Project A Project B

Year Y/E cashflow Y/E cashflow

1- 500,000 - 1,000,000
2- 150,000 125,000
3- 25,000 125,000
4- 25,000 125,000
5- 25,000 125,000
6 127,500 125,000
7 130,050 125,000
8 132,651 125,000
9 135,304 125,000
10 - 111,990 - 125,000
11 140,770 125,000
12 143,586 125,000
13 146,457 125,000
14 149,387 125,000
15 - 97,626 125,000
16 155,422 125,000
17 158,530 125,000
18 161,701 125,000
19 164,935 125,000
20 - 81,766 125,000
21 171,598 125,000
22 175,030 125,000
23 178,531 -
24 182,101 -
25 185,743 -
 Project A i 9.18%

Year Y/E cashflow df PV

1- 500,000 0.91588184 -457,940.92
2- 150,000 0.83883954 -125,825.93
3- 25,000 0.76827789 -19,206.95
4- 25,000 0.70365177 -17,591.29
5- 25,000 0.64446187 -16,111.55
6 127,500 0.59025092 75,256.99
7 130,050 0.5406001 70,305.04
8 132,651 0.49512581 65,678.93
9 135,304 0.45347674 61,357.23
10 - 111,990 0.4153311 -46,512.89
11 140,770 0.38039421 53,548.21
12 143,586 0.34839615 50,024.71
13 146,457 0.31908971 46,733.06
14 149,387 0.29224847 43,658.00
15 - 97,626 0.26766506 -26,130.99
16 155,422 0.24514957 38,101.58
17 158,530 0.22452804 35,594.48
18 161,701 0.20564115 33,252.34
19 164,935 0.18834299 31,064.32
20 - 81,766 0.17249993 -14,104.71
21 171,598 0.15798955 27,110.72
22 175,030 0.14469976 25,326.82
23 178,531 0.13252788 23,660.31
24 182,101 0.12137988 22,103.45
25 185,743 0.11116963 20,649.03

NPV 0.00
Project B IRR 9.64%

Y/E cashflow df PV
- 1,000,000 0.91210279 -912,102.79
125,000 0.83193149 103,991.44
125,000 0.75880703 94,850.88
125,000 0.69211001 86,513.75
125,000 0.63127547 78,909.43
125,000 0.57578811 71,973.51
125,000 0.52517794 65,647.24
125,000 0.47901627 59,877.03
125,000 0.43691207 54,614.01
- 125,000 0.39850872 -49,813.59
125,000 0.36348091 45,435.11
125,000 0.33153195 41,441.49
125,000 0.30239122 37,798.90
125,000 0.27581187 34,476.48
125,000 0.25156878 31,446.10
125,000 0.22945658 28,682.07
125,000 0.20928799 26,161.00
125,000 0.19089216 23,861.52
125,000 0.17411327 21,764.16
125,000 0.1588092 19,851.15
125,000 0.14485031 18,106.29
125,000 0.13211837 16,514.80
- 0.12050554 -
- 0.10991344 -
- 0.10025235 -

NPV 0.00
 Project A i 4.50%

Year Y/E cashflow df PV

1- 500,000 0.9569378 -478,468.90
2- 150,000 0.91572995 -137,359.49
3- 25,000 0.8762966 -21,907.42
4- 25,000 0.83856134 -20,964.03
5- 25,000 0.80245105 -20,061.28
6 127,500 0.76789574 97,906.71
7 130,050 0.73482846 95,564.44
8 132,651 0.70318513 93,278.21
9 135,304 0.67290443 91,046.67
10 - 111,990 0.64392768 -72,113.40
11 140,770 0.61619874 86,742.48
12 143,586 0.58966386 84,667.30
13 146,457 0.56427164 82,641.77
14 149,387 0.53997286 80,664.69
15 - 97,626 0.51672044 -50,445.19
16 155,422 0.49446932 76,851.31
17 158,530 0.47317639 75,012.76
18 161,701 0.45280037 73,218.19
19 164,935 0.43330179 71,466.56
20 - 81,766 0.41464286 -33,903.88
21 171,598 0.39678743 68,088.01
22 175,030 0.37970089 66,459.11
23 178,531 0.36335013 64,869.18
24 182,101 0.34770347 63,317.29
25 185,743 0.3327306 61,802.52

NPV 498,373.64
Project B IRR 4.50%

Y/E cashflow df PV
- 1,000,000 0.9569378 -956,937.80
125,000 0.91572995 114,466.24
125,000 0.8762966 109,537.08
125,000 0.83856134 104,820.17
125,000 0.80245105 100,306.38
125,000 0.76789574 95,986.97
125,000 0.73482846 91,853.56
125,000 0.70318513 87,898.14
125,000 0.67290443 84,113.05
- 125,000 0.64392768 -80,490.96
125,000 0.61619874 77,024.84
125,000 0.58966386 73,707.98
125,000 0.56427164 70,533.96
125,000 0.53997286 67,496.61
125,000 0.51672044 64,590.06
125,000 0.49446932 61,808.67
125,000 0.47317639 59,147.05
125,000 0.45280037 56,600.05
125,000 0.43330179 54,162.72
125,000 0.41464286 51,830.36
125,000 0.39678743 49,598.43
125,000 0.37970089 47,462.61
- 0.36335013 -
- 0.34770347 -
- 0.3327306 -

NPV 485,516.15
 Project A i 4.50%

Year Y/E cashflow df PV Running NPV Positive running

1- 500,000 0.9569378 -478,468.90 -478,468.90
2- 150,000 0.91572995 -137,359.49 -615,828.39
3- 25,000 0.8762966 -21,907.42 -637,735.81
4- 25,000 0.83856134 -20,964.03 -658,699.84
5- 25,000 0.80245105 -20,061.28 -678,761.12
6 127,500 0.76789574 97,906.71 -580,854.41
7 130,050 0.73482846 95,564.44 -485,289.97
8 132,651 0.70318513 93,278.21 -392,011.76
9 135,304 0.67290443 91,046.67 -300,965.09
10 - 111,990 0.64392768 -72,113.40 -373,078.48
11 140,770 0.61619874 86,742.48 -286,336.00
12 143,586 0.58966386 84,667.30 -201,668.69
13 146,457 0.56427164 82,641.77 -119,026.92
14 149,387 0.53997286 80,664.69 -38,362.23
15 - 97,626 0.51672044 -50,445.19 -88,807.42
16 155,422 0.49446932 76,851.31 -11,956.12
17 158,530 0.47317639 75,012.76 63,056.64 17
18 161,701 0.45280037 73,218.19 136,274.84
19 164,935 0.43330179 71,466.56 207,741.40
20 - 81,766 0.41464286 -33,903.88 173,837.52
21 171,598 0.39678743 68,088.01 241,925.53
22 175,030 0.37970089 66,459.11 308,384.65
23 178,531 0.36335013 64,869.18 373,253.83
24 182,101 0.34770347 63,317.29 436,571.12
25 185,743 0.3327306 61,802.52 498,373.64

NPV 498,373.64
Project B IRR 4.50%

Y/E cashflow df PV Running NPV Positive running

- 1,000,000 0.9569378 -956,937.80 -956,937.80
125,000 0.91572995 114,466.24 -842,471.56
125,000 0.8762966 109,537.08 -732,934.48
125,000 0.83856134 104,820.17 -628,114.31
125,000 0.80245105 100,306.38 -527,807.93
125,000 0.76789574 95,986.97 -431,820.96
125,000 0.73482846 91,853.56 -339,967.41
125,000 0.70318513 87,898.14 -252,069.27
125,000 0.67290443 84,113.05 -167,956.21
- 125,000 0.64392768 -80,490.96 -248,447.17
125,000 0.61619874 77,024.84 -171,422.33
125,000 0.58966386 73,707.98 -97,714.35
125,000 0.56427164 70,533.96 -27,180.39
125,000 0.53997286 67,496.61 40,316.22 14
125,000 0.51672044 64,590.06 104,906.27
125,000 0.49446932 61,808.67 166,714.94
125,000 0.47317639 59,147.05 225,861.98
125,000 0.45280037 56,600.05 282,462.03
125,000 0.43330179 54,162.72 336,624.75
125,000 0.41464286 51,830.36 388,455.11
125,000 0.39678743 49,598.43 438,053.54
125,000 0.37970089 47,462.61 485,516.15
- 0.36335013 - 485,516.15
- 0.34770347 - 485,516.15
- 0.3327306 - 485,516.15

NPV 485,516.15
(ii) We observe that in project B there exists lower Net Present Value(NPV) and if we compare it to Project A we can say that t
(iii) In the discounted payback project period of Project B the payback is smaall comparatively in the project A
to Project A we can say that the amount invested in Project B is very less
the project A
 Project A Project B
(i) IRR

(ii) NPV

(iii) DPP

(iv)
mux 0.03

Year (t) px+t-1 p

t x qx+t-1
1 0.970446 0.970446 0.029554
2 0.970446 0.941765 0.029554
3 0.970446 0.913931 0.029554
4 0.970446 0.88692 0.029554
5 0.970446 0.860708 0.029554
6 0.970446 0.83527 0.029554
7 0.970446 0.810584 0.029554
8 0.970446 0.786628 0.029554
9 0.970446 0.763379 0.029554
10 0.970446 0.740818 0.029554
11 0.970446 0.718924 0.029554
12 0.970446 0.697676 0.029554
13 0.970446 0.677057 0.029554
14 0.970446 0.657047 0.029554
15 0.970446 0.637628 0.029554
16 0.970446 0.618783 0.029554
17 0.970446 0.600496 0.029554
18 0.970446 0.582748 0.029554
19 0.970446 0.565525 0.029554
20 0.970446 0.548812 0.029554
mux 0.03 Interest 5% p.a. effective

Year (t) px+t-1 p

t x qx+t-1 SA DF EPV
1 0.970446 0.970446 0.029554 10000 0.95238 9242.34
2 0.970446 0.941765 0.029554 10000 0.90703 8542.08
3 0.970446 0.913931 0.029554 10000 0.86384 7894.88
4 0.970446 0.88692 0.029554 10000 0.82270 7296.72
5 0.970446 0.860708 0.029554 10000 0.78353 6743.87
6 0.970446 0.83527 0.029554 10000 0.74622 6232.91
7 0.970446 0.810584 0.029554 10000 0.71068 5760.67
8 0.970446 0.786628 0.029554 10000 0.67684 5324.21
9 0.970446 0.763379 0.029554 10000 0.64461 4920.81
10 0.970446 0.740818 0.029554 10000 0.61391 4547.98
11 0.970446 0.718924 0.029554 20000 0.58468 8406.80
12 0.970446 0.697676 0.029554 20000 0.55684 7769.85
13 0.970446 0.677057 0.029554 20000 0.53032 7181.15
14 0.970446 0.657047 0.029554 20000 0.50507 6637.07
15 0.970446 0.637628 0.029554 20000 0.48102 6134.20
16 0.970446 0.618783 0.029554 20000 0.45811 5669.44
17 0.970446 0.600496 0.029554 20000 0.43630 5239.88
18 0.970446 0.582748 0.029554 20000 0.41552 4842.88
19 0.970446 0.565525 0.029554 20000 0.39573 4475.95
20 0.970446 0.548812 0.029554 20000 0.37689 4136.83
###
 0.95238

DF^2 2nd moment variance

0.90703 88022270.6166 -15007851472.8781
0.82270 77479201.2451
0.74622 68198952.1916
0.67684 60030266.2558
0.61391 52840003.4156
0.55684 46510970.8003
0.50507 40940012.5843
0.45811 36036328.6674
0.41552 31719994.7399
0.37689 27920659.6096
0.34185 98305594.2379
0.31007 86530816.1914
0.28124 76166389.1948
0.25509 67043385.216
0.23138 59013109.9654
0.20987 51944679.353
0.19035 45722886.2311
0.17266 40246322.652
0.15661 35425727.038
0.14205 31182529.3213
1121280099.53
(i)

(ii)

(iii)
Loan
Interest payable by policyholder on the loan 5.5% p.a. effective

Term Assurance
Interest rate for pricing the decreasing term assurance 3.5% p.a. effective
Expenses None
Surrenders None

Adjustment to mortality +5 years

The company sets the level annual premium for the decreasing term assurance by equating the expected
present value of premiums and the expected present value of benefits.

Base Mortality Table

Age lx dx
20 100000 47.2
21 99952.8 46.9
22 99905.9 47.4
23 99858.5 49.9
24 99808.6 51.7
25 99756.9 57.3
26 99699.6 52.9
27 99646.7 55.1
28 99591.6 62.3
29 99529.3 61.1
30 99468.2 65.2
31 99403 69.6
32 99333.4 83.3
33 99250.1 81.9
34 99168.2 88.6
35 99079.6 94.3
36 98985.3 108.4
37 98876.9 107.8
38 98769.1 114.1
39 98655 126.1
40 98528.9 138.3
41 98390.6 156.6
42 98234 164.5
43 98069.5 182.9
44 97886.6 194.3
45 97692.3 203
46 97489.3 217.1
47 97272.2 253.3
48 97018.9 258
49 96760.9 287.1
50 96473.8 316.6
51 96157.2 322.2
52 95835 348.8
 53 95486.2 368.3
54 95117.9 400.8
55 94717.1 451.2
56 94265.9 496
57 93769.9 534.7
58 93235.2 576.9
59 92658.3 628.1
60 92030.2 712.4
61 91317.8 761.5
62 90556.3 822
63 89734.3 917.1
64 88817.2 990.7
65 87826.5 1052
66 86774.5 1132.7
67 85641.8 1206.5
68 84435.3 1284.1
69 83151.2 1378.1
70 81773.1 1493.7
71 80279.4 1664.1
72 78615.3 1792.7
73 76822.6 1937.9
74 74884.7 2148
75 72736.7 2331.3
76 70405.4 2508.1
77 67897.3 2641.8
78 65255.5 2822
79 62433.5 2990.2
80 59443.3 3217.5
81 56225.8 3386.5
82 52839.3 3607.1
83 49232.2 3807.2
84 45425 3932.4
85 41492.6 4017.1
86 37475.5 4054.2
87 33421.3 4045.2
88 29376.1 3977.3
89 25398.8 3806.4
90 21592.4 3618.7
91 17973.7 3308.3
92 14665.4 2930.8
93 11734.6 2580.7
94 9153.9 2205.5
95 6948.4 1853.3
96 5095.1 1458.9
97 3636.2 1105.3
98 2530.9 784.5
99 1746.4 597.7
100 1148.7 1148.7
ting the expected
i 0.055 Installment 13761.08 i
v

Loan OS at B Int InstallmentCap RepaidLoan Os at end age Year

1 200000 11000 13761.08 2761.078 197238.9 32 1
2 197238.922 10848.1407 13761.08 2912.937 194326 33 2
3 194325.985 10687.9292 13761.08 3073.149 191252.8 34 3
4 191252.836 10518.906 13761.08 3242.172 188010.7 35 4
5 188010.664 10340.5865 13761.08 3420.491 184590.2 36 5
6 184590.173 10152.4595 13761.08 3608.618 180981.6 37 6
7 180981.554 9953.98549 13761.08 3807.092 177174.5 38 7
8 177174.462 9744.5954 13761.08 4016.483 173158 39 8
9 173157.979 9523.68886 13761.08 4237.389 168920.6 40 9
10 168920.59 9290.63246 13761.08 4470.445 164450.1 41 10
11 164450.145 9044.75796 13761.08 4716.32 159733.8 42 11
12 159733.825 8785.36036 13761.08 4975.718 154758.1 43 12
13 154758.107 8511.6959 13761.08 5249.382 149508.7 44 13
14 149508.725 8222.97988 13761.08 5538.098 143970.6 45 14
15 143970.627 7918.38449 13761.08 5842.693 138127.9 46 15
16 138127.934 7597.03635 13761.08 6164.042 131963.9 47 16
17 131963.892 7258.01406 13761.08 6503.064 125460.8 48 17
18 125460.828 6900.34555 13761.08 6860.732 118600.1 49 18
19 118600.096 6523.00527 13761.08 7238.073 111362 50 19
20 111362.023 6124.91127 13761.08 7636.167 103725.9 51 20
21 103725.856 5704.92211 13761.08 8056.156 95669.7 52 21
22 95669.7006 5261.83354 13761.08 8499.244 87170.46 53 22
23 87170.4562 4794.37509 13761.08 8966.703 78203.75 54 23
24 78203.7534 4301.20644 13761.08 9459.871 68743.88 55 24
25 68743.8819 3780.9135 13761.08 9980.164 58763.72 56 25
26 58763.7175 3232.00446 13761.08 10529.07 48234.64 57 26
27 48234.644 2652.90542 13761.08 11108.17 37126.47 58 27
28 37126.4715 2041.95593 13761.08 11719.12 25407.35 59 28
29 25407.3495 1397.40422 13761.08 12363.67 13043.68 60 29
30 13043.6758 717.402167 13761.08 13043.68 5.639E-11 61 30
 0.035 Premium 100
0.966184

SA DF qx px n-1px PV PV of Premium
200000 0.966184 0.000839 0.999161 1 162.0464 100
197238.9 0.933511 0.000825 0.999175 0.999161 151.81 96.53733
194326 0.901943 0.000893 0.999107 0.998337 156.3321 93.19582
191252.8 0.871442 0.000952 0.999048 0.997445 158.2205 89.96382
188010.7 0.841973 0.001095 0.998905 0.996496 172.7487 86.83884
184590.2 0.813501 0.00109 0.99891 0.995404 162.9633 83.81038
180981.6 0.785991 0.001155 0.998845 0.994319 163.3963 80.88793
177174.5 0.759412 0.001278 0.998722 0.99317 170.804 78.0623
173158 0.733731 0.001404 0.998596 0.991901 176.8912 75.32611
168920.6 0.708919 0.001592 0.998408 0.990509 188.7885 72.67669
164450.1 0.684946 0.001675 0.998325 0.988932 186.5353 70.10727
159733.8 0.661783 0.001865 0.998135 0.987276 194.6396 67.62306
154758.1 0.639404 0.001985 0.998015 0.985435 193.5559 65.21444
149508.7 0.617782 0.002078 0.997922 0.983479 188.7567 62.88405
143970.6 0.596891 0.002227 0.997773 0.981435 187.8163 60.63128
138127.9 0.576706 0.002604 0.997396 0.97925 203.1308 58.45049
131963.9 0.557204 0.002659 0.997341 0.9767 190.9825 56.32685
125460.8 0.538361 0.002967 0.997033 0.974102 195.2179 54.27735
118600.1 0.520156 0.003282 0.996718 0.971212 196.6229 52.28629
111362 0.502566 0.003351 0.996649 0.968025 181.535 50.35236
103725.9 0.485571 0.00364 0.99636 0.964781 176.8564 48.48661
95669.7 0.469151 0.003857 0.996143 0.96127 166.4153 46.67647
87170.46 0.453286 0.004214 0.995786 0.957562 159.4313 44.92409
78203.75 0.437957 0.004764 0.995236 0.953527 155.5726 43.22202
68743.88 0.423147 0.005262 0.994738 0.948985 145.2485 41.56147
58763.72 0.408838 0.005702 0.994298 0.943992 129.3228 39.94472
48234.64 0.395012 0.006188 0.993812 0.938609 110.656 38.37386
37126.47 0.381654 0.006779 0.993221 0.932801 89.59574 36.84678
25407.35 0.368748 0.007741 0.992259 0.926478 67.19204 35.35943
13043.68 0.356278 0.008339 0.991661 0.919306 35.62576 33.89924
Total npv 4818.71 1864.747
Premium 2.584109
If in the first year there is death of policy holder then the SA will be paid by the insurance company without any premium rece
any without any premium received
 Policy Terms
Independent Independent
Age mortality rate Critical illness Age at outset
qx rate Policy Term
30 0.000504 0.0004 Minimum guaranteed death benefit
31 0.000541 0.0004 Annual Premium
32 0.000575 0.00045 Allocation rate for all policy years
33 0.000612 0.00045 Bid offer spread
34 0.000653 0.0005 Annual Management Charge
35 0.000696 0.00055
36 0.000747 0.0006
37 0.000802 0.0007
38 0.000854 0.0009
39 0.000901 0.001 Profit Test Assumptions
40 0.000949 0.001
41 0.001007 0.0011 Unit growth rate
42 0.001083 0.0012 Return on non-unit balances
43 0.001179 0.0012 Risk Discount Rate
44 0.0013 0.0013
45 0.001447 0.0014 Independent mortality and critical illness diagnosis rates are
46 0.001614 0.0015 You should assume that deaths and critical illness diagnoses
47 0.001805 0.0016
48 0.002029 0.0018 Initial Expenses
49 0.002289 0.002 Renewal expenses
50 0.002585 0.0023 Initial Commision
51 0.002908 0.0025 Renewal Commission
52 0.00326 0.0028
53 0.003645 0.0029
54 0.004064 0.0031
55 0.004517 0.0033
56 0.005002 0.0035
57 0.005515 0.0037
58 0.006053 0.004
59 0.006613 0.0045
60 0.007198 0.005
 30 exact.
20 years.
£15,000
£2,000 payable annually in advance.
95%
1%
0.5% per annum, payable at the end of each policy year by unit cancellation.

4% per annum effective.

1% per annum effective.
7% per annum effective.

tical illness diagnosis rates are given by the table.

hs and critical illness diagnoses occur uniformly across each policy year.

£75 at the start of the first policy year.

£25 per annum, at the start of each subsequent policy year.
50% of the premium payable at the start of the first policy year.
1% of the premiums payable at the start of each subsequent policy year.
UNIT FUND
Fund at end year
Policy Fund at Allocated Bid offer before AMC Fund at
Year start Premium Premium spread deduction AMC end
1 2000 2000 1900 19 1881 95 1786
2 4000 2000 1900 19 3762 95 3667
3 6000 2000 1900 19 5643 95 5548
4 8000 2000 1900 19 7524 95 7429
5 10000 2000 1900 19 9405 95 9310
6 12000 2000 1900 19 11286 95 11191
7 14000 2000 1900 19 13167 95 13072
8 16000 2000 1900 19 15048 95 14953
9 18000 2000 1900 19 16929 95 16834
10 20000 2000 1900 19 18810 95 18715
11 22000 2000 1900 19 20691 95 20596
12 24000 2000 1900 19 22572 95 22477
13 26000 2000 1900 19 24453 95 24358
14 28000 2000 1900 19 26334 95 26239
15 30000 2000 1900 19 28215 95 28120
16 32000 2000 1900 19 30096 95 30001
17 34000 2000 1900 19 31977 95 31882
18 36000 2000 1900 19 33858 95 33763
19 38000 2000 1900 19 35739 95 35644
20 40000 2000 1900 19 37620 95 37525
Policy Independent Independent
Year Mortality rate Critical illness rate
1 0.000504 0.0004
2 0.000541 0.0004
3 0.000575 0.00045
4 0.000612 0.00045
5 0.000653 0.0005
6 0.000696 0.00055
7 0.000747 0.0006
8 0.000802 0.0007
9 0.000854 0.0009
10 0.000901 0.001
11 0.000949 0.001
12 0.001007 0.0011
13 0.001083 0.0012
14 0.001179 0.0012
15 0.001300 0.0013
16 0.001447 0.0014
17 0.001614 0.0015
18 0.001805 0.0016
19 0.002029 0.0018
20 0.002289 0.002
UNIT FUND
Fund at end year
Policy Fund at Allocated Bid offer before AMC Fund at
Year start Premium Premium spread deduction AMC end
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NON-UNIT FUND
Non-
Policy allocated Bid Offer
Year premium Spread Expenses Commission