1  506.60

MLC‐09‐11 84
Question #161
Answer: B

40

 t p30dt

e30:40 
0

  30  t
40
    30
dt
0

t2 40
t
2   30  0

800
 40 
  30
 27.692

  95

Or, with a linear survival function, it may be simpler to draw a picture:

0 p30  1 40 p30
30 70


e30:40  area =27.692  40
1  40 p30 
2
40 p30  0.3846
  70
 0.3846
  30
  95
65  t
t p30 
65

Var  E T    E T  
2 2

MLC‐09‐11 85
Using a common formula for the second moment:

Var T    2 t t p x dt  ex2

0
65
 t   65  t 
 2  t  1  dt    1   dt 2

0 
65   0  65 
 2*  2112.5  1408.333   65  65 / 2 
2

 1408.333  1056.25  352.08

Another way, easy to calculate for a linear survival function is

 
  2
Var T    t 2 t px  x  t  dt  t t px  x  t  dt
0 0
2
65 1  65 1 
  t2  dt    t  dt 
0 65  0 65 
2
t3 65  t2 65 
  
3  65 0
 2  65 0

 1408.33   32.5  352.08
2

With a linear survival function and a maximum future lifetime of 65 years, you
probably didn’t need to integrate to get E T30   e30  32.5


Likewise, if you realize (after getting   95 ) that T30 is uniformly distributed on (0,
65), its variance is just the variance of a continuous uniform random variable:

Var 
 65  0 
2
 352.08
12

Question #162
Answer: E

218.15 1.06   10,000  0.02 

1V   31.88
1  0.02
 31.88  218.151.06    9,000  0.021  77.66
2V 
1  0.021

MLC‐09‐11 86
Question #163
Answer: D


ex  e y   t px  0.95  0.952  ...
k 1
0.95
  19
1  0.95
exy  p xy  2 p xy  ...
 1.02  0.95  0.95   1.02  0.95  0.95  ...
2 2

1.02  0.95 
2
 1.02 0.95  0.95  ... 
2 4
 9.44152
1  0.952
exy  ex  e y  exy  28.56

Question #164 - Removed

Question #165 - Removed

Question #166
Answer: E


ax   e0.08t dt  12.5
0
 3
Ax   e 0.08t  0.03 dt   0.375
0 8
 3
2
Ax   e 0.13t  0.03 dt   0.23077
0 13

  1 2
Ax   Ax    400 0.23077   0.375    6.0048
2
 aT  Var  aT  
2

 2  
  
 
Pr  aT  ax   aT   Pr  aT  12.5  6.0048
1  vT 
 Pr   6.4952   Pr 0.67524  e0.05T 
 0.05 
  ln 0.67524 
 Pr T 
 0.05   Pr T  7.85374
 e0.037.85374  0.79

MLC‐09‐11 87
Question #167
Answer: A

 
 e     e 0.25  0.7788
 0.05 5
5 p50
1 5 1  0.03 0.02 t 5
5 q55   55 t  e dt    0.02 / 0.05  e0.05t
0 0


 0.4 1  e 0.25

= 0.0885

   
Probability of retiring before 60  5 p50  5 q55
1

= 0.7788*0.0885
= 0.0689

MLC‐09‐11 88
Question #168
Answer: C

Complete the table:

l81  l80  d80  910
l82  l81  d81  830 (not really needed)
 1 1 
e x  ex   since UDD 
2 2 

e x  e x  1 2
  l  l  l  1
e x   81 82 83 
 l80  2
 
e  1  l  l  l   Call this equation (A)
 80 2  80 81 82
 
 
 e  1  l  l   Formula like (A), one age later. Call this (B)
 81 2  81 82
 

Subtract equation (B) from equation (A) to get

   
1 1
l81  e80   l80  e81   l81
 
 2  2
   
 
910  8.5  0.51000  e81  0.5 920
 
 8000  460  910
e81   8.21
920

MLC‐09‐11 89
Alternatively, and more straightforward,

910
p80   0.91
1000
830
p81   0.902
920
830
p81   0.912
910

e80  1 q 80  p 80 1  e 81 


2    
 
1
where q80 contributes since UDD
2
1   
8.5  1  0.91   0.91 1  e81 
2  

e81  8.291

 1   
e81  q81  p81 1  e82 
2  
1   
8.291  1  0.912   0.912 1  e82 
2  

e82  8.043
 1   
e81  q81  p81  1  e82 
2  
1
 1  0.902    0.902 1  8.043
2
 8.206


Or, do all the recursions in terms of e, not e , starting with e80  8.5  0.5  8.0 , then

final step e81  e81  0.5

MLC‐09‐11 90
Question #169
Answer: A

T px t t px vt vt t px
0 0.7 1 1 1
1 0.7 0.7 0.95238 0.6667
2  0.49 0.90703 0.4444
3   – 

2
From above ax:3   vt t px  2.1111
t 0

 a   1 
1000 2Vx:3  1000 1  x  2:1   1000 1    526
 ax:3   2.1111 
 

Alternatively,

1
Px:3   d  0.4261
ax:3


1000 2Vx:3  1000 v  Px:3 
 1000  0.95238  0.4261
 526

You could also calculate Ax:3 and use it to calculate Px:3 .

MLC‐09‐11 91
Question #170
Answer: E

Let G be the gross premium.

Expected present value (EPV) of benefits = 1000A50 .
EPV of expenses, except claim expense = 15  1 a50
EPV of claim expense = 50A50 (50 is paid when the claim is paid)
EPV of premiums = G a50
Equivalence principle: Ga50  1000 A50  15  1 a50  50 A50
1050 A50  15  a50
G
a50
For the given survival function,
1 50 k 1 50 k a50 1  1.0550
A50   50k 1 50k 100 
l50 k 1
v (l  l )  v (2) 
50

0.05(50)
 0.36512
k 1
1  A50
a50   13.33248
d

Solving for G, G = 30.88

Question #171
Answer: A

p50  e     0.8187
 0.05 4
4

p50  e     0.6065
 0.05 10
10

p60  e     0.7261
 0.04 8
8

18 p50   10 p50  8 p60   0.6065  0.7261

 0.4404
414 q50  4 p50  18 p50  0.8187  0.4404  0.3783

MLC‐09‐11 92
Question #172
Answer: D

a40:5  a40  5 E40 a45

 14.8166   0.73529 14.1121
 4.4401
 a40:5  100,000 A45 v5 5 p40    IA 40:5
1


  100,000 A45  5 E40 / a40:5   IA 40:5
1

 100,000  0.20120  0.73529  /  4.4401  0.04042 
 3363

Question #173
Answer: B

Calculate the probability that both are alive or both are dead.
P(both alive) = k p xy  k p x  k p y
P(both dead) = k qxy  k qx k q y
P(exactly one alive) = 1  k pxy  k qxy
Only have to do two year’s worth so have table

Pr(both alive) Pr(both dead) Pr(only one alive)

1 0 0
(0.91)(0.91) = 0.8281 (0.09)(0.09) = 0.0081 0.1638
(0.82)(0.82) = 0.6724 (0.18)(0.18) = 0.0324 0.2952

 1 0.8281 0.6724   0 0.1638 0.2952 

EPV Annuity  30, 000    2 
 20, 000      80, 431
 1.05 1.05   1.05 1.052 
0 1 0
1.05 1.051

Alternatively,

0.8281 0.6724
axy:3  1    2.3986
1.05 1.052
0.91 0.82
ax:3  ay:3  1    2.6104
1.05 1.052
EPV  20, 000 ax:3  20, 000 ay:3  10, 000 axy:3
(it pays 20,000 if x alive and 20,000 if y alive, but 10,000 less than that if
both are alive)
  20,000  2.6104    20,000  2.6104   10,000  2.3986  80, 430

MLC‐09‐11 93
Question #174
Answer: C

Let P denote the gross premium.

 
P  ax   e t e   t dt   e 0.05t dt  20
0 0

E  L  axIMP P
10 
0.0310  0.0210 
axIMP  e 0.03t 0.02t
e dt  e e e
0.03t 0.01t
e dt
0 0

l  e 0.5 e 0.5
   23
0.05 0.04
E  L   23  20  3
E  L 3
  15%
P 20

Question #175
Answer: C

1
A30:2  1000vq30  500v 2 1 q 30
2
 1   1 
 1000    0.00153  500    0.99847  0.00161
 1.06   1.06 
 2.15875
Initial fund  2.15875 1000 participants = 2158.75

Let Fn denote the size of Fund 1 at the end of year n.

F1  2158.75 1.07   1000  1309.86

F2  1309.86 1.065   500  895.00

Expected size of Fund 2 at end of year 2 = 0 (since the amount paid was the
single benefit premium). Difference is 895.

MLC‐09‐11 94
Question #176
Answer: C

Var  Z   E  Z 2   E  Z 
2

v b 
 
E Z    t
t t px  x t dt   e0.08t e0.03t e0.02t  0.02  dt
0 0
 0.02 2
  0.02  e0.07t dt  
7
0 0.07

e 
 2 
E  Z 2   
0
 vt bt  t px  x t dt  
0
0.05t 2
e0.02t  0.02  dt

  0.02 e0.12t  x t dt  2 1
0 12 6
1 2
  1 4
2
Var  Z       0.08503
6 7 6 49

Question #177
Answer: C

0.1
From Ax  1  d ax
 we have Ax  1   8   311
1.1
0.1
Ax 10  1  6   511
1.1
Ax  Ax  i


3 0.1
Ax    0.2861
11 ln 1.1
5 0.1
Ax 10    0.4769
11 ln 1.1

10V  Ax 10  P  Ax   ax 10

 0.2861 
 0.4769   6
 8 
= 0.2623

There are many other equivalent formulas that could be used.

MLC‐09‐11 95
Question #178
Answer: C


Regular death benefit   100,000  e0.06t  e0.001t 0.001dt
0

 0.001 
 100,000  
 0.06  0.001 

 1639.34

  100,000 e0.06t e0.001t  0.0002  dt

10
Accidental death
0

10
 20 e0.061t dt
0

1  e0.61 
 20    149.72
 0.061 

Expected Present Value  1639.34  149.72  1789.06

Question #179
Answer: C

00
p61  560 / 800  0.70
01
p61  160 / 800  0.20
10
p61  0, once dead, stays dead
11
p61  1, once dead by cause 1, stays dead by cause 1

00
p61  p61
01
 p61
10
 p11
61  0.70  0.20  0  1  1.90

MLC‐09‐11 96
Question #180
Answer: C

The solution requires determining the element in row 2 column 3 of the matrix
obtained by multiplying the first three transition probability matrices. Only the
second row needs to be calculated. After one period, the row is [0.0 0.7 0.3]. For
the second period, multiply this row by the columns of Q1 . The result is [0.07 0.49
0.44]. For the third period, multiply this row by the columns of Q2 . The result is
[0.1645 0.3465 0.4890] with the final entry providing the answer.

An alternative is to enumerate the transitions that result in extinction. Label the

states S (sustainable), E (endangered) and X (extinct). The possible paths are:

EX – 0.3
EEX – 0.7(0.2) = 0.14
EEEX – 0.7(0.7)(0.1) = 0.049

Total = 0.489

Note that if the species is not extinct by time 3, it will never become extinct.

Question #181
Answer: B

Pr(dies in year 1)  p 02  0.1

Pr(dies in year 2)  p 00 p 02  p 01 p12  0.8(0.1)  0.1(0.2)  0.10
Pr(dies in year 3)  p 00 p 00 p 02  p 00 p 01 p12  p 01 p11 p12  p 01 p10 p 02  0.095
EPV (benefits)  100, 000[0.9(0.1)  0.92 (0.10)  0.93 (0.095)]  24, 025.5

Pr(in State 0 at time 0)  1

Pr(in State 0 at time 1)  p 00  0.8
Pr(in State 0 at time 2)  p 00 p 00  p 01 p10  0.8(0.8)  0.1(0.1)  0.65
EPV ($1 of premium)  1  0.9(0.8)  0.92 (0.65)  2.2465

Benefit premium = 24,025.5/2.2465 = 10,695.

Question #182 - Removed

Answer: A

Question #183 - Removed

MLC‐09‐11 97
Question #184
Answer: B

1000 P45a45:15   a60:15  15 E45  1000 A45

A45
1000  a45  15 E45 a60     a60  15 E60 a75  15 E45   1000 A45
a45

201.20
14.1121
14.1121   0.72988 0.5108111.1454 
 11.1454   0.68756  0.39994  7.2170     0.72988  0.51081  201.20
where 15 E x was evaluated as 5 Ex  10 Ex 5

14.2573  9.9568     3.4154   201.20

  17.346

Question #185
Answer: A

1V   0 V    1  i   1000  1V  1V  qx
2V   1V   1  i    2000  2V  2V  qx 1  2000
  1  i   1000q   1  i   2000q  2000
x x 1

  1.08  1000  0.1    1.08  2000  0.1  2000

  1027.42

MLC‐09‐11 98
Question #186
Answer: A

Let Y be the present value of payments to 1 person.

Let S be the present value of the aggregate payments.

E Y   500 ax  500

1  Ax   5572.68
d

 Y  Var Y    500 2
1
d2
 2

Ax  Ax2  1791.96

S  Y1  Y2  ...  Y250
E  S   250 E Y   1,393,170
 S  250   Y  15.811388 Y  28,333
 S  1,393,170 F  1,393,170 
0.90  Pr  S  F   Pr  
 28,333 28,333 
 F  1,393,170 
 Pr  N  0,1 
 28,333 
0.90  Pr  N  0,1  1.28
F  1,393,170  1.28  28,333
=1.43 million

Question #187
Answer: A

q41 1 bg
q  b1g  1  p b1g  1  e p b g j
bg
q41 
41 41 41

l41   l40   d 40   d 40   1000  60  55  885

  1 2

d 41   l41   d 41   l42   885  70  750  65

1  2 

q41 
1
65
p41  
 750

q41  135

885

65

 1  1  
750  135
q41   0.0766
 885 

MLC‐09‐11 99
Question #188
Answer: D


 t 
S0 (t )  1  
 
d 
t  log  S0 (t )  
dt  t

 x  t  x
ex  

1   dt 
0   x  1

 1  
e0new   old  new   new  2 old  1
2  1  1
2  1 9 
old old
 0new       old  4
 4 

Question #189
Answer: C

Constant force implies exponential lifetime

2
1
Var T   E T    E T 
2 2 1
2
 2     2  100
  
  0.1


E  min T ,10     t  0.1e .1t dt   10  0.1e.1t dt
10

0 10
.1t .1t 10 
 te  10e  10e.1t
0 10
1 1 1
 10e  10e  10  10e
 10 1  e 1   6.3

MLC‐09‐11 100
Question #190
Answer: A

% premium amount for 15 years


Gax:15  
 100,000 Ax  0.08G  0.02Gax:15    x  5   5ax 
 
Per policy for life

4669.95 11.35  51, 481.97   0.08  4669.95   0.02 11.35  4669.95     x  5   5ax 

1  Ax 1  0.5148197
ax    16.66
d 0.02913

53,003.93  51, 481.97  1433.67   x  5  83.30

4.99   x  5 
x  9.99

The % of premium expenses could equally well have been expressed as

0.10G  0.02G a x:14 .
The per policy expenses could also be expressed in terms of an annuity-
immediate.

MLC‐09‐11 101
Question #191
Answer: D

For the density where Tx  Ty ,

 
40 y 50 40
Pr Tx  Ty    0.0005dxdy   x0 0.0005dxdy
y 0 x 0 y  40

40 y 50 40
 0.0005 x dy   0.0005 x dy
y 0 0 y  40 0

40 50
  0.0005 ydy   0.02 dy
0 y  40

0.0005 y 2 40 50
  0.02 y
2 0 40

 0.40 + 0.20 = 0.60

For the overall density,

 
Pr Tx  Ty  0.4  0  0.6  0.6  0.36
where the first 0.4 is the probability that Tx  Ty and the first 0.6 is the probability
that Tx  Ty .

Question #192
Answer: B

1
The conditional expected value of the annuity, given  , is .
0.01  
The unconditional expected value is
0.02 1  0.01  0.02 
ax  100  d   100 ln    40.5
0.01 0.01    0.01  0.01 

100 is the constant density of  on the interval  0.01,0.02 . If the density were not
constant, it would have to go inside the integral.

MLC‐09‐11 102
Question #193
Answer: E

 x
Recall ex 
2
   
ex:x  ex  ex  ex:x
 x  t  t 
ex:x  

1   1   dt
0    x    y 

Performing the integration we obtain

 x
ex:x 
3
 2   x 
ex:x 
3

2   2 a  2   3a 
(i)  3  2  7 a
3 3
2 2   3a 
(ii)   a   k 
3 3
3.5a  a  k  3.5a  3a 
k 5

The solution assumes that all lifetimes are independent.

Question #194
Answer: B

Although simultaneous death is impossible, the times of death are dependent as

the force of mortality increases after the first death. There are two ways for the
benefit to be paid. The first is to have (x) die prior to (y). That is, the transitions are
State 0 to State 2 to State 3. The EPV can be written with a double integral

 
0
e 0.04t t pxy00  x02t: y t  e 0.04 r r px22t: y t  x23t  r: y t  r drdt
0
  0.06 0.10
  e 0.04t e 0.12t 0.06  e 0.04 r e 0.10 r 0.10drdt   0.26786
0 0 0.16 0.14

By symmetry, the second case (State 0 to State 1 to State 3) has the same EPV.
Thus the total EPV is 10,000(0.26786+0.26786) = 5,357.

MLC‐09‐11 103
Question #195
Answer: E

Let k p0  Probability someone answers the first k problems correctly.

p0   0.8   0.64 p0   0.8  0.41
2 4
2 4

p0:0   2 p0   0.642  0.41 p0:0   0.41  0.168

2 2
2 4

2 p0:0  2 p0  2 p0  2 p0:0  0.87 4 p0:0  0.41  0.41  0.168  0.652

Prob(second child loses in round 3 or 4) = 2 p0:0  4 p0:0

= 0.87-0.652
= 0.218

2 p0:0  4 p0:0
Prob(second loses in round 3 or 4 second loses after round 2) =
2 p0:0
0.218
=  0.25
0.87

Question #196
Answer: E

If (40) dies before 70, he receives one payment of 10, and Y = 10. The probability
of this is (70 – 40)/(110 – 40) = 3/7

If (40) reaches 70 but dies before 100, he receives 2 payments.

Y  10  20v30  16.16637
The probability of this is also 3/7.

If (40) survives to 100, he receives 3 payments.

Y  10  20v30  30v60  19.01819
The probability of this is 1 – 3/7 – 3/7 = 1/7
E Y    3/ 7  10   3/ 7  16.16637  1/ 7  19.01819  13.93104
 
E Y 2   3/ 7  102   3/ 7  16.16637 2  1/ 7  19.018192  206.53515

 
Var Y   E Y 2   E Y    12.46
2

Since everyone receives the first payment of 10, you could have ignored it in the
calculation.

MLC‐09‐11 104
Question #197
Answer: C

 
2
E  Z    v k 1bk 1 k px qx  k
k 0

 v  300   0.02  v 2  350  0.98  0.04   v3 400  0.98  0.96  0.06  
 36.8

   
2
E Z 2   v k 1bk 1
2
k px qx  k
k 0

 v 2  300   0.02  v 4  350   0.98  0.04   v 6 4002  0.98  0.96  0.06

2 2

 11,773
 
Var  Z   E Z 2  E  Z 
2

 11,773  36.82
 10, 419

Question #198
Answer: A

Benefits + Expenses – Premiums

0 Le  1000v 
3
 0.20G  8   0.06G  2  v   0.06G  2  v 2  G a3

at G  41.20 and i  0.05,

0L  for K  2   770.59

MLC‐09‐11 105
Question #199
Answer: D

P  1000 P40

 235  P 1  i   0.015 1000  255  255 [A]

 255  P 1  i   0.020 1000  272   272 [B]

Subtract [A] from [B]

20 1  i   3.385  17

20.385
1 i   1.01925
20

Plug into [A]  235  P 1.01925  0.015 1000  255  255

255  11.175
235  P 
1.01925

P  261.15  235  26.15

1000 25V 
 272  26.151.01925   0.0251000 
1  0.025

 286

MLC‐09‐11 106
Question #200
Answer: A

1.2

1 1

0.8

0.6
0.5
0.4 0.4

0.2

0 0
0 10 20 30 40 50 60 70 80 90 100

Give Give Give

Given
n n n
x 0 15 25 35 75 90 100
s  x 1 0.70 0.50 0.48 0.4 0.16 0
Linear Linear Linear
Interpolation Interpolation Interpolation

s  90  0.16 32
55 q35  1  1   0.6667
s  35  0.48 48

s  35   s  90  0.48  0.16 32
20 55 q15     0.4571
s 15  0.70 70

20 55 q15 0.4571
  0.6856
55 q35 0.6667

MLC‐09‐11 107
Alternatively,

20 55 q15 20 p15  55 q35

s  35 
  20 p15 
55 q35 55 q35 s 15 
0.48

0.70
 0.6856

Question #201
Answer: A

S0 (80)  1 *  e ^  0.16*50   e ^  0.08*50    0.00932555

2
S0 (81)  1 *  e ^  0.16*51  e ^  0.08*51   0.008596664
2

p80  s  81 / s  80   0.008596664 / 0.00932555  0.9218

q80  1  0.9218  0.078

Alternatively (and equivalent to the above)

For non-smokers, px  e0.08  0.923116
50 px  0.018316
For smokers, px  e0.16  0.852144
50 p x  0.000335

So the probability of dying at 80, weighted by the probability of surviving to 80, is

0.018316  1  0.923116   0.000335  1  0.852144 

= 0.078
0.018316  0.000335

MLC‐09‐11 108
Question #202
Answer: B

lx  d x  d x 
x  1 2

40 2000 20 60
41 1920 30 50
42 1840 40

because 2000  20  60  1920 ; 1920  30  50  1840

Let premium = P
 2000 1920 1840 2 
EPV premiums =   v v  P  2.749 P
 2000 2000 2000 
 20 30 2 40 3 
EPV benefits = 1000  v v  v   40.41
 2000 2000 2000 
40.41
P  14.7
2.749

MLC‐09‐11 109
Question #203
Answer: A

10 
a30   e0.08t e0.05dt  10 Ex  e0.08t e0.08t dt
0 0
10 0.13t 
 e dt  e 1.3
0 e
0.16
dt
0

e0.13t 10 e0.16t
 

 e1.3
0.13 0 0.16 0
1.3
e1.3
1 e
  
0.13 0.13 0.16
= 7.2992

A30   e0.08t e0.05t  0.05  dt  e1.3  e0.16t  0.08  dt
10
0 0

 1 e  1.3
e 1.3
 0.05      0.08 
 0.13 0.13  0.16
 0.41606

= P  A30  
A30 0.41606
  0.057
a30 7.29923
1 1
a40  
0.08  0.08 0.16
A40  1   a40
 1   0.08 / 0.16   0.5
10V  A30   A40  P  A30  a40
 0.5 
 0.057   0.14375
0.16

Question #204
Answer: C

Let T be the future lifetime of Pat, and [T] denote the greatest integer in T. ([T] is
the same as K, the curtate future lifetime).

L  100,000 vT  1600 a T 0  T 10

 1
 100,000vT  1600 a10 10  t  20
1600 a10 20<t

Minimum is 1600 a10 when evaluated at i = 0.05

 12,973

MLC‐09‐11 110
Question #205 - Removed

Question #206
Answer: A

Pax:3  EPV (stunt deaths)

 2500  2486 /1.08  2466 / 1.082   4 /1.08  5 / 1.08 2  6 / 1.08 3 
P   500000  
 2500   2500 
 
P  2.77   2550.68
 p  921

Question #207
Answer: D
80  x2 
s  x  dx 30  10,000 
80 1  dx

e30:50

 30 
s  30   30 
2
1  
 100 
 x3  80
x 
 30,000  30

0.91
33.833

0.91
 37.18

Question #208
Answer: B

A60  v   p60  A61  q60 

 1/1.06    0.98  0.440  0.02 
 0.42566
a60  1  A60  / d
 1  0.42566  /  0.06 /1.06 
 10.147
1000 10V  1000 A60  1000 P50  a60
 425.66  10.147  25
 172

MLC‐09‐11 111
Question #209
Answer: E

Let Y65  present value random variable for an annuity due of one on a single life
age 65.
Thus E Y65   a65
Let Y75  present value random variable for an annuity due of one on a single life
age 75.
Thus E Y75   a75

E (X)  50  2  a65  30 1 a75

 100  9.8969   30  7.217   1206.20
Var (X)  50  22Var Y65   30 1 Var Y75   200 13.2996   30 11.5339   3005.94
2

where Var Y65  

1
d2
 2
A65  A65
2


1
 0.05660  2
0.23603   0.4398 2   13.2996
 

and Var Y75  

1
d2
 2
A75  A75
2
  1
 0.05660  2
0.38681   0.59149 2   11.5339
 

95th percentile  E  X   1.645 Var  X 

 1206.20  1.645  54.826 
 1296.39

Question #210
Answer: C

 1
a   e t  e t dt 
0  
1 1
 0.5    d   100, 000  ln   1  ln   0.5
1
EPV  50, 000 
0.5
 0.045  1 
 100,000  ln  
 0.045  0.5 
 65, 099

Question #211 - Removed

Question #212 - Removed

MLC‐09‐11 112
Question #213 - Removed

Question #214
Answer: A

Let  be the benefit premium at issue.

A45:20  0.20120  0.25634  0.43980   0.25634 

  10,000  10,000 
a45:20 14.1121  0.25634  9.8969 
 297.88

The expected prospective loss at age 60 is

10,00015V45:20  10,000 A60:5  297.88 a60:5
 10,000  0.7543  297.88  4.3407
 6250

1
where A60:5  0.36913  0.68756  0.4398   0.06674
A60:51  0.68756
A60:5  0.06674  0.68756  0.7543
a60:5  11.1454  0.68756  9.8969  4.3407

1
After the change, expected prospective loss = 10,000 A60:5  (Reduced Amount) A60:51
Since the expected prospective loss is the same
6250  10,000  0.06674    Reduced Amount  0.68756 
Reduced Amount = 8119

MLC‐09‐11 113
Question #215
Answer: D

Ax  Ax1:5  5 Ex Ax15 :7  12 Ex Ax 12

where
5 0.04  0.02 
5 Ex  e  0.7408
0.04
Ax1:5   1  0.7408   0.1728
0.04  0.02
7  0.05 0.02 
7 Ex 5  e  0.6126
 0.05 
Ax 1 5 :7    1  0.6126   0.2767
 0.05  0.02 
12 E x  5 E x  7 E x 5  0.7408  0.6126  0.4538
0.05
Ax 12   0.625
0.05  0.03
Ax  0.1728   0.7408 0.2767    0.4538  0.625
= 0.6614

Question #216
Answer: A

EPV of Accidental death benefit and related settlement expense =

0.004
 2000 1.05   89.36
0.004  0.04  0.05
0.04
EPV of other DB and related settlement expense = 1000 1.05    446.81
0.094
EPV of Initial expense = 50
3
EPV of Maintenance expense =  31.91
0.094
100
EPV of future premiums   1063.83
0.094
EPV of 0 L  89.36  446.81  50  31.91  1063.83
 445.75

MLC‐09‐11 114
Question #217
Answer: C

One approach is to enumerate all the paths from state 1 to state 3 and evaluate
their probabilities. The paths are:

113 – (0.8)(0.05) = 0.04

123 – (0.15)(0.05) = 0.0075
133 – (0.05)(1) = 0.05

The sum is 0.0975.

Alternatively, the required probability is in row 1 column 3 of the square of the

transition probability matrix. Multiplying the first row of the matrix by each column
produces the first row of the square, [0.6475 0.255 0.0975]. While only the third
calculation is required, doing all three provides a check as the numbers must sum
to one.

The number of the 50 members who will be in state 3 has a binomial distribution,
so the variance is 50(0.0975)(0.9025) = 4.40.

MLC‐09‐11 115
Question #218
Answer: C

 0.6 0.3 0.1  0.36 0.18 0.46 

   
Q0   0 0 1  Q0  Q1   0 0 1 
 0 1   0 1 
 0  0

 0 0.108 0.892 
 
Q0  Q1  Q2   0 0 1 
0 1 
 0
Note that after four transitions, everyone must be in state 2. For premiums, the
probability is the sum of the first two entries in row 1 (with probability 1 that a
premium is paid at time 0). Then,
APV  Premiums   1  0.9v  0.54v 2  0.108v3  2.35 .

For benefits, the probabilities are the second entry in row 1. Then,
 
APV  Benefits   4 0.3v  0.18v 2  0.108v3  2.01

Difference = 2.35 – 2.01 = 0.34

Note that only the first row of each of the products needs to be calculated.

It is also possible to enumerate the transitions that produce the required events,
though for this problem the list is relatively long:

Premium at time 1:
00 (0.6)
01 (0.3)
Total = 0.9
Premium at time 2:
000 (0.6)(0.6) = 0.36
001 (0.6)(0.3) = 0.18
Total = 0.54
Premium at time 3:
0001 (0.6)(0.6)(0.3) = 0.108
Benefit at time 1:
01 (0.3)
Benefit at time 2:
001 (0.6)(0.3) = 0.18
Benefit at time 3:
0001 (0.6)(0.6)(0.3) = 0.108

MLC‐09‐11 116
Question #219
Answer: E

0.25 1.5 q x  0.25 px  1.75 px

Let  be the force of mortality in year 1, so 3  is the force of mortality in year 2.
Probability of surviving 2 years is 10%
 0.10  px px 1  e  e3  e4 

 ln  0.1
   0.5756
 4
px  e 4 0.5756   0.8660
1
0.25
3 13

  3    0.5756 
1.75 px  px  0.75 px 1  e e 4 e 4  0.1540

0.251.5 q x px  1.75 px 0.866  0.154

1.5 q x  0.25     0.82
0.25

0.25 px 0.25 p x 0.866

Question #220
Answer: C

500 1
 xNS  
500(110  x) 110  x
2
 1  xS   xS 
2 110  x
 lxS  l0S 110  x  [see note below]
2

Thus S lS
 20St 
 90  t  2

t p20
l20 902

NS
l25 t  85  t 
t p25  
NS
NS
l25 85

MLC‐09‐11 117
 85
e20:25  

p20:25dt
0 t


85 85  90  t 2  85  t  dt
t p20 t p25 dt  
S NS
0 0
 90 2 85
1
 90  t   90  t  5  dt
85

2

688,500 0
1  85  90  t 3 dt  5 85  90  t 2 dt
688,500   0 0

85
1    90  t 4 5  90  t 3 
   
688,500  4 3  0

1
  156.25  208.33  16, 402,500  1, 215,000
688,500
= 22.1

[There are other ways to evaluate the integral, leading to the same result].

x 2 
  x 2
0  110t 
dt 2ln 110t   110  x 
The S0 ( x) form is derived as S0 ( x)  e e 0  
 110 
The l x form is equivalent.

Question #221
Answer: B

a30:20  a30:10  10 E30  a40:10

15.0364  8.7201  10 E30  8.6602
 15.0364  8.7201 / 8.6602  0.72935
10 E30
Expected present value (EPV) of benefits =
 1000  A40:10
1
 2000  10 E30  A50:10
1

 16.66  2  0.72935  32.61  64.23

EPV of premiums =   a30:10  2  0.72935  a40:10
   8.7201  2    0.72935  8.6602
 21.3527

  64.23/ 21.3527  3.01

MLC‐09‐11 118
Question #222
Answer: A

1
A25:15
15V  P25 
s25:15  (this is the retrospective reserve calculation)
15 E25
1
P25:15  P25:15  P25:151  0.05332  0.05107
 0.00225
1
A25:15

a25:15
15 E25 1
0.05107  P25:151  
a25:15 
s25:15
1
1
A25:15 A25:15 / a25:15 0.00225
   0.04406
15 E25 15 E25 / a25:15 0.05107
0.01128
s25:15 
P25   0.22087
0.05107
25, 000 15V  25, 000  0.22087  0.04406   25, 000  0.17681  4420

There are other ways of getting to the answer, for example writing
A: the retrospective reserve formula for 15V .
B: the retrospective reserve formula forthe 15th benefit reserve for a 15-year
term insurance issued to (25), which = 0
Subtract B from A to get
P25  P25:15
1

s25:15  15V


Question #223
Answer: C

ILT:
We have p70  6,396,609 / 6,616,155  0.96682
2 p70  6,164,663/ 6,616,155  0.93176

e70:2  0.96682  0.93176  1.89858

CF: 0.93176  2 p70  e2     0.03534
Hence e70:2  p70  2 p71  e   e2   1.89704

DM: Since l70 and 2 p70 for the DM model equal the ILT, therefore l72 for the DM
model

MLC‐09‐11 119
also equals the ILT. For DM we have l70  l71  l71  l72  l71
DM 
 6,390, 409

Hence e70:2  6,390, 409 / 6,616,155  6,164,663 / 6,616,155  1.89763

So the correct order is CF < DM < ILT

You could also work with p’s instead of l’s. For example, with the ILT,

p70  1  0.03318   0.96682

2 p70   0.96682 1  0.03626   0.93176

Note also, since e70:2  p70  2 p70 , and 2 p70 is the same for all three, you could just
order p70 .

Question #224
Answer: D

 
l60  1000
 
 1000  0.99  0.97  0.90   864.27

l61
  
d60  1000  864.27  135.73
   ln  0.9  0.1054
 135.73   135.73   98.05
3
d60
 ln  0.99  0.97  0.9   0.1459
 
 864.27  0.987  0.95  0.80   648.31

l62
  
d61  864.27  648.31  215.96
   ln  0.80  0.2231
 215.96   215.96   167.58
3
d61
 ln  0.987  0.95 0.80   0.2875

   
 d 61  98.05  167.58  265.63
3 3
So d 60

MLC‐09‐11 120
Question #225
Answer: B

t p40  e0.05t
t p50   60  t  / 60
50t  1/  60  t 
10
0.05t
10 10 e 1 e0.05t
0 t p40:50 50t dt  
0 60
dt  
60  0.05  0


20
60
 
1  e 0.5  0.13115

Question #226
Answer: A

3 5
Actual payment (in millions)   2  6.860
1.1 1.1
0.30
q3  1   0.5
0.60

0.30  0.10
1 q3   0.333
0.60
 0.5 0.333 
Expected payment = 10   2 
 7.298
 1.1 1.1 

6.860
Ratio  94%
7.298

Question #227
Answer: E

At duration 1

Kx 1L Prob
1 v  Px1:2 qx 1
>1 0  Px1:2 1  qx 1

So Var  1 L   v 2 qx 1 1  qx 1   0.1296

MLC‐09‐11 121
That really short formula takes advantage of
Var  a X  b   a 2Var ( X ) , if a and b are constants.
Here a = v; b  Px1:2 ; X is binomial with p  X  1  qx 1 .

Alternatively, evaluate Px1:2  0.1303

1L  0.9  0.1303  0.7697 if K x  1
1 L  0  0.1303  0.1303 if K x  1

E  1 L    0.2  0.7697    0.8  0.1303  0.0497

 
E 1 L2   0.2  0.7697    0.8  0.1303  0.1320
2 2

Var  1 L   0.1320   0.0497   0.1295

2

Question #228
Answer: C

 Ax  0.1  13 
P  Ax  
Ax Ax
    0.05
ax  1  Ax  1  Ax 1  13 
  
 
 P  Ax  
2

Var  L   1 
 

  2
Ax  Ax2 
 
2
1  0.05 
 1  
5  0.10 
 2
Ax  Ax2 
 2

Ax  Ax2  0.08888

 
2
Var  L   1  
 
 2
Ax  Ax2 
 
2
16 
 1    0.08888 
45  0.1 
 
2

1   4
 0.1 
  0.1

MLC‐09‐11 122
Question #229
Answer: E


Seek g such that Pr aT  40   g  0.25 
aT is a strictly increasing function of T.

100  40
Pr T  40   60  0.25 since p40   0.25
120  40
60

 Pr aT   40  
 a60  0.25

g  a60  19.00

Question 230
Answer: B

 0.05 
A51:9  1  da51:9  1     7.1  0.6619
 1.05 

11V   2000  0.6619   100  7.1  613.80

 10V  P  1.05  11V  q50  2000  11V 

 10V  100  1.05  613.80   0.011 2000  613.80 

10V  499.09

where q50   0.00110    0.001  0.011

Alternatively, you could have used recursion to calculate A50:10 from A51:9 , then
a50:10
from A50:10 , and used the prospective reserve formula for 10V .

MLC‐09‐11 123
Question #231
Answer: C

1000 A81  1000 A80  1  i   q80 1000  A81 

689.52   679.80 1.06   q80 1000  689.52 

720.59  689.52
q80   0.10
310.48

q80  0.5q80  0.05

1000 A80  1000vq80  vp80 1000 A81

0.05 0.95
 1000   689.52   665.14
1.06 1.06

Question #232
Answer: D

lx  d x  d x 
 1 2

42 776 8 16
43 752 8 16

   
came from lx 1  lx   d x   d x 
  1 2
l42 and l43

EPV Benefits =
  
2000 8v  8v 2  1000 16v  16v 2   76.40
776

 776  752v 
EPV Premiums  34     34 1.92  = 65.28
 776 

2V  76.40  65.28  11.12

MLC‐09‐11 124
Question #233
Answer: B

pxx  1  qxx  0.96

px  0.96  0.9798

px 1:x 1  1  qx 1:x 1  0.99

px 1  0.99  0.995

0.9798  0.9798  0.995 

ax  1  vpx  v 2  2 px  1  
1.05 1.052
 2.8174

0.96  0.96  0.99 

axx  1  vpxx  v 2  2 pxx  1    2.7763
1.05 1.052
EPV = 2000 ax  2000 ax  6000 axx
  4000  2.8174    6000  2.7763
 27,927

Notes: The solution assumes that the future lifetimes are identically distributed.
The precise description of the benefit would be a special 3-year temporary life
annuity-due.

MLC‐09‐11 125
Question #234
Answer: B

px   x   t   qx   0.20

1 1 1
t

px   1  tqx   1  0.08t

2 2
t

px   1  tqx   1  0.125t

3 3
t

qx    px   x   t  dt   t px  t px  t px   xt dt

1 1  1 1 2 3 1 1
0t 0

  1  0.08t 1  0.125t  0.20  dt

1
0

 
1
 0.2 1  0.205t  0.01t 2 dt
0
1
 0.205t 2 0.01t 3 
 0.2 t   
 2 3 0
 0.01 
  0.2  1  0.1025   0.1802
 3 

MLC‐09‐11 126
Question #235
Answer: B

AS 
 G  0.1G  1.50 1  1.06   1000q40
d   w
 2.93  q40
1    
1  q40  q40
d w


 0.9G  1.50 1.06   1000  0.00278   2.93 0.2 
1  0.00278  0.2

0.954G  1.59  2.78  0.59


0.79722

 1.197G  6.22

AS 
 1 AS  G  0.1G  1.50 1  1.06   1000q41  2 CV  q41
d   w
2    
1  q41  q41
d w


1.197G  6.22  G  0.1G  1.50 1.06   1000  0.00298  2 CV  0
1  0.00298  0


 2.097G  7.72 1.06   2.98
0.99702

 2.229G  11.20

2.229G  11.20  24
G  15.8

MLC‐09‐11 127
Question #236
Answer: A

AS 
 4 AS  G 1  c4   e4  1  i   1000q x  4  5 CV  q x  4
1  2

1  qx4  qx 4
5 1 2


 396.63  281.77 1  0.05  7  1  i   90  572.12  0.26
1  0.09  0.26


 657.311  i   90  148.75
0.65
 694.50

 657.311  i   90  148.75   0.65  694.50 

690.18
1 i   1.05
657.31
i  0.05

Question #237 - Removed

Question #238 – Removed

MLC‐09‐11 128
Question #239
Answer: B

Let P denote the annual premium

The EPV of benefits is 25, 000 Ax:20  25, 000(0.4058)  10,145 .

The EPV of premiums is Pax:20  12.522 P
The EPV of expenses is
25, 000
 0.25  0.05 P  0.05 P ax:20   2.00  0.50   0.50 ax:20 
 (15  3)  3ax:20
1, 000
 0.20 P  0.6261P  194.025  12  37.566  0.8261P  243.591

Equivalence principle:

12.522 P  10,145  0.8261 P  243.591

10,389.591
P
12.522  0.8261
 888.31

Question #240
Answer: D

Let G denote the premium.

Expected present value (EPV) of benefits = 1000A40:20

EPV of premiums = G a40:10

EPV of expenses   0.04  0.25  G  10   0.04  0.05  G a40:9  5a40:19

 0.29G  10  0.09G a40:9  5a40:19
 0.2G  10  0.09G a40:10  5a40:19

(The above step is getting an a40:10 term since all the answer choices have one. It
could equally well have been done later on).

MLC‐09‐11 129
Equivalence principle:

G a40:10  1000 A40:20  0.2G  10  0.09G a40:10  5 a40:19

 
G a40:10  0.2  0.09 a40:10  1000 A40:20  10  5 a40:19
1000 A40:20  10  5 a40:19
G
0.91a40:10  0.2

Question #241 - Removed

Question #242
Answer: C

d   w
AS 
 10 AS  G  c10 G  e10  1  i   10,000q x 10  11 CV q x 10

1  qx10  qx10
11 d w


1600  200   0.04  200   70  1.05  10,000  0.02   1700  0.18
1  0.02  0.18

1302.1

0.8

 1627.63

MLC‐09‐11 130
Question #243
Answer: E

The benefit reserve at the end of year 9 is the certain payment of the benefit one
year from now, less the premium paid at time 9. Thus, it is 10,000v – 76.87.

The gross premium reserve adds expenses paid at the beginning of the tenth year
and subtracts the gross premium rather than the benefit premium. Thus it is
10,000v + 5 + 0.1G – G where G is the gross premium.

Then,

10, 000v  76.87  (10, 000v  5  0.9G )  1.67

0.9G  81.87  1.67
0.9G  83.54
G  92.82

Question #244
Answer: C

 3 AS  G  c4G  e4  1  i   1000qxd3  4 CVqxw3

4 AS 
1  qx 3  qx 3
d w

Plugging in the given values:


 25.22  30   0.02  30   5 1.05  1000  0.013  75  0.05
4 AS
1  0.013  0.05

35.351

0.937

= 37.73

MLC‐09‐11 131
With higher expenses and withdrawals:

25.22  30  1.2    0.02  30   5  1.05   1000  0.013  75 1.2  0.05 

4 AS
revised

1  0.013  1.2  0.05 


 48.51.05  13  4.5
0.927

33.425

0.927

= 36.06

4 AS  4 AS revised  37.73  36.06

= 1.67

Question #245
Answer: E

Let G denote the gross premium.

EPV (expected present value) of benefits  100010 20 A30 .
EPV of premiums  Ga30:5 .
EPV of expenses   0.05  0.25  G  20 first year
  0.05  0.10  G  10  a 30:4 years 2-5
10 5 a35:4 years 6-10 (there is no premium)
 0.30G  0.15G a30:4  20  10 a30:4  10 5 a 30:5
 0.15G  0.15Ga30:5  20  10 a30:9

(The step above is motivated by the form of the answer. You could equally well put it that
form later).

Equivalence principle:
Ga30:5  100010 20 A30  0.15G  0.15G a30:5  20  10 a30:9

G
1000 10 20 A30  20  10 a 30:9 
1  0.15 a30:5  0.15


1000 10 20 A30  20  10 a30:9 
0.85 a30:5  0.15

MLC‐09‐11 132
Question #246
Answer: E

Let G denote the gross premium

EPV (expected present value) of benefits
  0.1 3000  v   0.9  0.2  2000  v 2   0.9  0.8 1000v 2
300 360 720
    1286.98
1.04 1.04 1.042
2

EPV of premium = G
EPV of expenses  0.02G  0.03G  15   0.9  2  v
 0.05G  16.73

Equivalence principle: G  1286.98  0.05G  16.73

1303.71
G  1372.33
1  0.05

Question #247
Answer: C

EPV (expected present value) of benefits = 3499 (given)

EPV of premiums  G   0.9  G  v

0.9G
G  1.8571G
1.05

EPV of expenses, except settlement expenses,

  25   4.5 10   0.2 G    0.9  10  1.5 10   0.1G  v   0.9  0.85  10  1.5 10   v 2
0.9  25  0.1G  0.765  25 
 70  0.2G  
1.05 1.052
=108.78+0.2857G

MLC‐09‐11 133
Settlement expenses are 20  110   30 , payable at the same time the death benefit is
paid.
 30 
So EPV of settlement expenses    EPV of benefits
 10,000 
  0.003 3499 
 10.50

Equivalence principle:

1.8571G  3499  108.78  0.2857G  10.50

3618.28
G  2302.59
1.8571  0.2857

Question #248
Answer: D

a50:20  a50  20 E50 a70

 13.2668   0.23047  8.5693
 11.2918
 0.06 
A50:20  1  d a50:20  1    11.2918 
 1.06 
 0.36084

Expected present value (EPV) of benefits  10,000A50:20

 3608.40

EPV of premiums  495 a50:20

 5589.44

EPV of expenses   0.35  495   20  15 10    0.05  495   5  1.50 10   a50:19
 343.25   44.75 11.2918  1
 803.81

EPV of amounts available for profit and contingencies

= EPV premium – EPV benefits – APV expenses
= 5589.44 – 3608.40 – 803.81
= 1177.23

MLC‐09‐11 134
Question #249
Answer: B

1 1
q1xy   t pxy  x t dt   t px t p y  x t dt
0 0
1
  qx e 0.25t dt (under UDD, t px  x t  qx )
0
1
0.125  qx (4e0.25t )  qx (4)(1  e 0.25 )  0.8848qx
0

qx  0.1413

Question #250
Answer: C

2 p[11x ]1  p[11x ]1 p[11x ] 2  p[12x ]1 p[21x ] 2

 0.1   0.1   0.1   0.2 
  0.7    0.7     0.3    0.4  
 2  3   2  3 
 0.75(0.7333)  0.25(0.3333)  0.6333

Note that Anne might have changed states many times during each year, but the
annual transition probabilities incorporate those possibilities.

Questions #251-260 – Removed

Question #261
Answer: A

The insurance is payable on the death of (y) provided (x) is already dead.


E ( Z )  Axy2   e t t qx t p y  y t dt
0

 e 0.06 t
(1  e0.07 t )e 0.09t 0.09dt
0

 0.09 e 0.15t  e0.22t dt
0

 1 1 
 0.09     0.191
 0.15 0.22 

MLC‐09‐11 135
Question #262
Answer: C

95  x  t 1
px  ,  x t  , p y  e  t
95  x 95  x  t
t t

n
Pr(x dies within n years and before y)   px t p y  x t dt
0 t

95  x  t  t 1 1 1  e  n

n

95  x 0
n
 t
e dt  e dt 
0 95  x 95  x  t  (95  x)

Question #263
Answer: A


0.25
0.25 q30.5:40.5
2
t p30.5 30.5t t q40.5 dt
0
0.25 0.4 0.6t
 dt
0 1  0.5(0.4) 1  0.5(0.6)
0.25
0.4(0.6) t 2
  0.0134
0.8(0.7) 2 0

Question #264 – Removed

Question #265
Answer: D

px  exp    5rdr   e 2.5t

t 2

t  0 
 t  0.5t 2
t p y  exp   0 rdr   e
 
qx1: y   t p y t px  x t dt   e0.5t e2.5t 5tdt  5 e3t tdt
1 1 2 2 1 2

0 0 0
1
5 2 5
 e 3t  (1  e 3 )  0.7918
6 0 6

MLC‐09‐11 136
Question #266
Answer: B

5
5 1 t t2 1
G dt  
0 30 25 30(25)(2) 0 60
25 20 20 15 200 4
H  5 p80:85  10 p80:85    
30 25 30 25 750 15
1 16 17
GH     0.2833
60 60 60

Question #267
Answer: D

S0 (t )  exp    (80  x) 0.5 dx   exp  2(80  x)0.5   exp  2((80  t )0.5  800.5 ) 
t t

 0   0

F  S0 (10.5)  exp  2(69.50.5  800.5 )   0.29665

S0 (10)  0.31495
S0 (11)  0.27935
G  S0 (10.5)exp  [0.31495(0.27935)]0.5  0.29662
F  G  0.00003

Question #268
Answer: A
4 4
E ( Z )  500  0.2(1  0.25t )dt  1000  0.25(0.2t )dt
0 0

 500(0.2)  t  0.125t 2   1000(0.25) (0.1t 2 )

4 4

0 0

 100(4  2)  250(1.6)  600

Question #269
Answer: A

10 q30:50  10 q30 10 q50  (1  e0.5 )(1  e0.5 )  0.1548

MLC‐09‐11 137
Question #270
Answer: C

e30:50  e30  e50  e30:50

   


e30  e50   e0.05t dt  20
 
0

e30:50   e 0.10t dt  10

0

e30:50  20  20  10  30


Question #271
Answer: B

  0.05
A30:50
1   e  t t p30 t p50 30 t dt   e 0.03t e 0.05t e 0.05t 0.05dt   0.3846
0 0 0.13

Question #272
Answer: B

T30:50 has the exponential distribution with parameter 0.05 + 0.05 = 0.10 and so its
mean is 10 and its variance is 100.

Question #273
Answer: D

   
Cov[T30:50 , T30:50 ]   e30  e30:50  e50  e30:50   (20  10)(20  10)  100
  

See solution to Question #270 for the individual values.

Question #274
Answer: E

V  ( 2V   3 )(1  i3 )  qx  2 (b3  3V )
3

96  (84  18)(1.07)  qx  2 (240  96)

qx  2  13.14 /144  0.09125

MLC‐09‐11 138
Question #275
Answer: A

( 3V   4 )(1  i4 )  qx 3b4 (96  24)(1.06)  0.101(360)

V
4   101.05
px 3 0.899

Question #276
Answer: D

Under UDD:
0.5qx 3 0.5(0.101)
0.5 q x  3.5    0.0532
1  0.5qx 3 1  0.5(0.101)

Question #277
Answer: E

3.5 V  v 0.5 0.5 p3.5 4V  v 0.5 0.5 q3.5b4

 1.060.5 (0.9468)(101.05)  1.060.5 (0.0532)(360)
 111.53

Question #278
Answer: D

60 50 2
1  10 p30:40  1  10 p30 10 p40  1  
70 60 7

Question #279
Answer: A

10 10 1 t 50
10 q30:40
2  t p30 30t (1  t p40 )dt   dt   0.0119
0 0 70 60 70(60)

Question #280
Answer: A
20 20
 10 t
p30 30t t q40 dt  
10 t
p40 40t t q30 dt
1 t 20 1 t 1 400  100 1 400  100

20
dt   dt    0.0714
10 70 60 10 60 70 70 2(60) 60 2(70)

MLC‐09‐11 139
Question #281
Answer: C
30 30
140, 000  t p30 30t t p40 dt  180, 000  t p40  40t t p30 dt
0 0

1 60  t 30 30 1 70  t
 140, 000  dt  180, 000  dt
0 70 60 0 60 70

1 602  302 1 702  402

 140, 000  180, 000  115, 714
70 2(60) 60 2(70)

Question #282
Answer: B

20 20 70  t 60  t P 20
P t p30 t p40 dt  P  dt   4200  130t  t 2 dt
0 0 70 60 4200 0

P
 [4200(20)  130(200)  8000 / 3]  14.444 P
4200

Question #283
Answer: A

Note that this is the same as Question 33, but using multi-state notation rather
than multiple-decrement notation.

The only way to be in State 2 one year from now is to stay in State 0 and then
make a single transition to State 2 during the year.

1
1 1 e 1.5t 1
p   t p  dt   e
02 00 02
x t
 (0.3 0.5  0.7) t
0.5dt  0.5  (1  e 1.5 )  0.259
1.5 0 3
x 0 x 0

MLC‐09‐11 140
Question #284
Answer: C

m  1 m2  1
(m)
Woolhouse’s formula to three terms is a80  a80   (  80 ) . Then,
2m 12m 2
2  1 22  1 4  1 42  1
a80(2)  a80
(4)
 a80   (  80 )  
a 80   (  80 )
2(2) 12(2) 2 2(4) 12(4) 2
8.29340  8.16715  (1/ 4)  (3 / 8)  [(3 / 48)  (15 /192)](  80 )
0.00125  0.015625(  80 )
  80  0.08
a80  a80
(2)
 1/ 4  (3 / 48)(0.08)  8.5484.

The answer is:

12  1 122  1 11 143
a80
(12)
 a80   2
(  80 )  8.54840   (0.08)  8.08345.
2(12) 12(12) 24 1728

Question #285
Answer: B

1 | a70:2  v 2 2 p70  v3 3 p70

 B  x t  0.000003  70
 1.1 (1.1 1)
t
 c ( c 1)
 At  ln c  0.0002 t  ln(1.1) 
p70  e e  e0.0002t (0.9754483)1.1 1
t

t e e
2 p70  e 0.0002(2) (0.9754483)1.211  0.9943956
3 p70  e0.0002(3) (0.9754483)1.3311  0.9912108
1 | a70:2  0.9943956 /1.052  0.9912108 /1.053  1.7582.

Question #286
Answer: E

A50:2
1  vq50  v 2 p50 q51
 B  x  0.000005  x
  c ( c 1)  1.2 (0.2)
px  e e  e 0.0000054848(1.2)
50
 ln c   ln(1.2) 

p50  0.951311
p51  0.941861
A50:2
1  0.048689 /1.03  0.951311(0.058139) /1.032  0.09940.

MLC‐09‐11 141
Question #287
Answer: E

The reserve at the end of year 2 is 10, 000vq52   3 where  3 is the benefit premium in
year 3. From the equivalence principle at time zero:
10, 000(vq50  v 2 p50 q51  v 3 p50 p51q52 )  0.5 3  0.5 3vp50   3v 2 p50 p51
 0.05 0.95(0.06) 0.95(0.94)(0.07)   0.95 0.95(0.94) 
10, 000       0.5  0.5  3
 1.04   1.042 
2 3
1.04 1.04 1.04
1563.4779  1.78236 3
 3  877.1953
V  10, 000(0.7) /1.04  877.1953  204.12
2

Question #288
Answer: C

The benefit premium in year one is vq50 . By the equivalence principle:

10, 000(vq50  v 2 p50 q51  v 3 p50 p51q52 )  10, 000vq50  (vp50  v 2 p50 p51 )
 0.95(0.06) 0.95(0.94)(0.07)   0.95 0.95(0.94) 
10, 000     
 1.04   1.04 1.042 
2
1.043
1082.708665  1.739090
  622.5719
2V  10, 000(0.07) /1.04  622.5719  50.51.

Question #289
Answer: E

t-th V
t 1 P E I EDB E tV Pr t 1 px P
year
0* 0 0 1000 0 0 0 -1000 1.000 -
1000.0
1 0 14500 100 864 14000 690.2 573.8 1.000 573.8
2 700 14500 100 906 15000 689.5 316.5 0.986 312.1
3 700 14500 100 906 16000 0 6 0.971 5.8

NPV  1000  573.8v  312.1v 2  5.8v 3  216.08 using a 10% discount rate.

*The 1000 at time 0 is neither accumulated nor discounted. The value is treated
as occurring at the end of time 0 and not as occurring at the beginning of year 1.

MLC‐09‐11 142
Question #290
Answer: C

NPV  140v  0.95(135) p67 v 2  (0.95) 2 (130) 2 p67 v 3  314.09 at a 10% discount rate.

Question #291
Answer: B

Solution
Pr  (6, 000  700  10)(1.06)1/12  0.002(200, 000)  0.0015(50, 000  15, 000)
 0.9965(6, 200)  46.7.

Question #292
Answer: C

245  p40 274 and 300  2 p40 395

Present value of premium:

1000[1  (245 / 274)(1/1.12)  (300 / 395)(1/1.122 )]  2403.821.

Present value of profit:

400  150 / 1.12  245 / 1.12 2  300 / 1.123  142.775.

PV Profit / PV premium = 5.94%

Question #293
Answer: B

P[1  0.97(0.98624)  0.92(0.98624)(0.98499)]

 100, 000[0.97(0.01376)  0.92(0.98264)(0.01501)  0.87(0.98264)(0.98499)(0.01638)]
P  1431.74.

MLC‐09‐11 143
Question #294
Answer: A

Let IF equal 1 if the index drops below its current level in the next year and equals
0 otherwise.
E[ X N | I F  1]  N (1000)vqx  48.54 N
E[ X N | I F  0]  0
E[ X N ]  0.1(48.54 N )  0  4.854 N
Var[ X N | I F  1]  (1000v) 2 Nqx (1  qx )  44, 773.31N
Var[ X N | I F  0]  0
E[Var ( X N | I F )]  0.1(44, 773.31N )  0  4, 477.33 N
Var[ E ( X N | I F )]  0.1(48.54 N ) 2  0  (4.854 N ) 2  212.05 N 2
Var[ X N ]  4, 477.33 N  212.05 N 2
Var ( X 10 )
 25.69
10
Var ( X N ) 4, 477.33 N  212.05 N 2
lim  lim  212.05  14.56
N  N N  N
25.69  14.56  11.13.

Question #295
Answer: E

The actuarial present value of the death benefit is

S62 (4)d 62(2) v 0.5  S63 (4)d 63(2) v1.5  S64 (4)d 64(2) v 2.5
100, 000
S62l62
3.589(4)(213)v 0.5  3.643(4)(214)v1.5  3.698(4)(215)v 2.5
 100, 000
3.589(52,860)
 4,585.

MLC‐09‐11 144
Question #296
Answer: A

Policy 1:
AV371  [ AV36  G  E  (100, 000  AV371 ) 1/12 q63 /1.004](1.004)
 ( AV36  G  E )1.004  100, 000 1/12 q63  AV371 1/12 q63
 [( AV36  G  E )1.004  100, 000 1/12 q63 ] / (1  1/12 q63 )

Policy 2
AV372  [ AV36  G  E  100, 000 1/12 q63 /1.004](1.004)
 ( AV36  G  E )1.004  100, 000 1/12 q63

Because the starting account value, G and E are identical for both policies:

AV361 / AV362  1/ (1  1/12 q63 )  1 / [1  (1 / 12)(0.01788)]  1.0015.

Question #297
Answer: E

The recursive formula for the account values is:

AVk 1  ( AVk  0.95G  50)1.06  (100, 000  AVk 1 )q50 k .

This is identical to the recursive formula for benefit reserves for a 20-year term
insurance where the benefit premium is 0.95G – 50. Because the benefit reserve
is zero after 20 years, using this premium will ensure that the account value is zero
after 20 years. Therefore,

A50:20
1
A  E A 0.24905  0.23047(0.51495)
0.95G  50  100, 000  50 20 50 70  100, 000  1154.55
a50:20 a50  20 E50 a70 13.2668  0.23047(8.5693)
G = (1154.55+50)/0.95 = 1,267.95.

MLC‐09‐11 145
Question #298
Answer: A

2
 5, 000 
E ( Z )  (5, 000 /1.030) (0.005)  
2 2
 (1  0.005)(0.006)
1.030(1.032) 
2
 5, 000 
  (1  0.005)(1  0.006)(0.007)
1.030(1.032)(1.035) 
 392,917

Question #299
Answer: E
44.75  0.00004(1.144.75 )  0.002847
44.5  0.00004(1.144.5 )  0.002780

1000  E ( 4.75 L)  0.25{0.04 E ( 4.75 L)  150  150(0.05)  0.002847[10, 000  100  E ( 4.75 L)]}
E ( 4.75 L)  {1000  0.25[150  150(0.05)  0.002847(10, 000  100)]} / [1  0.25(0.04  0.002847)]
 961.27
961.27  E ( 4.5 L)  0.25{0.04 E ( 4.5 L)  150  150(0.05)  0.002780[10, 000  100  E ( 4.5 L)]}
E ( 4.5 L)  {961.27  0.25[150  150(0.05)  0.002780(10, 000  100)]} / [1  0.25(0.04  0.002780)]
 922.795

Question #300 - Removed

Question #301
Answer: E

The death benefit is max(100, 000,1.3  85, 000  110, 500)  110,500 .
The withdrawal benefit is 85, 000  1, 000  84, 000 .
( 9 AS  P  E )(1  i )  110,500q79 (death)
 84, 000q79
(withdrawal)
AS 
1  q79  q79
10 (death) (withdrawal)

(75, 000  9, 000  900)(1.08)  110,500(0.01)  84, 000(0.03)


1  0.01  0.03
 89, 711.
Note – companies find asset share calculations less useful for universal life
policies than for traditional products. This is because policyholders who choose
different premium payment patterns have different asset shares. However, for any
pattern of premiums, an asset share can be calculated.

MLC‐09‐11 146
Question #302
Answer: B

( 9V  G  E )(1  i )  1000qx(death)  10 CV (1  qx(death) )qx(withdrawal)

10V 
9 9 9

1  qx(death)
9  (1  q  (death)
x 9 ) q  ( withdrawal)
x 9

(115  16  3)(1.06)  1000(0.01)  110(1  0.01)(0.10)

  128.83.
1  0.01  (1  0.01)(0.10)

Expected deaths = 1000(0.01) = 10; actual deaths = 15.

Expected withdrawals = 1000(1 – 0.01)(0.1) = 99; actual withdrawals = 100.
Gain from mortality and withdrawals is equal to
(Expected deaths – Actual deaths)(Death benefit – End of Year Reserve)
+ (Expected withdrawals – Actual withdrawals)(Withdrawal benefit – End of Year
Reserve)
= (10 – 15)(1000 – 128.83) + (99 – 100)(110 – 128.83) = -4337.

Question #303
Answer: C

Because there are no cash flows at the beginning of the year, the only item
earning interest is the reserve from the end of the previous year. The gain is
1000(10,994.49)(0.05 – 0.06) = –109,944.90

Question #304
Answer: B

Expenses are incurred for all who do not die. Because gain from mortality has not
yet been calculated, the anticipated experience should be used. Thus, expenses
are assumed to be incurred for 1000(1 – 0.01) = 990 survivors. The gain is 990(50
– 60) = -9,900.

MLC‐09‐11 147
Question #305
Answer: E

The tenth reserve is

9V (1  i )  (1  q74 )(1000  50)
(d )
V 
1  q74
10 (d )

10,994.49(1.06)  (1  0.01)(1050)
V
1  0.01
10

10V  10, 721.88.

Note that reserves are prospective calculations using anticipated experience.

There were 2 more deaths than expected. For each extra death, an annuity benefit
is not paid, an expense is not paid and a reserve does not have to be maintained.
Thus, the saving is 1000 + 60 + 10,721.88 = 11,781.88. The total gain is
2(11,781.88) = 23,563.76. Because the gain from expenses has already been
calculated, the actual value is used.

As an aside, the total gain from questions 303-305 is -96,281. The total gain can
be determined by first calculating the assets at the end of the year. Begin with
1000(10,994.49) = 10,994,490. They earn 5% interest, to accumulate to
11,544,215. At the end of the year, expenses are 60 for each of 988 who did not
die, for 59,280. Annuity benefits of 1000 are paid to the same 988 people, for
988,000. Assets at the end of the year are 11,544,215 – 59,280 – 988,000 =
10,496,935. Reserves must be held for the 988 continuing policyholders. That is,
988(10,721.88) = 10,593,217. The difference, 10,496,935 – 10,593,217 = -96,282.

MLC‐09‐11 148
Question #306
Answer: E

d
V '
t tV  G   ( tV )  t (bt  tV )
dt
At t = 4.5,

4.5V  25  0.05( 4.5V )  0.02(4.5)(100  4.5V )  16  0.14( 4.5V )

Euler’s formula in this case is 5.0V  4.5V  (5.0  4.5) 4.5V  .

Because the endowment benefit is 100, 5.0V  100 and thus,
100  4.5V  0.5( 4.5V )  4.5V  0.5[16  0.14( 4.5V )]  8  1.07( 4.5V )
4.5V  85.981.
Similarly,

4.5V  4V  (4.5  4.0) 4V and


4.0V  25  0.05( 4.0V )  0.02(4.0)(100  4.0V )  17  0.13( 4.0V )

85.981  4.0V  0.5( 4.0V )  4.0V  0.5[17  0.13( 4.0V )]  8.5  1.065( 4.0V )
4.0 V  72.752.

Note that if smaller step sizes were used (which would be inappropriate for an
exam question, where the step size must be specified), the estimate of the time 4
reserve converges to its true value of 71.96.

Question #307
Answer: A

d
V '
t tV  G   ( tV )  t (bt  tV )
dt
At t = 5.0,

5.0V  25  0.05( 5.0V )  0.02(5.0)(100  5.0V )  15  0.15( 5.0V )

Because the endowment benefit is 100, 5.0V  100 and thus,


5.0V  15  0.15(100)  30 .

Euler’s formula in this case is 4.5V  5.0V  (4.5  5.0) 5.0V   100  0.5(30)  85.
Similarly,

4.0V  4.5V  (4.0  4.5) 4.5V and


4.5V  25  0.05( 4.5V )  0.02(4.5)(100  4.5V )  16  0.14( 4.5V )  16  0.14(85)  27.9 .

4.0V  85  (4.0  4.5)(27.9)  71.05.

Note that if smaller step sizes were used (which would be inappropriate for an
exam question, where the step size must be specified), the estimate of the time 4
reserve converges to its true value of 71.96.

MLC‐09‐11 149
Question #308
Answer: A
t t
0 s ds  e  0 (0.05 0.02 s ) ds  e (0.05t  0.01t 2 )

t p0  e

1 p0  e 0.06  0.94176
4
APV   80(1  0.25t )e t t p0 t dt
0

f (1)  80(1  0.25)e 0.05 (0.94176)(0.05  0.02)  3.7625.

Question #309
Answer: D

Let P be the benefit premium. There are three ways to approach this problem. The
first two are intuitive:

The actuarial present value of the death benefit of 1000 is 1000 10 | A40 . The return
of premium benefit can be thought of as two benefits. First, provide a ten-year
temporary annuity-due to everyone, with actuarial present value Pa40:10 . However,
those who live ten years must then return the accumulated value of the premiums.
This forms a pure endowment with actuarial present value Ps10 10 E40 . The total
actuarial present value of all benefits is 1000 10 | A40  Pa40:10  Ps10 10 E40 . Setting this
equal to the actuarial present value of benefit premiums ( Pa40:10 ) and solving gives
1000 10 | A40  Pa40:10  Ps10 10 E40  Pa40:10
1000 10 | A40  Ps10
1000 10 | A40 1000 10 E40 A50 1000 A50
P   .

s10 10 E40 
s10 10 E40 
s10

The second intuitive approach examines the reserve at time 10. Retrospectively,
premiums were returned to those who died, so per survivor, the accumulated
premiums are only the ones paid by the survivors, that is Ps10 . There are no other
past benefits so this is the reserve (it is easy to show this using a recursive
formula) Prospectively, the reserve is the actuarial present value of benefits (there
are no future premiums), or 1000A50 . Setting the two reserves equal to each other
produces the premium:
1000A50
P .

s10

MLC‐09‐11 150
The final approach is to work from basic principles:
APV (benefit premiums) = Pa40:10 .
9 9k
APV benefits = 1000 10 | A40  P  v k  j 1 k p40 (1  i) j 1 j | q40 k
k 0 j 0

In that double sum, k is the time the premium is paid, with probability k p40 that it is
paid. j is the curtate time, from when the premium was paid, until death. The
amount of premium refunded, with interest is P(1  i ) j 1 . The probability, given that
it was paid, that it will be refunded at time j+1 is j | q40  k . The interest discount
factor, from the date of refund to age 40 is v j  k 1 vk+j+1. Then,
9 9k 9 9k
P  v k  j 1 k p40 (1  i ) j 1 j | q40 k  P  v k k p40 j | q40 k
k 0 j 0 k 0 j 0

 P  v k  k p40  10 p40   P  a40:10  10 p40 a10 

9

k 0
Setting APV benefit premiums = APV benefits:
Pa40:10  1000 10 | A40  P (a40:10  10 p40 a10 )
P 10 p40 a10  1000 10 | A40
E40 (1000 A50 ) v10 10 p40 (1000 A50 ) 1000 A50
P 10
  .

10 p40 a10

10 p40 a10

s10

The numerical answer is

249.05
P  17.83.
13.97164

MLC‐09‐11 151