SOCIETY OF ACTUARIES

EXAM MLC ACTUARIAL MODELS

EXAM MLC SAMPLE SOLUTIONS

Copyright 2008 by the Society of Actuaries

Some of the questions in this study note are taken from past SOA examinations.

MLC-09-08

PRINTED IN U.S.A.

Question #1
Key: E
2

q30:34 = 2 p30:34 3 p30:34

2

p30 = ( 0.9 )( 0.8 ) = 0.72

p34 = ( 0.5 )( 0.4 ) = 0.20

p30:34 = ( 0.72 )( 0.20 ) = 0.144

2

p30:34 = 0.72 + 0.20 0.144 = 0.776

p30 = ( 0.72 )( 0.7 ) = 0.504

p34 = ( 0.20 )( 0.3) = 0.06

p30:34 = ( 0.504 )( 0.06 ) = 0.03024

p30:34 = 0.504 + 0.06 0.03024

= 0.53376

q30:34 = 0.776 0.53376

= 0.24224

Alternatively,
2 q30:34 = 2 q30 + 2 q34 2 q30:34

= 2 p30q32 + 2 p34q36 2 p30:34 1 p32:36

= (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

MLC-09-08

p30 ,

p34 ,

p30 ,

p34 )

-1-

Question #2

Key: E
1000 Ax = 1000 Ax1:10 + 10 Ax

10
= 1000 e 0.04t e 0.06t (0.06)dt + e0.4e0.6 e0.05t e0.07t (0.07)dt
0

10
= 1000 0.06 e 0.1t dt + e 1 (0.07) e0.12t dt
0
0

0.10 t 10
0.12 t

= 1000 0.06 e0.10 + e 1 (0.07) e0.12

1
1.2
1 e 1 + 0.07
= 1000 0.06
0.12 e 1 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 =

10 E x

Ax =

=e

(1 10 Ex )

10 ( + )

With those relationships, the solution becomes

1000 Ax = 1000 Ax1:10 + 10 Ex Ax +10

0.06
0.07
( 0.06+ 0.04 )10
0.06+ 0.04 )10
= 1000
+e (
1 e

0.07 + 0.05
0.06 + 0.04

= 1000 ( 0.60 ) 1 e 1 + 0.5833 e 1

= 593.86

Question #3
Key: D

1
dt
20
1 100
5
0.07 t

e
=

0
20 7
7

E [ Z ] = bt v t t p x ( x + t ) dt = e0.06 t e 0.08 t e0.05 t

0

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E Z 2 =

(b v )
t

px ( x + t ) dt = e0.12t e0.16t e0.05t

0

1
1
dt = e0.09t dt
20
20 0
1 100 0.09t 5

=
e
0 = 9
20 9

5 5
Var [ Z ] = = 0.04535
9 7

Question #4
Key: C
Let ns = nonsmoker and s = smoker
k=

q xb + kg
ns

pxb + kg

q xb +gk
s

px( +)k

.05

0.95

0.10

0.90

.10

0.90

0.20

0.80

.15

0.85

0.30

0.70

1 ns
A x:2( ) =

ns
v q x( ) +

1
( 0.05)
1.02
A x:2( )
1 s

s
qx( )

1
1.02

ns
px( )

v2

1
1.022

ns

ns

0.95 0.10 = 0.1403

+ v2

( 0.10 ) +

qx( +1)

(1.02 )2

s
px( )

q x( +)1
s

0.90 0.20 = 0.2710

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

= 0.1730

Question #5
Key: B

x( ) = x(1) + x( 2 ) + x( 3) = 0.0001045
t

px( ) = e 0.0001045t

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-3-

1
APV Benefits = e t 1,000,000 t px ( ) x( ) dt
0

+ e
0

2
500,000 t px ( ) x( ) dt

3
+ e 200,000 t px ( ) x( ) dt
0

1,000,000 0.0601045t
500,000 0.0601045t
250,000 0.0601045t
e
dt +
e
dt +
e
dt

2,000,000 0
250,000 0
10,000 0

= 27.5 (16.6377 ) = 457.54

Question #6

Key: B
1
APV Benefits = 1000 A40:20
+

APV Premiums = a&&40:20 +

k E401000vq40+k

k = 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

1
= 1000 A40:
20

/ a&&40:20

161.32 ( 0.27414 )( 369.13)

14.8166 ( 0.27414 )(11.1454 )

= 5.11
1
and was structured to take
While this solution above recognized that = 1000 P40:20

advantage of that, it wasnt necessary, nor would it save much time. Instead, you could
do:

APV Benefits = 1000 A40 = 161.32

APV 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

MLC-09-08

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Question #7

Key: C
ln (1.06 )
( 0.53) = 0.5147
0.06
1 A70 1 0.5147
=
= 8.5736
a&&70 =
d
0.06 /1.06
0.97
a&&69 = 1 + vp69a&&70 = 1 +
( 8.5736 ) = 8.8457
1.06

A70 = A70 =
i

( 2)
= ( 2 ) a&&69 ( 2 ) = (1.00021)( 8.8457 ) 0.25739
a&&69

= 8.5902

( m 1) works well (is closest to the exact answer,

m
Note that the approximation a&&x( ) a&&x
2m
1
only off by less than 0.01). Since m = 2, this estimate becomes 8.8457 = 8.5957
4
Question #8
Key: C
The following steps would do in this multiple-choice context:
1.
From the answer choices, this is a recursion for an insurance or pure
endowment.
2.
Only C and E would satisfy u(70) = 1.0.
1+ i
u ( k 1)
3.
It is not E. The recursion for a pure endowment is simpler: u ( k ) =
pk 1
4.
Thus, it must be C.
More rigorously, transform the recursion to its backward equivalent,
u ( k 1) in terms of u ( k ) :
q 1+ i
u ( k ) = k 1 +
u ( k 1)
pk 1 pk 1
pk 1u ( k ) = qk 1 + (1 + i ) u ( k 1)
u ( k 1) = vqk 1 + vpk 1 u ( k )

This is the form of (a), (b) and (c) on page 119 of Bowers with x = k 1 . Thus, the
recursion could be:

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Ax = vqx + vpx Ax +1
or

A1x: y x = vq x + vp x Ax1+1: y x 1

or

Ax: y x = vqx + vpx Ax +1: y x 1

Condition (iii) forces it to be answer choice C

u ( k 1) = Ax fails at x = 69 since it is not true that

A69 = vq69 + vp69 (1)

u ( k 1) = A1x: y x fails at x = 69 since it is not true that

1
A69:1
= vq69 + vp69 (1)

u ( k 1) = Ax: y x is OK at x = 69 since

A69:1 = vq69 + vp69 (1)

Note: While writing recursion in backward form gave us something exactly like page
119 of Bowers, in its original forward form it is comparable to problem 8.7 on page 251.
Reasoning from that formula, with h = 0 and bh +1 = 1 , should also lead to the correct
answer.

MLC-09-08

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Question #9
Key: A
You arrive first if both (A) the first train to arrive is a local and (B) no express arrives in
the 12 minutes after the local arrives.
P ( A) = 0.75
Expresses arrive at Poisson rate of ( 0.25 )( 20 ) = 5 per hour, hence 1 per 12 minutes.

e 110
= 0.368
0!
A and B are independent, so
P ( A and B ) = ( 0.75 )( 0.368 ) = 0.276
f ( 0) =

Question #10

Key: E
d = 0.05 v = 0.095
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

so P40 =

10 L

1000 A40 350.76

=
= 27.013
a&&40
12.9848

K ( 40 ) 10 = 1000 A50

Revised

Revised

P40a&&50

= 549.18 ( 27.013)( 9.0164 ) = 305.62

where
Revised

A50

and

24

= v k +1 k q50

k =0
Revised
a&&50
=

MLC-09-08

Revised

(1 A

Revised
50

= 0.04 v1 + ... + v 25 = 0.04v 1 v 25 / d = 0.54918

) / d = (1 0.54918) / 0.05 = 9.0164

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Question #11
Key: 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
S
E aT Y = 1 = ax =

1 0.444
= 5.56
0.1
1 0.286
Similarly E aT Y = 0 =
= 7.14
0.1
=

( (

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

( (

E E aT Y

))

( (

2
2
= 7.14 ( 0.70 ) + 5.56 ( 0.30 )
= 44.96

) ) = 44.96 6.672 = 0.47

E ( Var ( aT Y ) ) = ( 8.503)( 0.70 ) + ( 8.818 )( 0.30 )

Var E aT Y

= 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. This

can be
2

( )

transformed into E Y 2 = Var (Y ) + E (Y ) which we will use in its conditional form

(( )

E aT

NS = Var aT NS + E aT NS

( )

Var aT = E aT

E aT

E aT = E aT S Prob [S] + E aT NS Prob [ NS]

MLC-09-08

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= 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

= E aT 2 S Prob [S] + E aT 2 NS Prob [ NS]

( (

) (

2
= 0.30 Var aT S + E aT S

+0.70 Var aT NS + E aT NS

2
2
= 0.30 8.818 + ( 5.56 ) + 0.70 8.503 + ( 7.14 )

11.919 + 41.638 = 53.557

Var aT = 53.557 ( 6.67 ) = 9.1

2

Alternatively, here is a solution based on aT =

1 vT

1 v
Var aT = Var

T

( )

vT
= Var
since Var ( X + constant ) = Var ( X )

=

( ) since Var ( constant X ) = constant

Var vT

2
2

Ax ( Ax )

Var ( X )

which is Bowers formula 5.2.9

( )

This could be transformed into 2Ax = 2 Var aT + Ax2 , which we will use to get
2

Ax NS and 2AxS .

MLC-09-08

-9-

Ax = E v 2T

= E v 2T NS Prob ( NS) + E v 2T S Prob ( S )

2
= 2 Var aT NS + Ax NS Prob ( NS)

2
+ 2Var aT S + AxS Prob ( S)

) (

) ( )

= ( 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
Ax ( Ax )

( )

Var aT =
=

2
0.20238 0.33342
= 9.12
0.01

Question #12
Key: A
To be a density function, the integral of f must be 1 (i.e., everyone dies eventually). The
solution is written for the general case, with upper limit . Given the distribution of
f 2 ( t ) , we could have used upper limit 100 here.
Preliminary calculations from the Illustrative Life Table:

l50
= 0.8951
l0
l40
= 0.9313
l0

MLC-09-08

- 10 -

50

50

1 = fT ( t ) dt = k f1 ( t ) dt + 1.2 f 2 ( t )dt
= k

50

f1 ( t ) dt + 1.2 f 2 ( t )dt
50

= k F1 ( 50 ) + 1.2 ( F2 ( ) F2 ( 50 ) )
= k (1 50 p0 ) + 1.2 (1 0.5 )
= k (1 0.8951) + 0.6
k=

1 0.6
= 3.813
1 0.8951

For x 50, FT ( x ) = 3.813 f1 ( t ) dt = 3.813F1 ( x )

x

l
FT ( 40 ) = 3.813 1 40 = 3.813 (1 0.9313) = 0.262
l0

l
FT ( 50 ) = 3.813 1 50 = 3.813 (1 0.8951) = 0.400
l0

10

p40 =

1 FT ( 50 ) 1 0.400
=
= 0.813
1 FT ( 40 ) 1 0.262

Question #13
Key: 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
S ( t ) = 0.3e0.2 t + 0.7e0.1t

Want t such that 0.75 = 1 S ( t ) or 0.25 = S ( t )

0.25 = 0.3e2t + 0.7e 0.1t = 0.3 e0.1t

+ 0.7e0.1t

Substitute: let x = e 0.1t

0.3 x 2 + 0.7 x 0.25 = 0

MLC-09-08

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This is quadratic, so x =

0.7 0.49 + ( 0.3)( 0.25 ) 4

2 ( 0.3)

x = 0.3147

e 0.1t = 0.3147

so t = 11.56

Question #14
Key: A

P ( Ax ) = = 0.03
2

0.03
2 + 2 + 0.03
= 0.06

Ax = 0.20 =

Var ( 0 L ) =
where A =

Ax ( Ax )

( a )2

0.20 ( 13 )

( 0.06
0.09 )

0.03 1
=
0.09 3

a=

= 0.20
1
1
=
+ 0.09

Question #15
Key: C
Let N = number of sales on that day
S = aggregate prospective loss at issue on those sales
K = curtate future lifetime
N~Poisson (0.250)
0L

= 10,000v

K +1

500a&&K +1

500 K +1 500

0 L = 10,000 +
v
d
d

E [ N ] = Var [ N ] = 10

E [ 0 L ] = 10,000 A65 500a&&65

2

500 2
2

Var [ 0 L ] = 10,000 +
A65 ( A65 )
d

S = 0 L1 + 0 L2 + ... + 0 LN
E [ S ] = E [ N ] E [ 0 L]

Var [ S ] = Var [ 0 L ] E [ N ] + ( E [ 0 L ]) Var [ N ]

2

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0 E [S ]

Pr ( S < 0 ) = Pr Z <

Var
S
[
]

Substituting d = 0.06/(1+0.06), 2 A65 = 0.23603, A65 = 0.43980 and a&&65 = 9.8969 yields
E [ 0 L ] = 550.45

Var [ 0 L ] = 15,112,000
E [ S ] = 5504.5
Var [ S ] = 154,150,000

Std Dev (S) = 12,416

S + 5504.5 5504.5
Pr ( S < 0 ) = Pr
<
12, 416
12,416
= Pr ( Z < 0.443)
= 0.67

With the answer choices, it was sufficient to recognize that:

0.6554 = ( 0.4 ) < ( 0.443) < ( 0.5 ) = 0.6915
By interpolation, ( 0.443) ( 0.43) ( 0.5 ) + ( 0.57 ) ( 0.4 )

= ( 0.43)( 0.6915 ) + ( 0.57 )( 0.6554 )

= 0.6709

MLC-09-08

- 13 -

Question #16
Key: A
1000 P40 =

A40 161.32
=
= 10.89
a&&40 14.8166

a&&
11.1454
1000 20V40 = 1000 1 60 = 1000 1
= 247.78
14.8166
a&&40
( 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

1
1000 A40 + 4000 20 E40 A60:5
= 1000 P40 + 5000 P40 20 E40 a&&60:5 +

20 E40 5 E60

a&&65

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

above)
calculate 21V recursively.
20V

1
= 4000 A60:5
+ 1000 A60 5000 P40 a&&60:5 5 E60 a&&65

20 V

prospectively then (as

= ( 4000 )( 0.06674 ) + 369.13 ( 5000 )( 0.01089 )( 4.3407 ) ( 22.32 )( 0.68756 )( 9.8969 )

= 247.86 (minor rounding difference from 1000 20V40 )

MLC-09-08

- 14 -

Or we can continue to
21V

1
5000 A61:4

where

4 E61

21V

prospectively

+ 1000 4 E61 A65 5000 P40 a&&61:4 4 E61 a&&65

l65 4 7,533,964
v =
( 0.79209 ) = 0.73898
l61
8,075, 403

1
A61:4
= A61 4 E61 A65 = 0.38279 0.73898 0.43980

a&&61:4

= 0.05779
= 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.

Question #17
Key: C
Var ( Z ) = 2 A41 ( A41 )

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 A41 (0.0028 /1.052 + 0.9972 /1.052

2

A41 = 0.07193

Var ( Z ) = 0.07193 0.216502

= 0.02544

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- 15 -

A41 )

Question #18
Key: D
This solution looks imposing because there is no standard notation. Try to focus on the
big picture ideas rather than starting with the details of the formulas.
Big picture ideas:
1.
We can express the present values of the perpetuity recursively.
2.
Because the interest rates follow a Markov process, the present value (at time t )
of the future payments at time t depends only on the state you are in at time t ,
not how you got there.
3.
Because the interest rates follow a Markov process, the present value of the
future payments at times t1 and t2 are equal if you are in the same state at times
t1 and t2 .
Method 1: Attack without considering the special characteristics of this transition matrix.
Let sk = state you are in at time k ( thus sk = 0, 1 or 2 )
Let Yk = present value, at time k , of the future payments.
Yk is a random variable because its value depends on the pattern of discount factors,
which are random. The expected value of Yk is not constant; it depends on what state
we are in at time k.
Recursively we can write
Yk = v (1 + Yk +1 ) , where it would be better to have notation that indicates the vs are not

constant, but are realizations of a random variable, where the random variable itself has
different distributions depending on what state were in. However, that would make the
notation so complex as to mask the simplicity of the relationship.
Every time we are in state 0 we have
E Yk sk = 0 = 0.95 1 + E Yk +1 sk = 0

( {(

))
(
= 1 ) Pr ob ( s
= 2 ) Pr ob ( s

)
= 1 s = 0])
= 2 s = 0])}

= 0.95 1 + E Yk +1 sk +1 = 0 Pr ob s k+1 = 0 sk = 0]

(
= ( E Y

+ E Yk +1 sk +1
k +1

sk +1

= 0.95 1 + E Yk +1 sk +1 = 1

MLC-09-08

k +1
k +1

)
- 16 -

That last step follows because from the transition matrix if we are in state 0, we always
move to state 1 one period later.
Similarly, every time we are in state 2 we have
E Yk sk = 2 = 0.93 1 + E Yk +1 sk = 2

= 0.93 1 + E Yk +1 sk +1 = 1

That last step follows because from the transition matrix if we are in state 2, we always
move to state 1 one period later.
Finally, every time we are in state 1 we have
E Yk sk = 1 = 0.94 1 + E Yk +1 sk = 1

( {

})

= 0.94 1 + E Yk +1 sk +1 = 0 Pr sk +1 = 0 sk = 1 + E Yk +1 sk +1 = 2 Pr sk +1 = 2 sk = 1

( {

})

= 0.94 1 + E Yk +1 sk +1 = 0 0.9 + E Yk +1 sk +1 = 2 0.1 . Those last two steps follow

from the fact that from state 1 we always go to either state 0 (with probability 0.9) or
state 2 (with probability 0.1).

Now lets write those last three paragraphs using this shorter notation:
xn = E Yk sk = n . We can do this because (big picture idea #3), the conditional
expected value is only a function of the state we are in, not when we are in it or how we
got there.

x0 = 0.95 (1 + x1 )
x1 = 0.94 (1 + 0.9 x0 + 0.1x2 )
x2 = 0.93 (1 + x1 )
Thats three equations in three unknowns. Solve (by substituting the first and third into
the second) to get x1 = 16.82 .
Thats the answer to the question, the expected present value of the future payments
given in state 1.
The solution above is almost exactly what we would have to do with any 3 3 transition
matrix. As we worked through, we put only the non-zero entries into our formulas. But
if for example the top row of the transition matrix had been ( 0.4 0.5 0.1) , then the first
of our three equations would have become x0 = 0.95 (1 + 0.4 x0 + 0.5 x1 + 0.1x2 ) , similar in
structure to our actual equation for x1 . We would still have ended up with three linear
equations in three unknowns, just more tedious ones to solve.
Method 2: Recognize the patterns of changes for this particular transition matrix.

MLC-09-08

- 17 -

This particular transition matrix has a recurring pattern that leads to a much quicker
solution. We are starting in state 1 and are guaranteed to be back in state 1 two steps
later, with the same prospective value then as we have now.
Thus,
E [Y ] = E Y first move is to 0 Pr [ first move is to 0] + E Y first move is to 2 Pr [first move is to 2 ]

= 0.94 1 + 0.95 (1 + E [Y ] 0.9 + 0.94 1 + 0.93 (1 + E [Y ]) 0.1

(Note that the equation above is exactly what you get when you substitute x0 and x2
into the formula for x1 in Method 1.)
= 1.6497 + 0.8037 E [Y ] + 0.1814 + 0.0874 E [Y ]
E [Y ] =

1.6497 + 0.1814
(1 0.8037 0.0874 )

= 16.82

Question #19
Key: E
The number of problems solved in 10 minutes is Poisson with mean 2.
If she solves exactly one, there is 1/3 probability that it is #3.
If she solves exactly two, there is a 2/3 probability that she solved #3.
If she solves #3 or more, she got #3.
f(0) = 0.1353
f(1) = 0.2707
f(2) = 0.2707

1
2
P = ( 0.2707 ) + ( 0.2707 ) + (1 0.1353 0.2707 0.2707 ) = 0.594
3
3

MLC-09-08

- 18 -

Question #20
Key: D

x( ) = x(1) ( t ) + x( 2 ) ( t )

2
= 0.2 x( ) ( t ) + x( ) ( t )
2

x( ) ( t ) = 0.8 x( ) ( t )
1

0.2 k t
'1
'1
qx( ) = 1 px( ) = 1 e 0

dt

= 1 e

0.2

k
3

= 0.04

ln (1 0.04 ) / ( 0.2 ) = 0.2041

k = 0.6123
( 2)
2 qx

0 t

2
2

px( ) x( ) dt = 0.8
0

= 0.8 2 qx( ) = 0.8 1 2 px( )

px( ) x( ) ( t ) dt

x (t ) d t
( )
0
2 px = e
2

kt
= e 0

dt

8 k
e 3
( 8 ) ( 0.6123)
3
e

=
= 0.19538
( 2)
2 qx

= 0.8 (1 0.19538 ) = 0.644

Question #21
Key: A
k

min(k ,3)

f(k)

f ( k ) ( min(k ,3) )

f ( k ) min ( k ,3)

0
1
2
3+

0
1
2
3

0.1
(0.9)(0.2) = 0.18
(0.72)(0.3) = 0.216
1-0.1-0.18-0.216 = 0.504

0
0.18
0.432
1.512
2.124

0
0.18
0.864
4.536
5.580

MLC-09-08

- 19 -

E [ min( K ,3) ] = 2.124

E min ( K ,3)

} = 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.
Problem 3.17 in Bowers, pages 86 and 87, gives an alternative formula for the variance,
basing the calculation on k px rather than k q x .
Question #22
Key: B
0.1 60
0.08 60
e ( )( ) + e ( )( )
2
= 0.005354

s ( 60 ) =

0.1 61
0.08 61
e ( )( ) + e ( )( )
2
= 0.00492
0.00492
q60 = 1
= 0.081
0.005354

s ( 61) =

Question #23
Key: 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 Michels 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

Michels benefit reserves are the same as for a standard insurance.

Subtract the second equation from the first to get:

MLC-09-08

- 20 -

0 = (1.03) (0.01) + c(1 20V45 )

c=

(1.03) ( 0.01)
(1 20V45 )

0.0103
1 0.427
= 0.018
=

Question #24
Key: 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
(1 Ax )
E [ L ] = ( Ax a&&x ) = Ax
d
0.75095
= 0.24905 0.025
= 0.082618
0.056604

Var [ L ] = 1 +
d

Ax

Ax2

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
0.260833
M = 26.97
1.645 =

minimum number needed = 27

MLC-09-08

0.025
2

= 1 +
0.09476 ( 0.24905 ) = 0.068034
0.056604

- 21 -

Question #25
Key: D

Death benefit:

1 v K +1
for K = 0,1, 2,...
Z1 = 12,000
d
Z 2 = Bv K +1
for K = 0,1, 2,...

New benefit:

Z = Z1 + Z 2 = 12,000

Annuity benefit:

1 v K +1
+ Bv K +1
d
12,000
12,000 K +1
=
+B
v
d
d

12,000

K +1
Var( Z ) = B
Var v
d

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 2Var ( X )

Question #26
Key: A

xy ( 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 = xy ( t ) / xy ( t ) + = 0.6667

axy = 1/ xy ( t ) + = 5.556
Axy = Ax + Ay Axy = 0.5714 + 0.4 0.6667 = 0.3047
Premium = 0.304762/5.556 = 0.0549

MLC-09-08

- 22 -

Question #27
Key: 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 1000 P40 instead of
1000 P42 .

MLC-09-08

- 23 -

Question #28
Key: E

E min (T ,40 ) = 40 0.005 ( 40 ) = 32

2

32 = t f ( t ) dt + 40 f ( t ) dt
40

40

= t f ( t ) dt t f ( t ) dt + 40 (.6 )
w

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

Question #29
Key: B
d = 0.05 v = 0.95

Step 1 Determine px from Kevins 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 )

[ 299.25 + 608] = 489.08
1000 Px:2 =
1.855

The first line of Kiras solution is that the actuarial present value of Kevins benefit
premiums is equal to the actuarial present value of Kiras, since each must equal the
actuarial present value of benefits. The actuarial present value of benefits would also
have been easy to calculate as
(1000 )( 0.95)( 0.1) + (1000 ) 0.952 ( 0.9 ) = 907.25

MLC-09-08

- 24 -

Question #30
Key: E
Because no premiums are paid after year 10 for (x), 11Vx = Ax +11
Rearranging 8.3.10 from Bowers, we get
10V

h +1V

( hV + h ) (1 + i ) bh+1qx+ h

( 32,535 + 2,078) (1.05) 100,000 0.011 = 35,635.642

px + h

0.989
( 35,635.642 + 0 ) (1.05) 100,000 0.012 = 36,657.31 = A
11V =
x +11
0.988

Question #31
Key: B

For De Moivres law where s ( x ) = 1 :

and t px = 1

2
x
105 45

= 30
e45 =
2
105 65
= 20
e65 =
2

ex =

e 45:65 =
=

40
0

p45:65dt =

40 60 t
0

FG
H

60

40 t
dt
40

60 + 40 2 1 3
1
60 40 t
t + t
2
3
60 40

IJ
K

40
0

= 1556
.
o

e 45:65 = e 45 + e 65 e 45:65
= 30 + 20 1556
. = 34
o

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.

MLC-09-08

- 25 -

Question #32
Answer: E

bg bg bg
d e / 100i
=
4 = s' 4 / s 4
4

1 e4 / 100

e4 / 100
1 e4 / 100

e4
100 e4

= 1202553
.
Question # 33
Answer: A

bi g
g L ln px O
ig
b
b
b g LM ln e OP
qx = qx M
=
q
P
x
M ln p b g P M ln e-b g P
bi g

b g
g
b
= q x 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

b0.7769g
q xb 2 g =
b g

b2g

b0.5gb0.7769g
15
.

= 0.2590

MLC-09-08

- 26 -

Question # 34
Answer: D

22

A 60 = v 3

q 60 + 2

live
then die
2 years in year 3

+ v4

3p 60

live
3 years

pay at end
of year 3

pay at end
of year 4

2 p 60

q60+ 3
then die
in year 4

1
. gb013
. g+
. gb1 013
. gb015
. g
1 0.09gb1 011
b
b1 0.09gb1 011
. g
. g
b103
b103
1

= 019
.

Question # 35
Answer: B

a x = a x:5 +5 E x a x +5

a x:5
5 Ex

1 e 0.07b5g
=
= 4.219 , where 0.07 = + for t < 5
0.07
= e 0.07b5g = 0.705

a x +5 =

1
= 12.5 , where 0.08 = + for t 5
0.08

gb g

a x = 4.219 + 0.705 12.5 = 13.03

MLC-09-08

- 27 -

Question #36
Key: D

1
2
px( ) = p ' x( ) p ' x( ) = 0.8 ( 0.7 ) = 0.56

( )
( )

ln p ' (1)
x
1
q( ) since UDD in double decrement table
qx( ) =
ln p( ) x
x

ln ( 0.8 )
=
0.44
ln ( 0.56 )
= 0.1693
(1)

0.3 q x + 0.1

0.3qx( )
1

= 0.053

1 0.1qx( )

To elaborate on the last step:

Number dying from cause

1 between x + 0.1 and x + 0.4

(1)

0.3 q x + 0.1 =
Number alive at x + 0.1
Since UDD in double decrement,

1
l x( ) ( 0.3) qx( )

lx( ) 1 0.1qx( )

MLC-09-08

- 28 -

Question #37
Key: E

P ( Ax ) =

1
1
= 0.04 = 0.04333
12
ax
o Le = o L + E
= v T P ( Ax ) aT + co + ( g e ) aT

1 vT
1 vT
= v P ( Ax )
+ co + ( g e )

P ( Ax ) ( g e ) P ( Ax )
( g e)

= v T 1 +

+ co +

( )

Var ( o Le ) = Var v

P ( Ax ) ( g e )
1 +

Above step is because for any random variable X and constants a and b,
Var ( a X + b ) = a 2 Var ( X ) .
Apply that formula with X = v T .
Plugging in,
0.04333 ( 0.0030 0.0066 )
Var ( o Le ) = ( 0.10 ) 1 +

0.04
0.04

= ( 0.10 )( 2.17325 )

= 0.472

Question #38
Key: D
0.7 0.1 0.2

T = 0.3 0.6 0.1

0
0
1

MLC-09-08

0.52 0.13 0.35

T = 0.39 0.39 0.22

0
0
1

- 29 -

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

MLC-09-08

- 30 -

Question # 39
Answer: D

b gb gb g

Per 10 minutes, find coins worth exactly 10 at Poisson rate 0.5 0.2 10 = 1
Per 10 minutes,

f
f
f
f

b0g = 0.3679
b1g = 0.3679
.
b2g = 01839
b3g = 0.0613

bg
bg
bg
bg

F 0 = 0.3679
F 1 = 0.7358
F 2 = 0.9197
F 3 = 0.9810

Let Period 1 = first 10 minutes; period 2 = next 10.

Method 1, succeed with 3 or more in period 1; or exactly 2, then one or more in period 2
P = 1 F 2 + f 2 1 F 0 = 1 0.9197 + 01839
.
1 0.3679

b gh b gc

b gh b

g b

gb

= 01965
.

bg
bg bg
b gb

Pr ob = F 1 = 0.7358
Pr ob = f 2 f 0
= 01839
.
0.3679 = 0.0677
Pr ob = 1 0.7358 0.0677
= 01965
.

Method 2: fail in period 1 if < 2;

fail in period 2 if exactly 2 in period 1, then 0;
Succeed if fail neither period;

(Method 1 is attacking the problem as a stochastic process model; method 2 attacks it

as a ruin model.)

Question # 40
Answer: D

Use Mod to designate values unique to this insured.

g b gb g
= 1000b0.36933 / 111418
.
.
g = 3315

a&&60 = 1 A60 / d = 1 0.36933 / 0.06 / 106

.
= 111418
.

1000 P60 = 1000 A60 / a&&60

Mod
Mod
A60Mod = v q60
A61 =
+ p60

MLC-09-08

gb

1
.
01376
+ 0.8624 0.383 = 0.44141
.
106

- 31 -

a&& Mod = 1 A60Mod / d = 1 0.44141 / 0.06 / 106

. = 9.8684

Mod
E 0 LMod = 1000 A60Mod P60a&&60

i
b

= 1000 0.44141 0.03315 9.8684

= 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
A
A60 = 40
a&&40

0.36913 =

a&&40:10
10 E40 10 E50

P50Mod

a&&50:10
10 E50

1
A40
:20
20 E40

016132
.
7.70
7.57
0.06

+ P50Mod

14.8166 0.53667 0.51081

0.51081 0.27414

gb

0.36913 = 0.30582 + 14.8196 P50Mod 0.21887

1000 P50Mod = 19.04
Alternatively, you could equate the retrospective and prospective reserves at age 50.
Your equation would be:
A50

P50Mod

a&&50:10

1
A40 a&&40:10 A40:10
=

a&&40 10 E40 10 E40

1
where A40
= A40 10 E40 A50
:10

gb

= 016132
.
0.53667 0.24905
= 0.02766

MLC-09-08

- 32 -

.
7.70
0.02766

ib g 14016132
.8166 0.53667 0.53667
1000
014437
.
b gb
g = 19.07
=

0.24905 P50Mod 7.57 =

1000 P50Mod

7.57

Alternatively, you could set the actuarial present value of benefits at age 40 to the
actuarial 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

016132
.
=

10 E40

a&&50:10

.
FG 016132
IJ b7.70g + d P ib0.53667gb7.57g
H 14.8166K
b1000gb0.07748g = 19.07
=
Mod
50

1000 P50Mod

4.0626

Question # 42
Answer: A
d xb 2 g = q xb 2 g lxb g = 400

b g

d xb1g = 0.45 400 = 180

q x b 2 g =

d xb 2 g

lxb g d xb1g

400
= 0.488
1000 180

pxb 2 g = 1 0.488 = 0.512

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.

MLC-09-08

- 33 -

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 q0b1g = 1 4 , q1 b1g = 15 , q2b1g = 1 3
q0b 2 g =

q b 3g = 1

5,

q1b 2 g =

3,

q b3g = 1

10 ,

9,

gb

q2b 2 g =

q b 3g = 1
2

gb

This gives p0b g = 1 1 / 4 1 1 / 5 1 1 / 10 = 0.54

b gb gb g
pb g = b1 1 / 3gb1 1 / 8gb1 1 / 4g = 0.438
So 1b g = 200, 1b g = 200 b0.54g = 108 , and 1b g = 108 b0.474g = 512
.
p1b g = 1 1 / 5 1 1 / 3 1 1 / 9 = 0.474

q2b1g = log p2b1g / log p2b g q2b g

c h / logb0.438g 1 0.438
= b0.405 / 0.826gb0.562g

q2b1g = log

2
3

= 0.276
d2b1g = l2b g q2b1g
= 512
. 0.276 = 14

b gb

Question #44
Answer: C

Let:

G =

N = number
X = profit
S = aggregate profit
subscripts G = good, B = bad, AB = accepted bad

c hb60g = 40
2
3

MLC-09-08

- 34 -

 AB =

c hc hb60g = 10
1
2

1
3

(If you have trouble accepting this, think instead of a heads-tails

rule, that the application is accepted if the applicants government-issued identification

number, e.g. U.S. Social Security Number, is odd. It is not the same as saying he
automatically alternates accepting and rejecting.)

b g b g b g b g b g
= b40gb10,000g + b40gd300 i = 4,000,000
Var b S g = E b N g Var b X g + Var b N g E b X g
= b10gb90,000g + b10gb100g = 1,000,000
S and S are independent, so
Var b S g = Var b S g + Var b S g = 4,000,000 + 1,000,000
Var SG = E N G Var X G + Var N G E X G

AB

AB

AB

AB

AB

AB

AB

= 5,000,000

If you dont treat it as three streams (goods, accepted bads, rejected bads), you
can compute the mean and variance of the profit per bad received.
B = 13 60 = 20

c hb g

b g b g
= 90,000 + b100g = 100,000

d i

If all bads were accepted, we would have E X 2 B = Var X B + E X B

Since the probability a bad will be accepted is only 50%,

E X B = Prob accepted E X B accepted + Prob not accepted E X B not accepted

b g

b
g c
h
= b0.5gb 100g + b0.5gb0g = 50
E d X i = b0.5gb100,000g + b0.5gb0g = 50,000

g c

2
B

Likewise,
Now Var S B = E N B Var X B + Var N B E X B

b g b g b g b g b g
= b20gb47,500g + b20gd50 i = 1,000,000
2

SG and S B are independent, so

Var S = Var SG + Var S B = 4,000,000 + 1,000,000
= 5,000,000

bg

b g

b g

Question #45
Key: E

MLC-09-08

- 35 -

ex =

For De Moivres Law:

x
2

qx =

x 1

Ax =

k +1

k =b

1 x 1 k +1
v
k qx =
x k =b

a x

Ax =
a&&x =

1
x

x
1 Ax
d

e50 = 25 = 100 for typical annuitants

o

e y = 15 y = Assumed age = 70
A70 =

a30

= 0.45883
30
a&&70 = 9.5607
500000 = b a&&20 b = 52, 297

Question #46
Answer: B

10 E30:40 = 10 p30 10

d p v id p v ib1 + i g
= b E gb E gb1 + i g
= b0.54733gb0.53667 gb179085
.
g

p40 v10 =

10

10

30

10

10

10

40

10

10

30

10

40

= 0.52604
The above is only one of many possible ways to evaluate
should give 0.52604
a30:40:10 = a30:40 10 E30:40 a30+10:40+10

b
g b
gb
g
= b13.2068g b0.52604gb114784
.
g
= a&&30:40 1 0.52604 a&&40:50 1
= 7.1687

MLC-09-08

- 36 -

10

p30

10

p40 v10 , all of which

Question #47
Answer: A
Equivalence Principle, where is annual benefit premium, gives

b g

1000 A35 + IA

35

= a&&x

1000 A35
1000 0.42898
=
(1199143
.
.
)
616761
a&&35 IA 35

b gi

428.98
.
582382
= 73.66
=

We obtained a&&35 from

a&&35 =

1 A35 1 0.42898
=
= 1199143
.
0.047619
d

MLC-09-08

- 37 -

Question #48
Answer: C

Time until arrival = waiting time plus travel time.

Waiting time is exponentially distributed with mean 1 . The time you may already have
been waiting is irrelevant: exponential is memoryless.
You: E (wait) = 201 hour = 3 minutes
E (travel) = 0.25 16 + 0.75 28 = 25 minutes
E (total) = 28 minutes

b gb g b gb g

Co-worker:

E (wait) = 15 hour = 12 minutes

E (travel) = 16 minutes
E (total) = 28 minutes

Question #49
Answer: C

xy = x + y = 014
.

0.07
Ax = Ay =
=
= 0.5833
+ 0.07 + 0.05
xy
014
014
1
1
.
.
Axy =
=
=
= 0.7368 and a xy =
=
= 5.2632
xy + 014
xy + 014
. + 0.05 019
.
. + 0.05
P=

Axy
a xy

Ax + Ay Axy

MLC-09-08

a xy

2 0.5833 0.7368
= 0.0817
5.2632

- 38 -

Question #50
Answer: E

b V + P gb1 + ig q b1 V g= V
b0.49 + 0.01gb1 + ig 0.022b1 0.545g = 0.545
b1 + ig = b0.545gb1 0.022g + 0.022
20 20

20

40

21 20

21 20

0.50

= 111
.

b V + P gb1 + ig q b1 V g= V
. g q b1 0.605g = 0.605
b0.545+.01gb111
21 20

20

41

22 20

22 20

41

q41 =

0.61605 0.605
0.395

= 0.028

Question #51
Answer: E

1000 P60 = 1000 A60 / a&&60

gb
g
= 1000bq + p A g / b106
. + p a&& g
= c15 + b0.985gb382.79gh / c106
. + b0.985gb10.9041gh = 33.22
= 1000 v q60 + p60 A61 / 1 + p60 v a&&61
60

MLC-09-08

60

61

60

61

- 39 -

Question #52
Key: D

Since the rate of depletion is constant there are only 2 ways the reservoir can be empty
sometime within the next 10 days.
Way #1:
There is no rainfall within the next 5 days
Way #2
There is one rainfall in the next 5 days
And it is a normal rainfall
And there are no further rainfalls for the next five days
Prob (Way #1) = Prob(0 in 5 days) = exp(-0.2*5) = 0.3679
Prob (Way #2) = Prob(1 in 5 days) 0.8 Prob(0 in 5 days)
= 5*0.2 exp(-0.2* 5)* 0.8 * exp(-0.2* 5)
= 1 exp(-1) * 0.8 * exp(-1) = 0.1083
Hence Prob empty at some time = 0.3679 + 0.1083 = 0.476

Question #53
Key: E
+
0.96 = e ( 1 )

1 + = ln ( 0.96 ) = 0.04082
1 = 0.04082 = 0.04082 0.01 = 0.03082
Similarly

2 = ln ( 0.97 ) = 0.03046 0.01 = 0.02046

xy = 1 + 2 + = 0.03082 + 0.02046 + 0.01 = 0.06128
5

5 0.06128 )
pxy = e ( ) (
= e 0.3064 = 0.736

Question #54
Answer: B

Transform these scenarios into a four-state Markov chain, where the final disposition of
rates in any scenario is that they decrease, rather than if rates increase, as what is
given.

MLC-09-08

- 40 -

from year t 3
to year t 2
Decrease

from year t 2
to year t 1
Decrease

Probability that year t will

decrease from year t - 1
0.8

Increase

Decrease

0.6

Decrease

Increase

0.75

Increase

Increase

0.9

State

LM0.80
0.60
Transition matrix is M
MM0.00
N0.00

0.00
0.00
0.75
0.90

0.20
0.40
0.00
0.00

OP
PP
PQ

0.00
0.00
0.25
.
010

P002 + P012 = 0.8 * 0.8 + 0.2 * 0.75 = 0.79

For this problem, you dont need the full transition matrix. There are two cases to
consider. Case 1: decrease in 2003, then decrease in 2004; Case 2: increase in 2003,
then decrease in 2004.
For Case 1: decrease in 2003 (following 2 decreases) is 0.8; decrease in 2004
(following 2 decreases is 0.8. Prob(both) = 0.8 0.8 = 0.64
For Case 2: increase in 2003 (following 2 decreases) is 0.2; decrease in 2004 (following
a decrease, then increase) is 0.75. Prob(both) = 0.2 0.75 = 0.15
Combined probability of Case 1 and Case 2 is 0.64 + 0.15 = 0.79

MLC-09-08

- 41 -

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
60 K
b40 + 39+...+1g = b40gb41g = 13.66
=
60
2b60g

&&
20 a45 =

1 GH
60

K = 20

Hence,

Prob K 19 > 13.66 = Prob K > 32.66

b g
= ProbbT 33g

= Prob K 33 since K is an integer

= 33p45 =

l78 27
=
l45 60

= 0.450

MLC-09-08

- 42 -

Question #56
Answer: C

Ax =

Ax =

d IAi

E
0s x

zd

= 0.4

= 0.25 = 0.04

+ 2

0 s

Ax ds

Ax ds

ib g

e 0.1s 0.4 ds

F e I
= b0.4 gG
H 01. JK
0.1s

=
0

0.4
=4
01
.

Alternatively, using a more fundamental formula but requiring more difficult integration.

c IA h

=
=

z
z

bg
b0.04g e

t t px x t e t dt
t e 0.04 t

= 0.04

0.06 t

dt

t e 0.1t dt

(integration by parts, not shown)

t
1
= 0.04

e 0.1 t
0
01
. 0.01
0.04
=
=4
0.01

FG
H

MLC-09-08

IJ
K

- 43 -

Question #57
Answer: E

Subscripts A and B here just distinguish between the tools and do not represent ages.

We have to find e AB

eA =

eB =

FG 1 t IJ dt = t t
H 10K
20

z
z FGH
z FGH

e AB =

10

2 10

IJ
K

t
t2
dt = t
7
14

t
7

= 49

49
= 35
.
14

IJ FG 1 t IJ dt = z FG 1 t t + t IJ dt
K H 10K
H 10 7 70K
7

t2 t2
t3
=t +
20 14 210

= 7

49 49 343

+
= 2.683
20 14 210

= 10 5 = 5

e AB = e A + e B e AB
= 5 + 35
. 2.683 = 5817
.

MLC-09-08

- 44 -

Question #58
Answer: A

bg

bx g t = 0100
.
+ 0.004 = 0104
.
t

pxb g = e 0.104 t

Actuarial present value (APV) = APV for cause 1 + APV for cause 2.

2000 e 0.04 t e 0.104 t 0100

.
dt + 500,000 e 0.04 t e 0.104 t 0.400 dt
0

c b g

= 2000 010
. + 500,000 0.004
=

ghz e

5 0.144 t

dt

2200
1 e 0.144b5g = 7841
.
0144

Question #59
Answer: A

R = 1 px = q x
S = 1 px

eb k g since

d
e z

bg i

x t + k dt

=e z
=e z

bg

bg

e z

x t dt k dt
0

x t dt k dt
0

So S = 0.75R 1 px e k = 0.75q x

1 0.75q x
px
1 qx
px
ek =
=
1 0.75q x 1 0.75q x
e k =

k = ln

LM 1 q OP
N1 0.75q Q
x

MLC-09-08

- 45 -

Question #60
Key: C
A60 = 0.36913
2

d = 0.05660

A60 = 0.17741

and

2
A60 A60
= 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

On the 10000 lives,

E [ S ] = 10,000 E L ( ) and Var [ S ] = 10,000 Var L ( )
2

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

2
100 100,000 + 2 A60 A60
d

100 100,000 + ( 0.36913)
d
d
= 2.326

100,000 + ( 0.202862 )
d

0.63087

36913

100,000 +
0.63087

= 0.004719

36913 = 471.9 = 0.004719

d
36913 + 471.9
=
d 0.63087 0.004719
= 59706
= 59706 d = 3379

MLC-09-08

- 46 -

Question #61
Key: C
= ( 0V + ) (1 + i ) (1000 + 1V 1V ) q75

1V

= 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) + (1.05)
3

+ 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 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 2V equation, giving 2V in terms of ,
and then substitute that into the 3V equation.

Question #62
Answer: D

A281:2 =

3V

d
i
FG IJ
H K

b g

1
.
= 0.05827
1 e 2 = 0.02622 since = ln 106
72
71
= 1+ v
= 19303
.
72
=

a&&28:2

2 t
e 1 72 dt
0

= 500,000 A281:2 6643 a&&28:2

= 287

MLC-09-08

- 47 -

Question #63
Answer: D

bg

Let Ax and a x be calculated with x t and = 0.06

bg

Let Ax* and a x * be the corresponding values with x t

increased by 0.03 and decreased by 0.03

ax =

1 Ax

ax = ax

0.4
= 6.667
0.06

LM Proof: a
N

*
x

z
z
z

=
=

e z
z
e

d
e z
t

bg

x s + 0.03 ds 0.03t

bg

x s ds 0.03t 0.03t
0
t

bg

0 x s ds 0.06 t

dt
dt

dt

= ax

Ax* = 1 0.03 a x * = 1 0.03 a x

b gb

= 1 0.03 6.667

= 0.8
Question #64
Answer: A

bulb ages
Year

0
1
2
3

10000
0
1000
9000
100+2700
900
280+270+3150

0
0
6300

0
0
0

The diagonals represent bulbs that dont 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.

MLC-09-08

- 48 -

#
replaced
1000
2800
3700

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

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

1000 2800 3700

+
+
.
105
. 2 105
. 3
105
= 6688

Actuarial present value =

Question #65
Key: E
o

e25:25 =

z
z

15

0 t

p25dt +15 p25

10
0t

p40 dt

F
IJ e
dt + G e z
= e
H
Kz
1
L1
1 e i + e M d1 e
=
d
.04
N.05
15

15 .04 t

10 .05t

.04 ds

.60

.60

dt

.50

= 112797
+ 4.3187
.
= 15.60

iOPQ

Question #66
Key: C

p 60 +1 =

e1 q je1 q jb1 q gb1 q gb1 q g

= b0.89gb0.87gb0.85gb0.84gb0.83g
60 +1

60 + 2

63

64

65

= 0.4589

MLC-09-08

- 49 -

Question # 67
Key: E

1
+ = 0.08 = = 0.04
+

12.50 = a x =

Ax =

= 0.5

+
1

2
Ax =
=
+ 2 3

e j

Var aT =

Ax Ax2

= 3 4 = 52.083
0.0016
S.D. = 52.083 = 7.217

Question # 68
Key: D
v = 0.90 d = 010
.
Ax = 1 da&&x = 1 010
. 5 = 0.5

b gb g

Benefit premium =

5000 Ax 5000vqx
a&&x

b5000gb0.5g 5000b0.90gb0.05g = 455

5

a&&x +10
a&&x
a&&
0.2 = 1 x +10 a&&x +10 = 4
5

10Vx

= 1

b gb g
a&&
= b5000gb0.6g b455gb4g = 1180

Ax +10 = 1 da&&x +10 = 1 010

.
4 = 0.6
10V

= 5000 Ax +10

MLC-09-08

x +10

- 50 -

Question #69
Key: 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.
2
E Z = vqx + v 2 px qx +1 = 0.95 0.25 + 0.95 0.75 0.2

bg

b g

= 0.3729

b g

d i

b g

E Z2 = v 2qx + v 4 px qx +1 = 0.95 0.25 + 0.95 0.75 0.2

= 0.3478

b g d i c b gh

Var Z = E Z2 E Z

= 0.3478 0.3729 = 0.21

Question #70
Key: D
Actuarial present value (APV) 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

APV 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
Key: A

This is a nonhomogeneous Poisson process with intensity function

(t)

MLC-09-08

3+3t, 0 t 2 , where t is time after noon

- 51 -

1 ( t ) dt =
Average =
2

1 ( 3 + 3t )dt
2

3t 2
= 3t +

= 7.5

e 7.5 7.52
= 0.0156
f ( 2) =
2!

Question #72
Key: A
Let Z be the present value random variable for one life.
Let S be the present value random variable for the 100 lives.

bg

E Z = 10
= 10

t t

e e dt

e b + g 5

= 2.426

FG IJ e b g
H 2 + K
F 0.04IJ de i = 11233
= 10 G
.
H 0.16K
Var b Z g = E d Z i c E b Z gh
d i

2 + 5

E Z 2 = 102

0.8

.
= 11233
2.4262
= 5.348

bg
bg
VarbSg = 100 Varb Zg = 534.8
E S = 100 E Z = 242.6

F 242.6
.
= 1645
F = 281
534.8

MLC-09-08

- 52 -

Question #73
Key: D
Prob{only 1 survives} = 1-Prob{both survive}-Prob{neither survives}

ge

= 1 3p50 3p 50 1 3p50 1 3p 50

gb

gb

gb

gb

g b

gb

gb

= 1 0.9713 0.9698 0.9682 0.9849 0.9819 0.9682 1 0.912012 1 0.93632

14444244443 14444244443
= 0.912012

0.936320

= 0.140461
Question # 74
Key: C
The tyrannosaur dies at the end of the first day if it eats no scientists that day. It dies at
the end of the second day if it eats exactly one the first day and none the second day. If
it does not die by the end of the second day, it will have at least 10,000 calories then,
and will survive beyond 2.5.

b g bg b g
b gb g

Prob (dies) = f 0 + f 1 f 0
= 0.368 + 0.368 0.368

= 0.503
1 0

b g e 01! = 0.368
e 1
f b1g =
= 0.368
1!

since f 0 =

1 1

Question #75
Key: B
Let X = expected scientists eaten.
For each period, E X = E X dead Prob already dead + E X alive Prob alive

b g

b g

= 0 Prob dead + E X alive Prob alive

Day 1, E X1 = 1

1 1

g b g e 0!0 = 0.368
= 0 0.368 + 1 b1 0.368g = 0.632

Prob dead at end of day 1 = f 0 =

Day 2, E X 2
Prob (dead at end of day 2) = 0.503
[per problem 10]

Day 2.5, E X 2.5 = 0 0.503 + 0.5 1 0.503 = 0.249

MLC-09-08

- 53 -

b g

where E X 2.5 alive = 0.5 since only

day in period.

E X = E X1 + E X 2 + E X 2.5 = 1 + 0.632 + 0.249 = 1881

.
E 10,000 X = 18,810

Question # 76
Key: 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.

b
g
g
b10gb0.03318g + b10gb1 0.03318gb0.03626g + Pb1 0.03318gb1 0.03626g
P=

APV Prems = P = APV Benefits = 10q70 v + 10 p70q71v 2 + Pp70 p71v 2

108
.
108
. 2
= 0.3072 + 0.3006 + 0.7988 P
0.6078
= 3.02
P=
0.2012

108
. 2

(APV above means Actuarial Present Value).

Question #77
Key: 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 nVx

And plug in to get

gb

0.090 = Px1:n + 0.00864 0.563

Px1:n = 0.0851

MLC-09-08

- 54 -

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

solution:
nVx

e
j
a&&
= eP P j
E

= Px Px1:n &&sx:n

x:n

x:n

= Px Px1:n

jP

a&&x:n
1

x:n

a&&x:n

eP P j
=
eP j
1

x:n

x:n

0.563 = 0.090 Px1:n / 0.00864

gb

Px1:n = 0.090 0.00864 0.563

= 0.0851

Question #78
Key: A

b g

= ln 1.05 = 0.04879

Ax =
=
=

z
z

bg

px x t e t dt

1
e t dt for DeMoivre
x

1
a
x x

From here, many formulas for

10 V

c A h could be used.
40

Since

MLC-09-08

- 55 -

One approach is:

A50 =
A40 =

a50
50
a60
60

FG
H
F1 A
=G
H

IJ
K
IJ = 1387
K .

18.71
1 A50
= 0.3742 so a50 =
= 12.83
50

19.40
= 0.3233 so a40
60

40

.3233
= 0.02331
c h 01387
.
V c A h = A P c A ha = 0.3742 b0.02331gb12.83g = 0.0751.

so P A40 =
10

40

50

40

50

Question #79
Key: D

b g
bg
F 0.03 IJ 0.70 + FG 0.6 IJ 0.30
=G
H 0.03 + 0.08 K
H 0.06 + 0.08 K

Ax = E v T b x g = E v T b x g NS Prob NS + E v T b x g S Prob S

= 0.3195

Similarly, 2 Ax =

F I=
Var a
H b gK

T x

FG 0.03 IJ 0.70 + FG 0.06 IJ 0.30 = 01923

.
.
H 0.03 + 0.16K
H 0.06 + 0.16K

Ax Ax2

0.31952
01923
.
=
= 141
..
0.082

Question #80
Key: B

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)

MLC-09-08

- 56 -

= 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
3

p80:84

= 0.20 + 0.03 ( 0.20 )( 0.03) = 0.224

= 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
Key: D
Poisson processes are separable. The aggregate claims process is therefore
equivalent to two independent processes, one for Type I claims with expected
frequency

FG 1IJ b3000g = 1000 and

H 3K

one for Type II claims.

Let

S I = aggregate Type I claims.

N I = number of Type I claims.
X I = severity of a Type I claim (here = 10).

MLC-09-08

- 57 -

b g

b g

Since X I = 10, a constant , E X I = 10; Var X I = 0.

b g b g b g b g b g
= b1000gb0g + b1000gb10g

Var S I = E N I Var X I + Var N I E X I

= 100,000

bg

b g

b g
2,100,000 = 100,000 + Var b S g
Var b S g = 2 ,000,000

Var S = Var S I + Var S II since independent

II

II

Question #82
Key: A
5

b g = pb1g pb2g
p50
5 50 5 50

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

Similarly
10

FG 100 60IJ e b g b g
H 100 50 K
= b0.8gb0.6065g = 0.4852

b g =
p50

0.05 10

b g = pb g pb g = 0.7009 0.4852

5 5 q50

5 50

10 50

= 0.2157

Question #83
Key: C
Only decrement 1 operates before t = 0.7

b g = b0.7g qb1g = b0.7gb010

. g = 0.07

1
0.7 q40

40

Probability of reaching t = 0.7

since UDD
is

1-0.07 = 0.93

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

b gb

b2g = 0.93 0125

q40
.
= 011625
.
MLC-09-08

- 58 -

Question #84
Key: C

1+ 2 p80v 2 = 1000 A80 +

FG
H

1+

0.83910
1.062

vq80 v 3 2 p80q82
+
2
2

IJ = 665.75 + FG 0.08030 + 0.83910 0.09561IJ

K
. g
2b1.06g
H 2b106
K
3

b
g
b
b167524
.
g = 665.75

174680
.
= 665.75 + 0.07156
= 397.41

3,284 ,542
= 0.83910
3,914 ,365

Where 2 p80 =

gb

Or 2 p80 = 1 0.08030 1 0.08764 = 0.83910

Question #85
Key: E
At issue, actuarial present value (APV) of benefits
=

z
z

bt v t t p65

65

bt gdt

d id

bg

= 1000 e0.04 t e 0.04 t t p65 65 t dt

0

= 1000

p
0 t 65

bg

65 t dt = 1000 q65 = 1000

APV of premiums = a65 =

FG 1 IJ = 16.667
H 0.04 + 0.02K

Benefit premium = 1000 / 16.667 = 60

2V

=
=

z
z

b g

b2+u v u u p67 65 2 + u du a67

b g b gb

1000 e0.04b 2+uge 0.04u u p67 65 2 + u du 60 16.667

= 1000e0.08

0 u

b g

p67 65 2 + u du 1000

= 1083.29 q67 1000 = 1083.29 1000 = 83.29

MLC-09-08

- 59 -

Question #86
Key: B
(1)

a x:20 = a&&x:20 1+ 20 Ex

(2)

a&&x:20 =

(3)

Ax:20 =

(4)

Ax = A1x:20 + 20 Ex Ax + 20

1 Ax:20
d
A1x:20

+ Ax:201

b gb g

0.28 = A1x:20 + 0.25 0.40

A1x:20 = 018
.

Now plug into (3):

Now plug into (2):

Now plug into (1):

Ax:20 = 018
. + 0.25 = 0.43
a&&x:20 =

1 0.43
= 1197
.
0.05 / 105
.

a x:20 = 1197
. 1 + 0.25 = 1122
.

Question #87
Key: A

p1 = p (1 ) f ( ) d =

( 2 )

e 1 ( / 2 ) e
1!
(1)

1 32
= e d
2 0
[Integrate by parts; not shown]

1 2 32 4 23
= e e
2 3
9

MLC-09-08

2
= 0.22
9

- 60 -

Question #88
Key: B

ex = px + pxex +1 px =

ex
8.83
=
= 0.95048
1 + ex +1 9.29

a&&x = 1 + vpx + v 2 2 px + ....

a&&

x:2

= 1 + v + v 2 2 p x + ...

a&&x:2 a&&x = vqx = 5.6459 5.60 = 0.0459

v (1 0.95048 ) = 0.0459
v = 0.9269
1
i = 1 = 0.0789
v

Question #89
Key: E
M = Initial state matrix = 1 0 0 0

LM0.20
0.50
T = One year transition matrix = M
MM0.75
N1.00

0.80

0.50

OP
0 P
0.25P
P
0 Q
0

M T = 0.20 0.80 0 0

.
0.40 0
b M T g T = 0.44 016
.
cb M T g T h T = 0.468 0.352 0.08 010

Probability of being in state F after three years = 0.468.

ib g

Actuarial present value = 0.468v 3 500 = 171

Note:
Only the first entry of the last matrix need be calculated (verifying that the four sum
to 1 is useful quality control.)

MLC-09-08

- 61 -

Question #90
Key: B
Let Yi be the number of claims in the ith envelope.

b g

Let X 13 be the aggregate number of claims received in 13 weeks.

g b
g b g b g
E Y = b1 0.2g + b4 0.25g + b9 0.4g + b16 015
. g = 7.2
E X b13g = 50 13 2.5 = 1625
Var X b13g = 50 13 7.2 = 4680
. g
ProbmXb13g Zr = 0.90 = b1282
R X b13g 1625 1282
U
Prob S
. V
T 4680
W
X b13g 1712.7
E Yi = 1 0.2 + 2 0.25 + 3 0.4 + 4 015
. = 2.5
2

b g

Note: The formula for Var X 13 took advantage of the frequencys being
Poisson.
The more general formula for the variance of a compound distribution,
2
Var S = E N Var X + Var N E X , would give the same result.

bg b g b g

b gb g

Question #91
Key: E

b g 1 60 = 75 1 60 = 151
b60g = 1 60 = 151 53 = 251 = 85

M 60 =
F

t
10
t
= 1
25

M
p65
= 1

F
p60

Let x denote the male and y denote the female.

MLC-09-08

- 62 -

eo x
eo y
eo xy

cmean for uniform distribution over b0,10gh

= 12 .5 c mean for uniform distribution over b0,25gh
FG1 t IJ FG1 t IJ dt
=
H 10K H 25K
F1 7 t + t I dt
=
GH 50 250JK
F 7 t + t I = 10 7 100 + 1000
= Gt
750
100
H 100 750JK
=5

z
z

10

10

10
0

= 10 7 +

exy = ex + e y exy = 5 +

4 13
=
3 3

25 13 30 + 75 26
=
= 1317
.
2
3
6

Question #92
Key: B
1

=
+ 3
1

2
Ax =
=
+ 2 5
Ax =

c h

P Ax = = 0.04

F Pc A hI A A
Var b Lg = G 1 +
j
H JK e
F 0.04 IJ FG 1 FG 1IJ IJ
= G1 +
H 0.08 K H 5 H 3K K
F 3I F 4 I
=G J G J
H 2 K H 45K
2

2
x

1
5

Question #93
Key: A

MLC-09-08

- 63 -

Let be the benefit premium

Let kV denote the benefit reserve a the end of year k.
For any n, ( nV + ) (1 + i ) = ( q25+ n n +1V + p25+ n n +1V )

=
Thus 1V = ( 0 V + ) (1 + i )
2V

3V

n +1V

= ( 1V + )(1 + i ) = ( (1 + i ) + ) (1 + i ) = &&
s2

= ( 2V + )(1 + i ) = &&
s2 + (1 + i ) = &&
s3

By induction (proof omitted)

sn
n V = &&
For n = 35, n V = a&&60 (actuarial present value of future benefits; there are no future
premiums)
a&&60 = &&
s35
a&&
= 60
&&
s35
For n = 20,

20 V

= &&
s20
a&&
= 60 &&
s
&&
20
s
35

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
M

34 : ( 34V + ) (1 + i ) = 35V
Multiply equation k by (1 + i )

34 k

and sum the results:

( 0V + ) (1 + i )35 + ( 1V + )(1 + i )34 + ( 2V + )(1 + i )33 + L + ( 34V + ) (1 + i ) =

34
33
32
1V (1 + i ) + 2V (1 + i ) + 3V (1 + i ) + L + 34 V (1 + i ) + 35V

MLC-09-08

- 64 -

For k = 1, 2,L , 34, the k V (1 + i )

0V

35 k

terms in both sides cancel, leaving

(1 + i )35 + (1 + i )35 + (1 + i )34 + L + (1 + i ) = 35V

Since 0V = 0
&&s35 = 35V
= a&&60
(see above for remainder of solution)

Question #94
Key: B

xy ( t ) =

t qy t
t qx

px ( x + t ) + t qx t p y ( y + t )

t p y + t px t q y + t px t p y

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

50:50 (10.5 ) =

where
10.5

p50 =

10.5 q50
10

( l60 + l61 ) = 12 (8,188,074 + 8,075, 403) = 0.90848

l50

8,950,901

= 1 10.5 p50 = 0.09152

p50 =

10.5

( 10.5 q50 )( 10 p50 ) q60 2

( 0.09152 )( 0.91478)( 0.01376 )( 2 ) = 0.0023
=
2
( 10.5 q50 )( 10.5 p50 ) 2 + ( 10.5 p50 ) ( 0.09152 )( 0.90848)( 2 ) + ( 0.90848)2

8,188,074
= 0.91478
8,950,901

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 )

(10+t ) p 50:50 = 2 10 p50 t p60 ( 10 p50 )

( t p60 )

= 2 10 p50 (1 tq60 ) ( 10 p50 ) (1 tq60 ) since UDD

2

Derivative = 2 10 p50 q60 + 2 ( 10 p50 ) (1 tq60 ) q60

Derivative at 10 + t = 10.5 is
2

2 ( 0.91478 )( 0.01376 ) + ( 0.91478 ) (1 ( 0.5 )( 0.01376 ) ) ( 0.01376 ) = 0.0023

2

MLC-09-08

- 65 -

10.5

p 50:50 = 2 10.5 p50 ( 10.5 p50 )

= 2 ( 0.90848 ) ( 0.90848 )

= 0.99162

(for any sort of lifetime) =

dp
dt = ( 0.0023) = 0.0023
p
0.99162

Question #95
Key: D

x( ) ( t ) = x(1) ( t ) + x( 2) ( t ) = 0.01 + 2.29 = 2.30

2
2

2
1
P = P vt t px( ) x( ) ( t ) dt + 50, 000 vt t px( ) x( ) ( t ) dt + 50, 000 vt t px( ) x( ) ( t ) dt
0
2 0.1t 2.3t

P = P e

2 0.1t 2.3t

2.29dt + 50, 000 e

2( 2.4 )

1 e
P 1 2.29
2.4

P = 11,194

0.01dt + 50, 000 e0.1t e2.3t 2.3dt

2

2( 2.4 )

1 e
= 50000 0.01
2.4

+ 2.3

2( 2.4 )

Question #96
Key: B
ex = px + 2 px + 3 px + ... = 1105
.

b g

Annuity = v 3 3 p x 1000 + v 4 4 p x 1000 104

. + ...
=

. g
1000b104

k 3 k

k px

k =3

= 1000v 3

k px
k =3

FG 1 IJ
H 104
. K

= 1000v 3 ex 0.99 0.98 = 1000

9.08 = 8072

Let = benefit premium.

MLC-09-08

- 66 -

2.4

1 + 0.99v + 0.98v 2 = 8072

2.8580 = 8072
= 2824

Question #97
Key B

b g

b ge

1
a&&30:10 = 1000 A30 + P IA 30
+ 10
:10

10

A30

1000 A30

b g

a&&30:10 IA

1
30:10

1010 A30

g
b

1000 0102
.
7.747 0.078 10 0.088

102
6.789
= 15.024
=

Test Question: 98

Key: E

For de Moivres law,

o

FG1 t IJ dt
H 30K
L t OP
= Mt
N 2b 30g Q

e 30 =

30

30

30
2

100 30
= 35
2

Prior to medical breakthrough

= 100 eo 30 =

After medical breakthrough

e 30 = e 30 + 4 = 39

so

MLC-09-08

e30
= 39 =

30
2

= 108

- 67 -

Test Question: 99

0L

Key: A

= 100,000v 2.5 4000a&&3

@5%

= 77,079

Question #100
Key: D

( accid ) = 0.001
( total ) = 0.01
( other ) = 0.01 0.001 = 0.009

Actuarial present value = 500,000 e 0.05t e0.01t ( 0.009 ) dt

0

+10 50,000 e0.04t e0.05t e 0.01t ( 0.001) dt

0

0.009 0.001
= 500, 000
+
= 100, 000
0.06 0.02

MLC-09-08

- 68 -

Test Question: 101

Key: E

b gb g
b gb g b gb g b gb g
= b0.6gb1g + b0.2gb25g + b0.2gb100g = 25.6

E N = Var N = 60 0.5 = 30
E X = 0.6 1 + 0.2 5 + 0.2 10 = 3.6
E X2

Var X = 25.6 3.62 = 12.64

For any compound distribution

Var S = E N Var X + Var N E X

d i

= (30) (12.64) + (30) 3.62

= 768

For specifically Compound Poisson

Var S = t E X 2 = (60) (0.5) (25.6) = 768
Alternatively, consider this as 3 Compound Poisson processes (coins worth 1; worth 5;
2
worth 10), where for each Var X = 0 , thus for each Var S = Var N E X .
Processes are independent, so total Var is

b g
bg b g
Var = b60gb0.5gb0.6g1 + b60gb0.5gb0.2g5 + b60gb0.5gb0.2gb10g
2

= 768
Test Question: 102

1000

20
20Vx

= 1000 Ax +20 =
=
a&&x +20 =

Key: D

1000

20
19Vx + 20 Px

. g q b1000g
ib106
x +19

px +19

. g 0.01254b1000g
b342.03 + 13.72gb106
.
= 36918
0.98746

1 0.36918
.
= 111445
.
0.06 / 106

so 1000 Px +20 = 1000

MLC-09-08

.
Ax +20 36918
.
=
= 331
.
a&&x +20 111445

- 69 -

Test Question: 103

pxb g = e

bx g t dt

bg

Key: B

z b gb g
F b g b g IJ
= Ge z
H
K
= b p g where
=e

2 x1 t dt

x1 t dt

10

is from Illustrative Life Table, since b1g follows I.L.T.

6,616,155
= 0.80802
8,188,074
6,396,609
=
= 0.78121
8,188,074

p60 =

11 p60

10

k px

b g = p b g p b g
q60
10 60 11 60
=

10

p60

g b
2

11 p60

from I.L.T.

= 0.80802 2 0.781212 = 0.0426

Test Question: 104

Ps =

Key: C

1
d , where s can stand for any of the statuses under consideration.
a&& s

a&&s =

1
Ps + d

1
= 6.25
. + 0.06
01
1
= 8.333
a&&xy =
0.06 + 0.06
a&&x = a&&y =

a&&xy + a&&xy = a&&x + a&&y

a&&xy = 6.25 + 6.25 8.333 = 4.167

Pxy =

1
0.06 = 018
.
4.167

MLC-09-08

- 70 -

Test Question: 105

Key: A

b
g
g j = 48

d 0b g = 1000 e b + 0.04 gt + 0.04 dt

1

= 1000 1 e b + 0.04

e b + 0.04 g = 0.952

+ 0.04 = ln 0.952

= 0.049
= 0.009

d 3b1g = 1000 e 0.049 t 0.009 dt

4

= 1000

0.009 b 0.049 gb 3g b 0.049 gb 4 g

e
e
= 7.6
0.049

Question #106
Key: B

bg

This is a graph of lx x .

bg

x would be increasing in the interval 80,100 .

The graphs of lx px , lx and

lx2

would be decreasing everywhere.

Question #107
Key: B
Expected value = v15 15 px

Variance = v30 15 px 15 qx

v30 15 px 15 qx = 0.065 v15 15 px

v15 15qx = 0.065 15 qx = 0.3157
Since is constant
15 q x

( px )

15

= 1 ( px )

15

= 0.6843

px = 0.975
qx = 0.025
MLC-09-08

- 71 -

Question #108
Key: E

(1)

( 2)

11V

11V

(1) ( 2 )

10V

11V

10V

+0

) (p

1+ i)

+ B

x +10

) (p

11V B =

qx +10
1000
px +10

1+ i)

x +10

10V

qx +10
1000
px +10

10V B B

= (101.35 8.36 )

) (p

1+ i)
x +10

(1.06 )
1 0.004

= 98.97

Test Question: 109

Key: A

A P V (xs benefits) = v k +1bk +1 k px q x + k

k =0

b g

b gb g

b gb gb g

= 1000 300v 0.02 + 350v 2 0.98 0.04 + 400v 3 0.98 0.96 0.06
= 36,829

MLC-09-08

- 72 -

Test Question: 110

Key: E

denotes benefit premium

19V = APV future benefits - APV future premiums
1
0.6 =
= 0.326
108
.
. q65 10
10V + 108
11V =
p65
5.0 + 0.326 108
. 010
. 10
=
1 010
.
=5.28

gb g b gb g

gb g b gb g

Question #111
Key: A

Actuarial present value Benefits =

( 0.8)( 0.1)(10,000 ) + ( 0.8)( 0.9 )( 0.097 )( 9,000 )

= 1, 239.75

1.062

( 0.8 ) ( 0.8 )( 0.9 )

1, 239.75 = P 1 +
+

1.062
1.06
= P ( 2.3955 )
P = 517.53 518

Test Question: 112

Key: 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

Test Question: 113

MLC-09-08

Key: B

- 73 -

1.063

bg

a = a f t dt =
o t

1 e 0.05t

1
0.05

0.05

zb

te

1
te t dt
2

bg

te 1.05t dt

LM b g FG
IJ
H
K
N
1 L F 1 I O
.
=
M1 G . JK PP = 185941
0.05 NM H 105
Q

1
1
t
=
t + 1 et +
+
e 1.05t
.
0.05
105
105
. 2

OP
Q

20,000 185941
.
= 37,188

Question #114
Key: C

Event
x=0

Prob

( 0.05)
( 0.95)( 0.10 ) = 0.095
( 0.95)( 0.90 ) = 0.855

x =1
x2

Present Value
15
15 + 20 /1.06 = 33.87
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

( )

Var [ X ] = E X 2 E ( X ) = 2813.01 ( 51.95 ) = 114.2

2

Question #115
Key: B
Let K be the curtate future lifetime of (x + k)
kL

= 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

MLC-09-08

- 74 -

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
Px:3 = 279.21 =

1 d a&&x:3
a&&x:3

1
d
a&&x:3

Test Question: 116

Key: D

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

Pr T 1

= E Pr T 1 M
=
=
=

z
zz
zd

0 0

bg

Pr T 1 M = f M d

2 1

1
2

e t dt d

1 e

i 21 du = 21 d2 + e

i 21 d1 + e i

1 =

= 0.56767

Question #117
Key: E
Note that above 40, decrement 1 is DeMoivre with omega = 100; decrement 2 is
DeMoivre with omega = 80.
(1)
That means 40
( 20 ) = 1/ 40 = 0.025; 40( 2) ( 20 ) = 1/ 20 = 0.05
( )
40
( 20 ) = 0.025 + 0.05 = 0.075

Or from basic definition of ,

60 t 40 t 2400 100t + t 2

=
t p40 =
60
40
2400
MLC-09-08
( )

- 75 -

( )
p40
/ dt = ( 100 + 2t ) / 2400

at t = 20 gives 60 / 2400 = 0.025

( )
p40
= ( 2 / 3) * (1/ 2 ) = 1/ 3

20

( )
40
( 20 ) = d

( )
( )
p40
/ dt / 20 p40
= 0.025 / (1/ 3) = 0.075

Test Question: 118

Key: D

Let = benefit premium

Actuarial present value of benefits =
= 0.03 200,000 v + 0.97 0.06 150,000 v 2 + 0.97 0.94 0.09 100,000 v 3

b gb

g b gb gb

g b gb gb gb

= 5660.38 + 7769.67 + 6890.08

= 20,32013
.

Actuarial 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

. g b200,000gb0.03g
b7452.55gb106
1 0.03

= 1958.46

Initial reserve, year 2 = 1V +

= 1958.56 + 7452.55
= 9411.01
Test Question: 119

Key: A

Let denote the premium.

b g

L = bT v T aT = 1+ i

v T aT

= 1 aT
E L = 1 ax = 0

MLC-09-08

ax

- 76 -

 L = 1 aT = 1
=

aT
ax

ax 1 v T

ax

v T 1 ax
v T Ax
=
1 Ax
ax

Test Question: 120

Key: D

(0, 1)

(1, 0.9)
(1.5, 0.8775)
(2, 0.885)

tp1

p1 = (1 01
. ) = 0.9

p1 = 0.9 1 0.05 = 0.855

b gb

since uniform, 1.5 p1 = 0.9 + 0.855 / 2

= 0.8775
o

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
.

Alternatively,

MLC-09-08

- 77 -

e11: .5 =
=
=

z
z
zb
1.5

0 t

p1dt

0.5
p1dt +1p1 x
t
0
0
1
0

p2 dx

1 01
. t dt + 0.9

= t 0.12t

1
0

0.5

b1 0.05xgdx

+ 0.9 x 0.052 x

0.5

= 0.95 + 0.444 = 1394

.

Test Question: 121

Key: A

b g

10,000 A63 112

. = 5233
A63 = 0.4672
Ax +1 =
A64 =

b g

Ax 1 + i qx
px

. g 0.01788
b0.4672gb105
1 0.01788

= 0.4813
A65 =

. g 0.01952
b0.4813gb105
1 0.01952

= 0.4955
Single contract premium at 65 = (1.12) (10,000) (0.4955)
= 5550

b1 + ig

MLC-09-08

5550
5233

i=

5550
1 = 0.02984
5233

- 78 -

Test Question: 122

Key: B

Original Calculation (assuming independence):

x = 0.06
y = 0.06
xy = 0.06 + 0.06 = 012
.
x
0.06
Ax =
=
= 0.54545
x + 0.06 + 0.05
y
0.06
Ay =
=
= 0.54545
y + 0.06 + 0.05
xy
012
.
Axy =
=
= 0.70588
xy + 012
. + 0.05
Axy = Ax + Ay Axy = 0.54545 + 0.54545 0.70588 = 0.38502
Revised Calculation (common shock model):

x = 0.06, Tx *b x g = 0.04

y = 0.06, Ty*b y g = 0.04

xy = Tx *b x g + Ty*b y g + Z + 0.04 + 0.04 + 0.02 = 010

.
x
0.06
Ax =
=
= 0.54545
x + 0.06 + 0.05
y
0.06
Ay =
=
= 0.54545
y + 0.06 + 0.05
xy
010
.
Axy =
=
= 0.66667
xy + 010
. + 0.05
Axy = Ax + Ay Axy = 0.54545 + 0.54545 0.66667 = 0.42423
Difference = 0.42423 0.38502 = 0.03921

MLC-09-08

- 79 -

Question #123
Key: B
q35:45 = 5 q35 + 5 q45 5 q35:45

= 5 p35q40 + 5 p45q50 5 p35:45q40:50

b
g
= p q + p q p p b1 p p g
= b0.9gb.03g + b0.8gb0.05g b0.9gb0.8g 1 b0.97gb0.95g
= 5 p35q40 + 5 p45q50 5 p35 5 p45 1 p40:50
5 35 40

5 45 50

5 35

5 45

40

50

= 0.01048

Alternatively,
6

p35 = 5 p35 p40 = ( 0.90 )(1 0.03) = 0.873

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

Test Question: 124

bg

Key: C

bg

t dt = 6 so N 3 is Poisson with = 6.

g g

P is Poisson with mean 3 (with mean 3 since Prob yi < 500 = 0.5

P and Q are independent, so the mean of P is 3, no matter what the value of Q is.

MLC-09-08

- 80 -

Test Question: 125

Key: A

At age x:
Actuarial Present value (APV) of future benefits =
APV of future premiums =

1000
5
1000
4
10V

FG 4 a&& IJ
H5 K

FG 1 A IJ 1000
H5 K
x

4
A25 = a&&25 by equivalence principle
5
A25
1
8165
.
= =
= 1258
.
a&&25
4 16.2242

= APV (Future benefits) APV (Future benefit premiums)

1000
4
A35 a&&35
5
5
4
1
15.3926
.
= 128.72 1258
5
5
= 10.25

g b gb

Test Question: 126

Let

Key: E

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
A40 A40

ib

2
= 100 0.04863 016132
106
.
. / 0.06

= 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

MLC-09-08

- 81 -

Test Question: 127

Key: B

5 A30 4 A301 :20

Initial Benefit Prem =

Where

5a&&30:35 4a&&30:20

g b
g b

4 0.02933
5 010248
.
5 14.835 4 11959
.

0.5124 011732
0.39508
.
=
= 0.015
74.175 47.836
26.339

1
A30
= A30:20 A30:201 = 0.32307 0.29374 = 0.02933
:20

and

a&&30:20 =

1 A30:20
d

1 0.32307
= 11959
.
0.06
106
.

FG IJ
H K

Comment: the numerator could equally well have been calculated as A30 + 4 20 E30 A50
= 0.10248 + (4) (0.29374) (0.24905)
= 0.39510

Test Question: 128

0.75

Key: B

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

b p gd p i since independent
= 1- b0.9625gb0.925g
= 1

0.75

0.75

= 01097
.
Question #129
Key: D
Let G be the expense-loaded premium.
Actuarial present value (APV) of benefits = 100,000A35
APV of premiums = Ga&&35
APV of expenses = 0.1G + 25 + ( 2.50 )(100 ) a&&35
Equivalence principle:

MCL-09-08

- 82 -

Ga&&35 = 100,000 A35 + ( 0.1G + 25 + 250 ) a&&35

A35
+ 0.1G + 275
a&&35
0.9G = 100,000 P35 + 275
G = 100,000

G=

(100 )(8.36 ) + 275

0.9

= 1234

Test Question:

130 Key:

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

*Hence we have 10000 = 8.4353+10 E40a&&50 K

Derive

10 E40:
1
A40 = A4010
+
:

10 E40

Derive a&&50 =

10 E40

1
A40 A40
:10

A50

gA

50

0.30 0.09
= 0.60
0.35

1 A50 1 0.35
=
= 16.90
.04
d
104
.

Plug in values:
10,000 = 8.4353 + 0.60 16.90 K

b gb

gh

= 18.5753K
K = 538.35

Test Question:

131 Key:

11

STANDARD: eo 25:11 =

MODIFIED:

p25
o

=e z

e2511
: =
MCL-09-08

FG1 t IJ dt = t t
H 75K
2 75

0.1ds
0

D
2

= e .1 = 0.90484

p dt
0 t 25

+ p25

z FGH
10

IJ
K

t
dt
74

- 83 -

11
0

= 101933
.

IJ
K
F t I
1 e
=
+ e Gt
01
.
H 2 74 JK
= 0.95163 + 0.90484b9.32432g = 9.3886
=

1 0.1t

dt + e0.1

0.1

z FGH
10

0.1

t
dt
74

10
0

Difference

=0.8047

Test Question:

132

Key: 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,
Cs reserve is lower than C*s which is lower than Bs.
Comparing B to E: Reserves on E are constant at 0.

Test Question:

133 Key:

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

gb

Probability of remaining through the year is

p60
. = 0.84645
b1g p60
b 2g p60
b3g = 1 0.01 1 0.05 1 010

gb

gb

Probability of exiting at the end of the year is

b3g = 0.9405 0.84645 = 0.09405
q60

MCL-09-08

- 84 -

Question #134
Key: D
Poisoned wine glasses are drunk at a Poisson rate of 2 0.01 = 0.02 per day.
Number of glasses in 30 days is Poisson with = 0.02 30 = 0.60
f ( 0 ) = e 0.60 = 0.55

Test Question:

135 Key:

zb

APV of regular death benefit =

zb

gd

ib

gd

gd ib

gd i

100000 e- t 0.008 e- t dt

100000 e-0.06t 0.008 e-0.008t dt

= 100000 0.008 / 0.06 + 0.008 = 11,764.71

APV of accidental death benefit =

zb
30

gd

ib

gd

zb
30

gd ib

100000 e-0.06t 0.001 e-0.008t dt

= 100 1 e-2.04 / 0.068 = 1,279.37

Total APV = 11765 + 1279 = 13044

Test Question:

b gb

136 Key:

g b gb

g b gb

l 60 +.6 = .6 79,954 + .4 80,625

= 80,222.4

b gb

l 60 +1.5 = .5 79,954 + .5 78,839

= 79,396.5
0.9 q 60 +.6

80222.4 79,396.5
80,222.4
= 0.0103
=

P0 = 111 = 9.0909%

MCL-09-08

gd i

100000 e- t 0.001 e- t dt

- 85 -

Question #137
Key: E
View the compound Poisson process as two compound Poisson processes, one for
smokers and one for non-smokers. These processes are independent, so the total
variance is the sum of their variances.
For smokers, = ( 0.2 )(1000 ) = 200
2
Var(losses) = Var ( X ) + ( E ( X ) )

2
= 200 5000 + ( 100 )

= 3,000,000

For non-smokers, = ( 0.8 )(1000 ) = 800

2
Var(losses) = Var ( X ) + ( E ( X ) )

2
= 800 8000 + ( 100 )

= 14, 400,000

Total variance = 3,000,000 + 14,400,000

= 17,400,000

Test Question:

138 Key:

b g = qb1g + qb2g = 0.34

q40
40
40
1
2
= 1 p40
b g p40
b g

0.34 = 1 0.75 p40

b 2g
p40
b 2g = 0.88

. =y
q40
b 2g = 012
q41
b 2g = 2 y = 0.24

b gb g
l b g = 2000b1 0.34gb1 0.392g = 803
b g = 1 0.8 1 0.24 = 0.392
q41

42

MCL-09-08

- 86 -

Test Question:

139 Key:

b g

Pr L ' > 0 < 0.5

Pr 10,000v 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

Pr L > 0 < 0.5 means we must have L 0 for K 47.

b g

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

b g

= 609.98 16.589

L 0 609.98 16.589 0
>

609.98
= 36.77
16.589

Test Question:

140

Key: B

b g
Prb K = 1g = p p = 0.9 0.81 = 0.09
Prb K > 1g = p = 0.81
E bY g = .1 1+.09 187
. +.81 2.72 = 2.4715
E dY i = .1 1 +.09 187
. +.81 2.72 = 6.407
VARbY g = 6.407 2.4715 = 0.299
Pr K = 0 = 1 px = 01
.
1 x

2 x

2 x

Question #141
Key: E
E [ Z ] = b Ax

since constant force Ax = / +

E(Z) =

b ( 0.02 )
b
=
= b/3
+
( 0.06 )

MCL-09-08

- 87 -

Var [ Z ] = Var b v T = b 2 Var v = b 2

Ax Ax2

=b

+ 2 +

2 1
4
= b2 = b2
10 9
45
2

Var ( Z ) = E ( Z )

4 b
b2 =
45 3
4 1
b = b = 3.75
45 3

Test Question:

142 Key:

b g b g c AA h
2 2

In general Var L = 1 + P

c h

Here P Ax =

2
x

1
1
= .08 =.12
5
ax

F .12 I
So Var b Lg = G 1 + J c A A h =.5625
H .08K
F b.12gIJ c A A h
and Var b L *g = G 1 +
H .08 K
b1 + g b0.5625g =.744
So Var b L *g =
b1 + g
E L * = A .15a = 1 a b +.15g = 1 5b.23g = .15
E L * + Var b L *g =.7125
2

2
x

5
4

2
x

15 2
8
12 2
8

Test Question:

143 Key:

Serious claims are reported according to a Poisson process at an average rate of 2 per
month. The chance of seeing at least 3 claims is (1 the chance of seeing 0, 1, or 2
claims).

b g

b g

b g bg b g

P 3 + 0.9 is the same as P 0,1,2 01

. is the same as P 0 + P 1 + P 2 01
.
MCL-09-08

- 88 -

01
. e + e + 2 / 2 e
The expected value is 2 per month, so we would expect it to be at least 2 months
=4 .
Plug in and try
e4 + 4e4 + 42 / 2 e4 =.238, too high, so try 3 months = 6

e6 + 6e6

d i
+ d6 / 2ie
2

=.062, okay. The answer is 3 months.

[While 2 is a reasonable first guess, it was not critical to the solution. Wherever you
start, you should conclude 2 is too few, and 3 is enough].

Test Question:

144 Key:

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 wg = q2b g q2b f g = 10

. 0.6 01
. = 0.3
l1b gq1b f g = 0.4 l1b g 1 q1b f g q1b wg

q1b f g = 0.4 1 q1b f g 0.3

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

b gb g b gb gb g

= 0.2 + 0.4 0.3 + 0.4 0.5 0.3

= 0.38

MCL-09-08

- 89 -

Test Question:

e25 = p25 1 + e26

145 Key:

N
M
since same
e26
= e26

z
=e z

N
p25
=e

bg c h

M
t + 0.1 1 t dt
25

bg

bg

e z

c h

M
25
t dt 0.1 1 t dt
0

=e z

c h

M
25
t dt 0.1 1 t dt
0

L F
M MN H
= p25 e

0.1 t t2

I OP1
K Q0

M
= e0.05 p25

N
N
e25
= p25
1 + e26

M
1 + e26
= e0.05 p25

g
gb g

M
= 0.951 10.0 = 9.5
= 0.951 e25

MCL-09-08

- 90 -

Test Question:

146 Key:

b g
F c1 A hI = 10,000,000
= 100b10,000gG
H JK

E YAGG = 100E Y = 100 10,000 a x

b10,000g 1 c A A h
b10,000g b0.25g b016
=
. g = 50,000

Y = Var Y =

2
x

AGG = 100 Y = 10 50,000 = 500,000

0.90 = Pr

LM F E Y
N

AGG

>0

AGG

1282
=
.

OP
Q

F E YAGG

AGG

F = 1282
. AGG + E YAGG

F = 1282
.
500,000 + 10,000,000 = 10,641,000

Question #147
Key: A
1
A30:3
= 1000vq30 + 500v 2 1 q30 + 250v3 2 q30
2

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 1
1 2
0.00153
1
a30:1 = 1 2 + 1 2
(1 2 q30 ) = + ( 0.97129 ) 1

2 2
2
1.06

1 1
= + ( 0.97129 )( 0.999235 )
2 2
= 0.985273
2.51447
Annualized premium =
0.985273
= 2.552

&&( 2 )

2.552
2
= 1.28

Each semiannual premium =

MCL-09-08

- 91 -

Test Question:

148

b DAg

1
80:20

Key: E

eb g j

= 20vq80 + vp80 DA

bg

1
8119
:

b g
b g
b g
b g b gb g
2+.9b12.225g
=
= 12.267

20 .2
.8
1
+
DA 81
:19
106
.
106
.
13 106
. 4
1
DA 8119
=
= 12.225
:
.8
DA801 :20 = 20 v .1 + v .9 12.225

q80 =.2

13 =

q80 =.1

106
.

Test Question:

149

Key: B

Let T denote the random variable of time until the college graduate finds a job
Let N t , t 0 denote the job offer process

m bg

Each offer can be classified as either

Type I - - accept with probability p N1 t

R|
S|Type II T

m b gr
- reject with probability b1 pg mN bt gr
2

mN bt gr is Poisson process with = p

p = Prb w > 28,000g = Prbln w > ln 28,000g
.
10.24 1012
. I
F ln w 1012
= Prbln w > 10.24g = Pr G
>
JK = 1 b1g
H 012
.
012
.
1

= 01587
.
1 = 01587
.
2 = 0.3174
T has an exponential distribution with =

bg

1
= 315
.
.3174

Pr T > 3 = 1 F 3
3

= e 3.15 = 0.386

MCL-09-08

- 92 -

Test Question:

LM
N

px = exp

150 Key:

OP
Q

ds
= exp ln 100 x s
0 100 x s
t

t
0

100 x t
100 x

e50:60 = e50 + e60 e50:60

o

e50
o

e60

LM
OP = 25
=z
N
Q
t O
40 t
1 L
40t P = 20
dt =
=z
M
40
40 N
2Q
F 50 t IJ FG 40 t IJ dt = z 1 d2000 90t + t idt
=z G
H 50 K H 40 K
2000
I = 14.67
1 F
t
2000
45
t
t
=

+
2000 GH
3 JK
50

50 50 t

t2
1
50t
dt =
50
50
2

2 40

40

e50:60

40

40

40
0

e50:60 = 25 + 20 14.67 = 30.33

Question #151
Key: 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

Question #152
Key: A
For death occurring in year 2
0.3 1000
APV =
= 285.71
1.05
For death occurring in year 3, two cases:

MCL-09-08

- 93 -

(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
0.17
Total
APV =

0.17 1000
= 154.20
1.052

Total. APV = 285.71 + 154.20 = 439.91

Test Question:

b g
Var b g
Var 0 L
0

153

Key: E

b g
b g since Varb g = 0
= v bb V g p q
b10,000 3,209g b0.00832gb0.99168g
=
= Var 0 + v 2 Var 1

1 1

50 50
2

103
. 2

= 358664.09

b g

Var 1

= v b2 2V

p50q51 p51

b10,000 6,539g b0.99168gb0.00911gb0.99089g

=
2

= 101075.09

b g

Var 0 L

= 358664.09 +

103
. 2

101075.09
= 453937.06
103
. 2

Alternative solution:

= 10,000 v 2V50:3 = 9708.74 6539 = 3169.74

MCL-09-08

- 94 -

R|10,000 v a&& = 6539 for K = 0

|
L = S10,000 v a&& = 3178.80 for K = 1
||10,000 v a&& = 83.52 for K > 1
T
Prb K = 0g = q = 0.00832
Prb K = 1g = p q = b0.99168gb0.00911g = 0.0090342
Prb K > 1g = 1 Prb K = 0g Prb K = 1g = 0.98265
Varb Lg = E L E L = E L
since is benefit premium
= 0.00832 6539 + 0.00903 3178.80 + 0.98265 b83.52g
1

50

50 51

= 453,895 [difference from the other solution is due to rounding]

Test Question:

154 Key:

Let denote the single benefit premium.

= 30 a&&35 + A351 :30

30

a&&35

eA
=

35:30

1
1 A35
:30

1
A35
a&&65
:30

1
=

1
A35
:30

b.21.07g9.9
b1.07g

1.386
.93
= 1.49
=

Test Question:
0.4 p0

=.5 = e z

0. 4

155 Key:

e F +e2 x jdx

LM e22x OP.4
N Q0
=e
0.8
.4 F F e 2 1 I
H
K
=e
.4 F

.5 = e.4 F .6128

MCL-09-08

- 95 -

bg

ln .5 = .4 F .6128
.6931 = .4F .6128
F = 0.20

Question #156
Key: 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

14.65976 1.03
a&&x

= 46.92
V
=
initial
reserve
P = 343 46.92 = 296.08
9

Question #157
Key: B
d = 0.06 V = 0.94
Step 1 Determine px

668 + 258vpx = 1000vqx + 1000v 2 px ( px +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

Step 2 Determine 1000 Px:2

668 + 258 ( 0.94 )( 0.91) = 1000 Px:2 1 + ( 0.94 )( 0.91)

[ 220.69 + 668] = 479
1000 Px:2 =
1.8554

MCL-09-08

- 96 -

Question #158
Key: D
1
1
1
100,000 ( IA )40:10 = 100,000 v p40 ( IA )41:10 10 v10 9 p41 q50 + A40:10
(100,000 )

8,950,901
10

0.99722
9, 287, 264
= 100,000
0.16736

0.00592
(
)
1.06
1.0610

+ ( 0.02766 100,000 )
=15,513

[see comment ]

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 ( IA )41:10 .
1

1
Hence the A40:10
term. But ( IA )41:10 provides a death benefit at 50 of 10, while ( IA )40:10
1

provides 0. Hence a term involving 9 q41 = 9 p41 q50 . The various vs and ps just get all
actuarial present values at age 40.

Question #159
Key: A
10001Vx = (1 + i ) qx (1000 10001Vx )

40 = 80 (1.1) qx (1000 40 )
qx =

88 40
= 0.05
960

1 AS

=
=
=

(G

expenses )(1 + i ) 1000qx

px

(100 ( 0.4 )(100 ) ) (1.1) (1000 )( 0.05)

1 0.05

60 (1.1) 50
= 16.8
0.95

MCL-09-08

- 97 -

Question #160
Key: C
1
At any age, px ( ) = e 0.02 = 0.9802
1
1
qx ( ) = 1 0.9802 = 0.0198 , which is also qx( ) , since decrement 2 occurs only at the end of
the year.

Actuarial present value (APV) at the start of each year for that years 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

APV of death benefit for 3 years 188.1 + E40 *188.1 + E40 * E41 *188.1 = 506.60

Question #161
Key: B
40

e30:40 =

t p30dt
0

30 t
dt
30
0

40

=t

t2
2 ( 30 )

40
0

800
30
= 27.692
= 40

= 95
Or, with De Moivres law, it may be simpler to draw a picture:

p30 = 1

40

30

MCL-09-08

p30

70

- 98 -

e30:40 = area =27.692 = 40

(1 + 40 p30 )
2

p30 = 0.3846
70
= 0.3846
30
= 95
65 t
t p30 =
65
40

Var = E (T ) ( E (T ) )
2

One way to evaluate this expression is based on Equation 3.5.4 in Actuarial

Mathematics

Var (T ) = 2 t t px dt ex2
o

65
t
t

= 2 t 1 dt 1 dt 2

65
0
0 65
65

= 2* ( 2112.5 1408.333) ( 65 65 / 2 )

= 1408.333 1056.25 = 352.08

Another way, easy to calculate for De Moivres law is

Var (T ) = t 2 t px x ( t ) dt
0

t t px x ( t ) dt

1
1
65
t dt t dt
0
65
65

65 2

t3
=
3 65

65
0

t2

2 65

65
0

= 1408.33 ( 32.5 ) = 352.08

2

With De Moivres law and a maximum future lifetime of 65 years, you probably didnt
need to integrate to get E (T ( 30 ) ) = e30 = 32.5
o

Likewise, if you realize (after getting = 95 ) that T ( 30 ) is uniformly on (0, 65), its
variance is just the variance of a continuous uniform random variable:

MCL-09-08

- 99 -

2
65 0 )
(
Var =
= 352.08

12

Question #162
Key: E

218.15 (1.06 ) 10,000 ( 0.02 )

= 31.88
1 0.02
( 31.88 + 218.15)(1.06 ) ( 9,000 )( 0.021) = 77.66
2V =
1 0.021

1V

Question #163
Key: D

ex = e y = t px = 0.95 + 0.952 + ...

k =1

0.95
= 19
1 0.95
exy = pxy + 2 pxy + ...
=

= 1.02 ( 0.95 )( 0.95 ) + 1.02 ( 0.95 ) ( 0.95 ) + ...

2

1.02 ( 0.95 )

= 1.02 0.95 + 0.95 + ... =

1 0.952
exy = ex + e y exy = 28.56
2

= 9.44152

Question #164
Key: A
Local comes first. I board
So I get there first if he waits more than 28 16 = 12 minutes after the local arrived.
His wait time is exponential with mean 12
The wait before the local arrived is irrelevant; the exponential distribution is memoryless
12
Prob(exp with mean 12>12) = e 12 = e 1 = 36.8%

MCL-09-08

- 100 -

Question #165
Key: E
Deer hit at time s are found by time t (here, t = 10) with probability F(t s), where F is
the exponential distribution with mean 7 days.
We can split the Poisson process deer being hit into deer hit, not found by day 10
and deer hit, found by day 10. By proposition 5.3, these processes are independent
Poisson processes.
Deer hit, found by day 10, at time s has Poisson rate 20 F(t s). The expected
number hit and found by day 10 is its integral from 0 to 10.
t

E ( N ( t ) ) = 20 F ( t s )ds
0
10

E ( N (10 ) ) = 20 1 e

(10 s )
7
ds

s 10

= 20 10 7e 7

= 20 10 7 + 7e

10
0

10 7

) = 94

Question #166
Key: E

ax = e 0.08t dt = 12.5
0

3
= 0.375
0
8

3
2
Ax = e 0.13t ( 0.03) dt = = 0.23077
0
13
2
1 2
2
aT = Var aT =
Ax ( Ax ) = 400 0.23077 ( 0.375 ) = 6.0048
2

Pr aT > ax aT = Pr aT > 12.5 6.0048
1 vT

= Pr
> 6.4952 = Pr 0.67524 > e0.05T
0.05

ln 0.67524

= Pr T >
= Pr [T > 7.85374]
0.05

= e 0.037.85374 = 0.79
Question #167
Key: A
Ax = e 0.08t ( 0.03) dt =

( )

( )

MCL-09-08

- 101 -

0.05 5
( )
p50
= e ( )( ) = e 0.25 = 0.7788

(1)
5 q55

5 (1)
= 55
( t ) e( 0.03+0.02)t dt = ( 0.02 / 0.05 ) e0.05t
0

= 0.4 1 e

0.25

5
0

= 0.0885
( )
()
Probability of retiring before 60 = 5 p50
5 q55
= 0.7788*0.0885
= 0.0689

Question #168
Key: C
Complete the table:
l81 = l[80] d[80] = 910

l82 = l[81] d[81] = 830 (not really needed)

1
o
1

e x = ex +
since UDD
2
2

e[ x] = e[ x] + 1 2
l + l + l +K 1
o
+
e[ x] = 81 82 83
l[80]

eo 1 l = l + l + K Call this equation (A)

[80] 2 [80] 81 82

eo 1 l = l + K Formula like (A), one age later. Call this (B)

[81] 2 [81] 82

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

1
1
o
o

l81 = e[80] l[80] e[81] l[81]

2
2

910 = [8.5 0.5]1000 e[81] 0.5 920

MCL-09-08

- 102 -

e[81] =

8000 + 460 910

= 8.21
920

Alternatively, and more straightforward,

910
= 0.91
1000
830
p[81] =
= 0.902
920
830
p81 =
= 0.912
910
p[80] =

o
e[80] = 1 q 80 + p 80 1 + eo 81
[ ]
2 [ ]

1
where q[80] contributes
since UDD
2
1
o
8.5 = (1 0.91) + ( 0.91) 1 + e81
2

e81 = 8.291

1
o
o
e81 = q81 + p81 1 + e82
2

1
o
8.291 = (1 0.912 ) + 0.912 1 + e82
2

e82 = 8.043
1
o
o
e[81] = q[81] + p[81] 1 + e82
2

1
= (1 0.902 ) + ( 0.902 )(1 + 8.043)
2
= 8.206
o

Or, do all the recursions in terms of e, not e , starting with e[80] = 8.5 0.5 = 8.0 , then final
o

step e[81] = e[81] + 0.5

MCL-09-08

- 103 -

Question #169
Key: A

px +t

0
1
2
3

px

vt

vt t px

0.7

0.7

0.7
0.49

0.95238
0.90703

1
0.6667
0.4444

From above a&&x:3 = vt t px = 2.1111

t =0

a&&
1000 2Vx:3 = 1000 1 x + 2:1

a&&x:3

= 1000 1
= 526

2.1111

Alternatively,

Px:3 =

1
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 .

MCL-09-08

- 104 -

Question #170
Key: E
Let G be the expense-loaded premium.
Actuarial present value (APV) of benefits = 1000A50 .
APV of expenses, except claim expense = 15 + 1 a&&50
APV of claim expense = 50A50 (50 is paid when the claim is paid)
APV 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
a
For De Moivres with = 100, x = 50 A50 = 50 = 0.36512
50
1 A50
= 13.33248
a&&50 =
d
Solving for G,

G = 30.88

Question #171
Key: A
4

0.05 4
p50 = e ( )( ) = 0.8187

10
8

0.05 10
p50 = e ( )( ) = 0.6065

0.04 8
p60 = e ( )( ) = 0.7261

18

p50 = ( 10 p50 )( 8 p60 ) = 0.6065 0.7261

= 0.4404

414 q50

= 4 p50 18 p50 = 0.8187 0.4404 = 0.3783

MCL-09-08

- 105 -

Question #172
Key: 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

1
= 100,000 A45 5 E40 / a&&40:5 ( IA )40:5

= 100,000 ( 0.20120 )( 0.73529 ) / ( 4.4401 0.04042 )

= 3363

Question #173
Key: B
Calculate the probability that both are alive or both are dead.
P(both alive) = k pxy = k px k p y
P(both dead) = k qxy = k q x k q y
P(exactly one alive) = 1 k pxy k qxy
Only have to do two years worth so have table
Pr(both alive)

Pr(both dead)

Pr(only one alive)

(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

0.8281 0.6724
0.1638 0.2952
1
0
APV Annuity = 30,000
+
+
+ 20,000
+
+
= 80, 431
0
1
2
0
1.05
1.05
1.051
1.052
1.05
1.05
Alternatively,

0.8281 0.6724
+
= 2.3986
1.05
1.052
0.91 0.82
a&&x = a&&y = 1 +
+
= 2.6104
1.05 1.052
APV = 20,000 a&&x + 20,000 a&&y 10,000 a&&xy
a&&xy = 1 +

(it pays 20,000 if x alive and 20,000 if y alive, but 10,000 less than that if both are
alive)

MCL-09-08

- 106 -

= ( 20,000 )( 2.6104 ) + ( 20,000 )( 2.6104 ) (10,000 ) 2.3986

= 80, 430
Other alternatives also work.

Question #174
Key: C
Let P denote the contract premium.

0
axIMP

P = ax = e t e t dt = e0.05t dt = 20
E [ L] =

10

axIMP

= e

0.03t 0.02t

dt + e

0.03(10 ) 0.02(10 )

0.03t 0.01t

dt

l e 0.5 e0.5
+
= 23
0.05
0.04
E [ L ] = 23 20 = 3
=

E [ L] 3
=
= 15%
P
20

Question #175
Key: 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.

MCL-09-08

- 107 -

Question #176
Key: C
2
Var [ Z ] = E Z 2 E [ Z ]

E [Z ] =

t t

(v b )

p x x ( t ) dt = e 0.08t e0.03t e 0.02t ( 0.02 ) dt

0

0.02 2
=
( 0.02 ) e0.07t dt =
7
0.07
0

(e

= 0.02 e 0.12t x ( t ) dt = 2

12

E Z 2 =

( vt bt ) t px x ( t ) dt =

Var [ Z ] =

( )

1 2

7
6

0.05t

=1

e 0.02t ( 0.02 ) dt

1 4

= 0.08503
6 49

Question #177
Key: C

0.1
(8 ) = 311
1.1
0.1
= 1
( 6 ) = 511
1.1

&& we have Ax = 1
From Ax = 1 d ax
Ax +10
Ax = Ax i
Ax =

3
0.1

= 0.2861
11 ln (1.1)

Ax +10 =

10Vx

5
0.1

= 0.4769
11 ln (1.1)

= 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.

MCL-09-08

- 108 -

Question #178
Key: C

= 100,000 e 0.06t e 0.001t 0.001dt

Regular death benefit

0.001

= 100,000

0.06 + 0.001
= 1639.34
Accidental death

= 100,000 e 0.06t e 0.001t ( 0.0002 ) dt

10

10

= 20 e 0.061t dt
0

1 e 0.61
= 20
= 149.72
0.061

Actuarial Present Value = 1639.34 + 149.72 = 1789.06

Question #179
Key: D
Once you are dead, you are dead. Thus, you never leave state 2 or 3, and rows 2 and
3 of the matrix must be (0 1 0) and (0 0 1).
Probability of dying from cause 1 within the year, given alive at age 61, is 160/800 =
0.20.
Probability of dying from cause 2 within the year, given alive at age 61, is 80/800 = 0.10
Probability of surviving to 62, given alive at 61, is 560/800 = 0.70
(alternatively, 1 0.20 0.10), so correct answer is D.

MCL-09-08

- 109 -

Question #180
Key: C
This first solution uses the method on the top of page 9 of the study note.
Note that if the species is it is not extinct after Q3 it will never be extinct.
This solution parallels the example at the top of page 9 of the Daniel study note. We
want the second entry of the product ( Q1 Q2 Q3 ) e3 which is equal to

Q1 ( Q2 ( Q3 e3 ) ) .
0

Q3 0 = 0.1
1
1
0

0.01

Q2 0.1 = 0.27
1
0.01

1
0.049

Q1 0.27 = 0.489
1
1

The second entry is 0.489; thats our answer.

Alternatively, start with the row matrix (0 1 0) and project it forward 3 years.
(0
(0
(0.07

1
0.70
0.49

0
)
0.30)
0.44)

Q1 = (0.00
Q2 = (0.07
Q3 = (0.16

0.70
0.49
0.35

0.30)
0.44)
0.49)

Thus, the probability that it is in state 3 after three transitions is 0.49.

Yet another approach would be to multiply Q1 Q2 Q3 , and take the entry in row 2,
column 3. That would work but it requires more effort.

MCL-09-08

- 110 -

Question #181
Key: B
Probabilities of being in each state at time t:
t
0
1
2
3

Active
1.0
0.8
0.65
not needed

Disabled
0.0
0.1
0.15
not needed

Dead
0.0
0.1
0.2
0.295

Deaths
0.1
0.1
0.095

We built the Active Disabled Dead columns of that table by multiplying each row times
the transition matrix. E.g., to move from t = 1 to t = 2, (0.8 0.1 0.1) Q = (0.65 0.15
0.2)
The deaths column is just the increase in Dead. E.g., for t = 2, 0.2 0.1 = 0.1.
v = 0.9
APV of death benefits = 100,000* 0.1v + 0.1v 2 + 0.095v3 = 24,025.5

APV of $1 of premium = 1 + 0.8v + 0.65v 2 = 2.2465

Benefit premium =

24,025.5
= 10,695
2.2465

Question #182
Key: A
Split into three independent processes:
Deposits, with * = ( 0.2 )(100 )( 8 ) = 160 per day
Withdrawals, with * = ( 0.3)(100 )( 8 ) = 240 per day
Complaints. Ignore, no cash impact.
For aggregate deposits,
E ( D ) = (160 )( 8000 ) = 1, 280,000
Var ( D ) = (160 )(1000 ) + (160 )( 8000 )
2

= 1.04 1010

For aggregate withdrawals

E (W ) = ( 240 )( 5000 ) = 1, 200,000
Var (W ) = ( 240 )( 2000 ) + ( 240 )( 5000 )
2

= 0.696 1010

MCL-09-08

- 111 -

E (W D ) = 1, 200,000 1, 280,000 = 80,000

Var (W D ) = 0.696 1010 + 1.04 1010 = 1.736 1010

SD (W D ) = 131,757

W D + 80,000 80,000
Pr (W > D ) = Pr (W D > 0 ) = Pr
>
131,757
131,757

= 1 ( 0.607 )
= 0.27

Question #183
Key: D
Exponential inter-event times and independent implies Poisson process (imagine
additional batteries being activated as necessary; we dont care what happens after two
have failed).
Poisson rate of 1 per year implies failures in 3 years is Poisson with = 3 .
f(x)
0.050
0.149

x
0
1

F(x)
0.050
0.199

Probe works provided that there have been fewer than two failures, so we want F(1) =
0.199.
Alternatively, the sum of two independent exponential = 1 random variables is Gamma
with = 2, = 1
1 3 t
F ( 3) = ( 2;3) =
t e dt
( 2 ) 0
= ( t 1) e t
= 1 4e

3
0

= 0.80 is probability 2 have occurred

1 0.80 = 0.20

MCL-09-08

- 112 -

Question #184
Key: B

1000 P45a&&45:15 + a&&60:15 15 E45 = 1000 A45

1000

A45
( a&&45 15 E45 a&&60 ) + ( a&&60 15 E60 a&&75 )( 15 E45 ) = 1000 A45
a&&45

201.20
(14.1121 ( 0.72988)( 0.51081)(11.1454 )
14.1121
+ (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
Key: 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

( ( (1.08) 1000 0.1) + ) (1.08) 2000 0.1 = 2000
x

x +1

= 1027.42

MCL-09-08

- 113 -

Question #186
Key: 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

Y = Var [Y ] =

(1 Ax ) = 5572.68
d

( 500 )2

1
d2

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
Key: A
q b1g = 1 p b1g = 1 e p b g j
41

41

bg

q41 1

41

bg

q41

1
2
l41( ) = l40( ) d 40( ) d 40( ) = 1000 60 55 = 885
1

d 41( ) = l41( ) d 41( ) l42( ) = 885 70 750 = 65

( )

p41

q41( )
1

750
=
885

750
(1) = 1
q41

885

MCL-09-08

( )

q41
65

135

65
135

= 0.0766

- 114 -

Question #188
Key: D

s ( x ) = 1

d

( x) =
log ( s ( x ) ) =
dx
x
ex =
o

t
x
1
dt =
+1
x

o
= new
new = 2 old + 1
e0new = old
2 +1
+1
old
old
2 + 1 9
(0new ) =
=
old = 4

4
Question #189
Key: C
Constant force implies exponential lifetime

Var [T ] = E T ( E [T ])
2

= 0.1

1
1
= 2 = 2 = 100

2

E min (T ,10 ) = t ( 0.1)e .1t dt + 10 ( 0.1)e.1t dt

10

= te

10

.1t

10e

.1t 10
0
1

10e.1t

= 10e 10e + 10 + 10e

10
1

= 10 (1 e 1 ) = 6.3

Question #190

MCL-09-08

- 115 -

Key: A

Ga&&x:15

% premium amount for 15 years

644474448
= 100,000 Ax + 0.08G + 0.02Ga&&x:15 + ( ( x 5 ) + 5a&&x )
144244
3

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 )

a&&x =

1 Ax 1 0.5148197
=
= 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 ax:14 .
The per policy expenses could also be expressed in terms of an annuity-immediate.

Question #191
Key: D
For the density where T ( x ) T ( y ) ,

Pr (T ( x ) < T ( y ) ) =

40

50

40
y =0

0.0005 x dy +
0

50
y = 40

40

50

y = 40

= 0.0005 ydy +
=

40

0.0005dxdy +
0.0005dxdy
y = 0 x = 0
y = 40 x = 0

0.0005 y 2
2

40
0

+ 0.02 y

0.0005 x

0.02 dy
50
40

= 0.40 + 0.20 = 0.60

For the overall density,

MCL-09-08

- 116 -

40
0

dy

Pr (T ( x ) < T ( y ) ) = 0.4 0 + 0.6 0.6 = 0.36

where the first 0.4 is the probability that T ( x ) = T ( y ) and the first 0.6 is the probability
that T ( x ) T ( y ) .

Question #192
Key: B
The conditional expected value of the annuity, given , is

1
.
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 internal [ 0.01,0.02] . If the density were not
constant, it would have to go inside the integral.

Question #193
Key: E

Recall ex =
o

x
2
o

ex:x = ex + ex ex:x
ex:x =
o

t
t
dt
1
1
x y

Performing the integration we obtain

x
o
ex:x =
3
2 ( x )
o
ex:x =
3
(i)
(ii)

2 ( 2a )
2 ( 3a )
= 3
2 = 7a
3
3
2 ( 3a )
2
( a ) = k
3
3
3.5a a = k ( 3.5a 3a )

MCL-09-08

- 117 -

k =5

The solution assumes that all lifetimes are independent.

Question #194
Key: B

0.10

= 10,000
= 7143
+
0.10 + 0.04
The actuarial present value of the insurance of 7143 is
xy
0.12

7,143
= ( 7,143)
= 5357
xy +
0.12 + 0.04
Upon the first death, the survivor receives 10,000

If the force of mortality were not constant during each insurance period, integrals would
be required to express the actuarial present value.

Question #195
Key: E
Let

p0 = Probability someone answers the first k problems correctly.

p0 = ( 0.8 ) = 0.64

p0 = ( 0.8 ) = 0.41

p0:0 = ( 2 p0 ) = 0.642 = 0.41

p0:0 = ( 0.41) = 0.168

p0:0 = 2 p0 + 2 p0 2 p0:0 = 0.87

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
Prob(second loses in round 3 or 4 second loses after round 2) =

p0:0 4 p0:0
2

Question #196
Key: E

MCL-09-08

- 118 -

0.218
= 0.25
0.87

p0:0

If (40) dies before 70, he receives one payment of 10, and Y = 10. Under DeMoivre, 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. (Under DeMoivre, all intervals of the same length,
here 30 years, have the same probability).
If (40) survives to 100, he receives 3 payments.
Y = 10 + 20v30 + 30v 60 = 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
Since everyone receives the first payment of 10, you could have ignored it in the
calculation.
2

Question #197
Key: C
2

E ( Z ) = v k +1bk +1
k =0

px qx+ k

= v ( 300 ) 0.02 + v 2 ( 350 )( 0.98 )( 0.04 ) + v3 400 ( 0.98 )( 0.96 )( 0.06 )

= 36.8

( ) = (v

E Z

k +1

k =0

bk +1

2
k

px qx + k

= v 2 ( 300 ) 0.02 + v 4 ( 350 ) ( 0.98 )( 0.04 ) + v 6 4002 ( 0.98 )( 0.96 ) 0.06

2

= 11,773

( )

Var [ Z ] = E Z 2 E ( Z )

= 11,773 36.82
= 10, 419

MCL-09-08

- 119 -

Question #198
Key: A
Benefits +
3
0 Le = 1000v +

Expenses
( 0.20G + 8) + ( 0.06G + 2 ) v + ( 0.06G + 2 ) v 2

at G = 41.20 and i = 0.05,

0 Le

( for K = 2 ) = 770.59

Question #199
Key: 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

1+ i =
Plug into [A]

20.385
= 1.01925
20

( 235 + P )(1.01925 ) 0.015 (1000 255 ) = 255

235 + P =

255 + 11.175
1.01925

P = 261.15 235 = 26.15

1000 25V40 =

( 272 + 26.15 )(1.01925 ) ( 0.025)(1000 )

1 0.025
= 286

MCL-09-08

- 120 -

Premiums
G a&&3

Question #200
Key: A

1.2
1

1
0.8
0.6

0.5
0.4

0.4
0.2
0
0

10

Give
n
0

s ( x)

55 q35

20 55 q15

20 55 q15
55 q35

= 1

20

30

40

50

Give
n
25

15
0.70
Linear
Interpolation

35

0.50

0.48
Linear
Interpolation

s ( 90 )
0.16 32
= 1
=
= 0.6667
s ( 35 )
0.48 48

s ( 35 ) s ( 90 ) 0.48 0.16 32
=
=
= 0.4571
s (15 )
0.70
70

0.4571
= 0.6856
0.6667

Alternatively,
20 55 q15
55 q35

60

20 p15 55 q35
55 q35

20 p15

s ( 35 )
s (15 )

0.48
0.70
= 0.6856
=

MCL-09-08

- 121 -

70

Give
n
75
0.4

80

90

0
100

Given
90

100

0.16
Linear
Interpolation

Question #201
Key: A

s ( 80 ) = 1 * ( e ^ ( 0.16*50 ) + e ^ ( 0.08*50 ) ) = 0.00932555

2
s ( 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

Question #202
Key: B
x
40
41
42

lx( )
2000
1920
1840

because 2000 20 60 = 1920 ;

d x( )
20
30
40

d x( )
60
50

1920 30 50 = 1840

Let premium = P

1840 2
2000 1920
+
v+
v P = 2.749 P
APV premiums =
2000
2000 2000
30 2
40 3
20
APV benefits = 1000
v+
v +
v = 40.41
2000
2000
2000
40.41
P=
= 14.7
2.749

MCL-09-08

- 122 -

Question #203
Key: A

10

a30 = e0.08t e 0.05dt + 10 Ex e0.08t e0.08t dt

0
10 0.13t

= e
0

dt + e

0
1.3 0.16

0 e

e 0.13t 10
e 0.16t
+ e 1.3
0.13 0
0.16
1.3
1.3
e
1
e
=
+
+
0.13 0.13 0.16
= 7.2992

dt

A30 = e 0.08t e 0.05t ( 0.05 ) dt + e1.3 e0.16t ( 0.08 ) dt

10

1
e
e
= 0.05

+ ( 0.08 )
0.16
0.13 0.13
= 0.41606
1.3

1.3

= 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

( A40 ) = A40 P ( A40 ) a40

= 0.5

( 0.057 ) = 0.14375
0.16

Question #204
Key: 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

[ ]+1

= 100,000vT 1600 a&&10

1600 a&&10
Minimum is 1600 a&&10
= 12,973

MCL-09-08

0 < T 10
10 < t 20

20<t
when evaluated at i = 0.05

- 123 -

Question #205
Key: B
Method 1: as three independent processes, based on the amount deposited. Within
each
process, since the amount deposited is always the same, Var ( X ) = 0 .
Rate of depositing 10 = 0.05 * 22 = 1.1
Rate of depositing 5 = 0.15 * 22 = 3.3
Rate of depositing 1 = 0.80 * 22 = 17.6
Variance of depositing 10 = 1.1 * 10 * 10 = 110
Variance of depositing 5 = 3.3 * 5 * 5 = 82.5
Variance of depositing 1 = 17.6 * 1 *1 = 17.6
Total Variance = 110 + 82.5 + 17.6 = 210.1
Method 2: as a single compound Poisson process
E ( X ) = 0.8 1 + 0.15 5 + 0.05 10 = 2.05

( )

E X 2 = 0.8 12 + 0.15 52 + 0.05 102 = 9.55

Var ( S ) = E ( N )Var ( X ) + Var ( N ) ( E ( X ) )

= ( 22 )( 5.3475 ) + ( 22 ) 2.052

= 210.1

Question #206
Key: A

Pa&&x:3 = APV (stunt deaths)

4 /1.08 + 5 / (1.08 )2 + 6 / (1.08 )3
2500 + 2486 /1.08 + 2466 / (1.08 )2

P
= 500000

2500
2500

P ( 2.77 ) = 2550.68

p = 921

MCL-09-08

- 124 -

Question #207
Key: D

30 s ( x ) dx =
80

e30:50 =

s ( 30 )

80

x2
30 1 10,000 dx
2

30
1

100

x3 80
x

30,000 30

0.91
33.833
=
0.91
= 37.18

Question #208
Key: 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
100010V50 = 1000 A60 1000 P50 a&&60
= 425.66 10.147 25
= 172

MCL-09-08

- 125 -

Question #209
Key: E
Let Portfolio be the present value random variable for the aggregate payments.
Let Y65 = present value random variable for an annuity due of one on one life age 65.
Thus E (Y65 ) = a&&65

Let Y75 = present value random variable for an annuity due of one on one life age 75.
Thus E (Y75 ) = a&&75

Let X represent the 95th percentile.

E (Portfolio) = 50 ( 2 ) a&&65 + 30 (1) a&&75

= 100 ( 9.8969 ) + 30 ( 7.217 ) = 1206.20

Var (Portfolio) = 50 22Var [Y65 ] + 30 (1) Var [Y75 ] = 200 (13.2996 ) + 30 (11.5339 ) = 3005.94
2

where Var [Y65 ] =

and Var [Y75 ] =

1
d2

1
d2

2
A65 A65
=

2
A75 A75
=

( 0.05660 )
1

( 0.05660 )

0.23603 ( 0.4398 )2 = 13.2996

0.38681 ( 0.59149 )2 = 11.5339

X E ( Portfolio )

1.645 = 0.95 X = E ( Portfolio ) + 1.645 Var [ Portfolio ]

Pr
Var ( Portfolio )

= 1206.20 + 1.645 ( 54.826 )

= 1296.39

Question #210
Key: C

a = e t e t dt =
0

APV = 50,000

1
0.5

1
+
1

0.5 + d = 100,000 ln ( + 1) ln ( + 0.5)

1

0.045 + 1
= 100,000 ln

0.045 + 0.5
= 65,099

MCL-09-08

- 126 -

Question #211
Key: E
The process described, where a key feature is the exponential time between events, is
a
Poisson process with = 1 5 per minute.
The number of claims in any interval of length n minutes has a Poisson distribution with
mean
n = n / 5 .
Here n = 10. So parameter = 10/5 = 2
Pr ( N 2 ) = 1 Pr ( N = 0 ) Pr ( N = 1)

= 1 e 2 e 2 2
= 1 0.135 0.271 = 0.594

Question #212
Key: D
The payouts in any time period of length t have a Poisson distribution with parameter
5t .
The payouts can be grouped by size. For each i, the number of payouts of size i is a
Poisson random variable with mean 5t / 2i , and these random variables are
independent.
Since they are independent Poisson random variables, the sum of the payouts of size 1,
5t 5t 5t 35t
2 or 3 is a Poisson random variable with mean + + =
2 4 8 8
For t = 1/ 3 hour, the mean is

35 1
= 1.4583
8 3

f (0) = e 1.4583 = 0.23

MCL-09-08

- 127 -

Question #213
Key: D
How long was the expected wait during first 45 minutes? In that interval, wait is
exponential with
= 30, so

1 30x
1 30x
E min ( X , 45 ) = x e dx + 45 e dx
0
45
30
30
45

= 30 1 e 30 = 23.31

45

e
45
= 1.5 , so f ( 0 trains ) =
Expected trains =
30

1.5

(1.5)0 = 0.223

0!

If 0, wait an additional 15 minutes (expected) so

Total expected wait = 23.31 + ( 0.223)(15 ) = 26.65
o

Note that this problem is equivalent to calculate e x

1/ 30, 0 t < 45
where x ( t ) =
1/15, t 45
o

and solution is e x = e x:45 + 45 p x e x + 45

Question #214
Key: A
Let be the benefit premium at issue.

= 10,000

A45:20
a&&45:20

0.20120 0.25634 ( 0.43980 ) + 0.25634

= 10,000
14.1121 0.25634 ( 9.8969 )
= 297.88

The expected prospective loss at age 60 is

MCL-09-08

- 128 -

10,00015V45:20 = 10,000 A60:5 297.88 a&&60:5

= 10,000 0.7543 297.88 4.3407
= 6250
1
= 0.36913 0.68756 ( 0.4398 ) = 0.06674
where A60:5

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
Question #215
Key: D
Ax = Ax1:5 + 5 Ex Ax1+5 :7 + 12 Ex Ax +12

where
5( 0.04 + 0.02 )
= 0.7408
5 Ex = e
0.04
Ax1:5 =
(1 0.7408 ) = 0.1728
0.04 + 0.02
7 ( 0.05+ 0.02 )
= 0.6126
7 E x +5 = e

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
Key: A
APV of Accidental death benefit and related settlement expense =
0.004
= 89.36
( 2000 1.05)
0.004 + 0.04 + 0.05
0.04
APV of other DB and related settlement expense = (1000 1.05 )
= 446.81
0.094

MCL-09-08

- 129 -

APV of Initial expense = 50

APV of Maintenance expense =

3
= 31.91
0.094

100
= 1063.83
0.094
APV of 0 Le = 89.36 + 446.81 + 50 + 31.91 1063.83
= 445.75

APV of future premiums =

Question #217
Key: C
Compute the probabilities of moving from healthy to NH. There are three paths.
H to H to NH: (0.8)(0.05) = 0.04
H to HHC to NH: (0.15)(0.05) = 0.0075
H to NH to NH: (0.05)(1) = 0.05
Summing, we get 0.0975 as the probability for each member.
Variance for m members = mpq, here = 50*(0.0975)(0.9025) = 4.40

Question #218
Key: C
0.6 0.3 0.1

Q0 = 0
0
1
0
0
1

0.36 0.18 0.46

Q0 Q1 = 0
0
1
0
0
1

0 0.108 0.892

Q0 Q1 Q2 = 0
0
1
0
0
1

APV ( Premiums ) = 1 + 0.9v + 0.54v 2 + 0.108v3 = 2.35

APV ( Benefits ) = 4 0.3v + 0.18v 2 + 0.108v3 = 2.01

Difference = 2.35 2.01 = 0.34
In the formula for APV (Premiums), states 0 and 1 are combined. For example, the
0.54 v 2 term represents a 0.36 probability of being in state 0 plus a 0.18 probability of
being in
state 1.

MCL-09-08

- 130 -

Alternatively, the same effort here but often shorter when everyone is in the same initial
state:

(1.00
( 0.60
( 0.36

0.00 0.00 ) Q0 = ( 0.6 0.3 1)

0.30 0.10 ) Q1 = ( 0.36 0.18 0.46 )
0.18 0.46 ) Q2 = ( 0 0.108 0.892 )

This method just calculates the top row of the cumulative transition matrix. It gives the
same elements you use if you calculate the complete cumulative transition matrix, so
you finish the problem the same way as before.

Question #219
Key: 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

0.25

1
px = e 4( 0.5756 ) = 0.8660

1.75

px = px 0.75 px +1 = e e

1.5 q x + 0.25 =

0.251.5 q x
0.25

px

0.25

3
( 3 )
4

=e

13
( 0.5756 )
4

= 0.1540

px 1.75 px 0.866 0.154

=
= 0.82
0.866
0.25 p x

Question #220
Key: C
The form of lx for non-smokers matches DeMoivres law, so
1
xNS =
110 x
2
= 1 xS xS =
2
110 x
l xS = l0S (110 x ) [see note below]
2

MCL-09-08

- 131 -

S
t p20

Thus

S
l20
( 90 t )
= S+t =
902
l20

NS
t p25 =

e 20:25 =
o

85
0 t

NS
l25
(85 t )
+t
=
NS
85
l25

p20:25dt

85

pS
0 t 20 t

NS
p25
dt

2
90 t ) ( 85 t )
(
dt
=
0
( 90 )2 85
85

85
1
( 90 t )2 ( 90 t 5) dt

0
688,500
1
85 ( 90 t )3 dt 5 85 ( 90 t )2 dt
=
0
688,500 0

85

( 90 t )4 5 ( 90 t )3
1
=
+

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].
Note: the solution above assumes the candidate will recognize that the smoker mortality
is modified DeMoivre and can proceed directly to the lx or s ( x ) form. The s ( x ) form is
derived as s ( x ) = e

x 2

0 110 t

dt = e

2ln (110t )

110 x
=

110

The lx form is equivalent.

Question #221
Key: B

a&&30:20 = a&&30:10 + 10 E30 a&&40:10

15.0364 = 8.7201 + 10 E30 8.6602
10 E30

= (15.0364 8.7201) / 8.6602 = 0.72935

Actuarial present value (APV) of benefits =

MCL-09-08

- 132 -

1
1
= 1000 A40:10
+ 2000 10 E30 A50:10

= 16.66 + 2 0.72935 32.61 = 64.23

APV 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

MCL-09-08

- 133 -

Question #222
Key: A
s25:15
15V25 = P25 &&
1
P25:15
= P25:15

1
A25:15

(this is the retrospective reserve calculation)

15 E25
P25:151 = 0.05332 0.05107

= 0.00225
=

0.05107 = P25:151 =
1
A25:15
15 E25

a&&25:15

15 E25

a&&25:15

1
A25:15
/ a&&25:15
15 E25

1
A25:15

/ a&&25:15

1
&&
s25:15

0.00225
= 0.04406
0.05107

0.01128
= 0.22087
0.05107
25,00015V25 = 25,000 ( 0.22087 0.04406 ) = 25,000 ( 0.17681) = 4420

P25 &&
s25:15 =

There are other ways of getting to the answer, for example writing
A: the retrospective reserve formula for 15V25 .
1
, which = 0
B: the retrospective reserve formula for 15V25:15

Subtract B from A to get

1
&&
P25 P25:15
s25:15 = 15V25

Question #223
Key: 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 + e2 = 1.89704

DM: Since l70 and

model

MCL-09-08

p70 for the DM model equal the ILT, therefore l72 for the DM

- 134 -

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 ps instead of ls. 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

p70 is the same for all three, you could just

order p70 .

Question #224
Key: D
( )
l60
= 1000

( )
l61
= 1000 ( 0.99 )( 0.97 )( 0.90 ) = 864.27

( )
d 60
= 1000 864.27 = 135.73

( )
d 60
= 135.73
3

ln ( 0.9 )
0.1054
=
= 98.05
ln ( 0.99 )( 0.97 )( 0.9 ) 0.1459

( )
l62
= 864.27 ( 0.987 )( 0.95 )( 0.80 ) = 648.31

( )
d 61
= 864.27 648.31 = 215.96

( )
d 61
= 215.96
3

ln ( 0.80 )
0.2231
=
= 167.58
ln ( 0.987 )( 0.95 )( 0.80 ) 0.2875

( )
( )
+ d 61
= 98.05 + 167.58 = 265.63
So d60
3

Question #225
Key: B
t

p40 = e 0.05t

p50 = ( 60 t ) / 60

50+t = 1/ ( 60 t )

MCL-09-08

- 135 -

10

p40:50 50+t dt =

10 e

10

0.05t

1 e0.05t
dt =
60
60 ( 0.05 ) 0
=

20
1 e 0.5 = 0.13115
60

Question #226
Key: A
Actual payment (in millions) =

q3 = 1

1 q3

3
5
+ 2 = 6.860
1.1 1.1

0.30
= 0.5
0.60

0.30 0.10
= 0.333
0.60

0.5 0.333
+
= 7.298
Expected payment = 10
2
1.1 1.1
Ratio

6.860
= 94%
7.298

Question #227
Key: E
At duration 1
K ( x)

1L

>1

0 Px1:2

Px1:2

Prob
qx +1

1 qx +1

So Var ( 1 L ) = v 2 qx +1 (1 qx +1 ) = 0.1296
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, that same formula for Var arises from Hattendorf, since

MCL-09-08

- 136 -

= 0 and Var ( 2 L ) = 0

2V

Alternatively, evaluate Px1:2 = 0.1303

1L

= 0.9 0.1303 = 0.7697 if K ( x ) = 1

1L

= 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

Var ( 1 L ) = 0.1320 ( 0.0497 ) = 0.1295

2

Question #228
Key: C
P ( Ax ) =

Ax
Ax
Ax ( 0.1) ( 13 )
=
=
=
= 0.05
ax 1 Ax 1 Ax
(1 13 )

P ( Ax )

Var ( L ) = 1 +

1 0.05
= 1 +

5 0.10

Ax Ax2

Ax Ax2

Ax Ax2 = 0.08888

Var [ L] = 1 +

Ax Ax2

16

= 1 +
( 0.08888 )
45 0.1
2

1 +
=4
0.1
= 0.1
2

Question #229
Key: E

Seek g such that Pr aT ( 40 ) > g = 0.25

aT is a strictly increasing function of T.

MCL-09-08

- 137 -

Pr {T ( 40 ) > 60} = 0.25 since

Pr aT

( 40 )

60

p40 =

100 40
= 0.25
120 40

> a60 = 0.25

g = a60 = 19.00

Question 230
Key: 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 .

Question #231
Key: C
1000 A81 = (1000 A80 ) (1 + i ) q80 (1000 A81 )
689.52 = ( 679.80 )(1.06 ) q80 (1000 689.52 )

q80 =

720.59 689.52
= 0.10
310.48

MCL-09-08

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q[80] = 0.5q80 = 0.05

1000 A[80] = 1000vq[80] + vp[80] 1000 A81
= 1000

0.05
0.95
+ 689.52
= 665.14
1.06
1.06

Question #232
Key: D

lx( )
776
752

d x( )
8
8

42
43

d x( )
16
16

1
2
( )
( )
l42
and l43
came from lx( +1) = lx( ) d x( ) d x( )

2000 8v + 8v 2 + 1000 16v + 16v 2

APV Benefits =

776

) = 76.40

776 + 752v
APV Premiums = 34
= ( 34 )(1.92 ) = 65.28
776

2V

= 76.40 65.28 = 11.12

Question #233
Key: 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

a&&x = 1 + vpx + v 2 2 px = 1 +

0.9798 ( 0.9798 )( 0.995 )

+
1.05
1.052

= 2.8174

MCL-09-08

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0.96 ( 0.96 )( 0.99 )

+
= 2.7763
1.05
1.052
APV = 2000 a&&x + 2000 a&&x + 6000 a&&xx

a&&xx = 1 + vpxx + v 2 2 pxx = 1 +

= ( 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.
Question #234
Key: B
t

1
1
1
px( ) x( ) ( t ) = qx( ) = 0.20

2
2
px( ) = 1 tqx( ) = 1 0.08t

3
3
px( ) = 1 tqx( ) = 1 0.125t

qx( ) =
1

1
0t

1
1
2
3
1
1

px( ) x( ) ( t ) dt = t px( ) t px( ) t px( ) x( ) ( t ) dt

0

= (1 0.08t )(1 0.125t )( 0.20 ) dt

1

= 0.2 1 0.205t + 0.01t 2 dt

0

0.205t 2 0.01t 3
= 0.2 t
+

2
3 0

0.01

= ( 0.2 ) 1 0.1025 +
= 0.1802
3

Question #235
Key: B

1V40

= 1

1 CV40

a&&41
14.6864
= 1
= 0.00879
a&&40
14.8166

(1000 )(1)

MCL-09-08

( 0.00879 ) = 2.93

- 140 -

(d )
( w)
G 0.1G (1.50 )(1) ) (1.06 ) 1000q40
1CV40 q40
(
AS =
( )
( )
1 q40
q40
d

( 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

(d )
( w)
(
1 AS + G 0.1G (1.50 )(1) ) (1.06 ) 1000q41 2 CV40 q41
AS =
( )
( )
1 q41
q41
d

(1.197G 6.22 + G 0.1G 1.50 )(1.06 ) (1000 )( 0.00298) 2 CV40 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

Question #236
Key: A

(1)
( 2)
(
4 AS + G (1 c4 ) e4 ) (1 + i ) 1000q x + 4 5 CV q x + 4
AS =

1 qx(+)4 qx(+ 4)
1

( 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

MCL-09-08

- 141 -

( 657.31)(1 + i ) = 90 + 148.75 + ( 0.65)( 694.50 )

690.18
= 1.05
657.31
i = 0.05

1+ i =

Question #237
Key: C

Excluding per policy expenses, policy fee, and expenses associated with policy fee.
APV (actuarial present value) of benefits = 25,000 Ax:20 = ( 25,000 )( 0.4058 ) = 10,145
Let G denote the expense-loaded premium, excluding policy fee.

APV of expenses = ( 0.25 0.05 ) G + 0.05G a&&x:20 + ( 2.00 0.50 ) + 0.50 a&&x:20 ( 25,000 /1000 )
= 0.20 + ( 0.05 )(12.522 ) G + 1.50 + ( 0.50 )(12.522 ) 25
= 0.8261G + 194.025
APV of premiums = G a&&x:20 = 12.522 G
Equivalence principle:
APV premium = APV benefits + APV expenses
12.522 G = 10,145 + 0.8261G + 194.025
10,339.025
G=
= 883.99
(12.522 0.8261)
This G is the premium excluding policy fee.
Now consider only year 1 per policy expenses, the year one policy fee (call it F1 ), and
expenses associated with F1 .
APV benefits = 0
APV premium = F1
Equivalence principle

F1 = 15 + 0.25 F1
15
F1 =
= 20
0.75

MCL-09-08

- 142 -

Total year one premium = G + F1

= 884+20
= 904

Question #238
Key: B

Get G as in problem 3; G = 884

Now consider renewal per policy expenses, renewal policy fees (here called FR ) and expenses
associated with FR .
APV benefits = 0
APV expenses = ( 3 + 0.05 FR ) ax:19
= ( 3 + 0.05 FR )(12.522 1)
= 34.566 + 0.5761FR
APV premiums = ax:19 FR
= (12.522 i ) FR
= 11.522 FR
Equivalence principle:
11.522 FR = 34.566 + 0.5761 FR
34.566
FR =
= 3.158
11.522 0.5761
Total renewal premium = G + FR
= 884 + 3.16
= 887
Since all the renewal expenses are level, you could reason that at the start of every renewal year,
3
you collect FR and pay expenses of 3 + 0.05 FR , thus FR =
= 3.16
1 0.05
Such reasoning is valid, but only in the case the policy fee and all expenses in the policy fee
calculation are level.

MCL-09-08

- 143 -

Question #239
Key: B

Let P denote the expense-loaded premium

From problem 3, APV of benefits = 10,145
From calculation exactly like problem 3,
APV of premiums = 12.522 P
APV of expenses = ( 0.25 0.05 ) P + 0.05 P a&&x:20 + ( 2.00 0.50 ) + 0.50 a&&x:20 ( 25000 /1000 )
+ (15 3) + 3 a&&x:20

= 0.20 P + ( 0.05 P )(12.522 ) + (1.50 + ( 0.50 )(12.522 ) ) ( 25 ) + 12 + ( 3)(12.522 )

= 0.8261 P + 243.59
Equivalence principle:
12.522 P = 10,145 + 0.8261 P + 244
10,389
P=
12.522 0.8261
= 888

Question #240
Key: D

Let G denote the expense-loaded premium.

Actuarial present value (APV) of benefits = 1000A40:20
APV of premiums = G a&&40:10
APV 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).
Equivalence principle:

MCL-09-08

- 144 -

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

G=

1000 A40:20 + 10 + 5 a40:19

0.91a&&40:10 0.2

Question #241
Key: C

Let G denote the expense-loaded premium excluding policy fee.

Actuarial Present Value (APV) of benefits = 1000 Ax
= 100,000 (1 d a&&x )

0.04

= 100,000 1
(10.8 )
1.04

= 58, 462

APV of premiums = G a&&x = 10.8 G

Excluding per policy expenses and expenses on the policy fee,
APV(expenses) = 0.5 G + ( 2.0 )(100 ) + ( 0.04 G + ( 0.5 )(100 ) ) ax
= 0.5 G + 200 + ( 0.04 G + 50 )( 9.8 )
= 0.892 G + 690

Equivalence principle:
10.8 G = 58, 462 + 0.892 G + 690
59,152
G=
= 5970.13
9.908
Let F denote the policy fee.
APV of benefits = 0
APV of premiums = F a&&x = 10.8 F
APV of expenses = 150 + 25 ax + 0.5 F + 0.04 F ax

= 150 + 25 ( 9.8 ) + 0.5 F + 0.04 F ( 9.8 )

= 395 + 0.892 F
Equivalence principle:

MCL-09-08

- 145 -

10.8 F = 395 + 0.892 F

395
F=
10.8 0.892
= 39.87
Total premium = G + F
= 5970.13 + 39.87
= 6010
Note: Because both the total expense-loaded premium and the policy fee are level, it was not
necessary to calculate the policy fee separately. Let P be the combined expense-loaded
premium.
APV benefits = 58,462
APV premiums = 10.8P
APV expenses = 0.892 P + 690 + 150 + ( 25 )( 9.8 )
= 0.892 P + 1085
where 0.892P + 690 is comparable to the expenses in G above, now including all
percent of premium expense.
Equivalence principle:
10.8 P = 58, 462 + 0.892 P + 1085
59547
P=
10.8 0.892
= 6010
This (not calculating the policy fee separately, even though there is one) only works with
level premiums and level policy fees.

Question #242
Key: C

11

(d )
( w)
(
10 AS + G c10 G e10 ) (1 + i ) 10,000q x +10 11 CV q x +10
AS =

1 qx(+10) qx(+10)
d

(1600 + 200 ( 0.04 )( 200 ) 70 ) (1.05) (10,000 )( 0.02 ) (1700 )( 0.18)

MCL-09-08

1 0.02 0.18

- 146 -

1302.1
0.8

= 1627.63

Question #243
Key: E

Let G denote the expense-loaded premium.

G = benefit premium plus level premium (e) for expenses.
Expense reserve = Actuarial Present Value (APV) of future expenses APV of future
expense premiums.
At duration 9, there is only one future years expenses and due future premium, both
payable at the start of year 10.
Expense reserve = APV of expenses APV of expense premiums
= 0.10G + 5 e
= 0.10 1000 P35:10 + e + 5 e

= ( 0.10 )( 76.87 ) + 5 0.9e

= 12.687 0.9e
12.687 0.9e = 1.67
e = 15.95

G = 1000 P35:10 + e
= 76.87 + 15.95
= 92.82

MCL-09-08

- 147 -

Question #244
Key: C

4 AS =

( 3 AS + G c4G e4 ) (1 + i ) 1000qx(+d3) 4 CVqx(+w3)

1 qx( +3) qx( +3)
d

Plugging in the given values:

4 AS

( 25.22 + 30 ( 0.02 )( 30 ) 5) (1.05) 1000 ( 0.013) 75 ( 0.05)

1 0.013 0.05

35.351
0.937

= 37.73
With higher expenses and withdrawals:
4 AS

revised

25.22 + 30 (1.2 ) ( ( 0.02 )( 30 ) + 5 ) (1.05 ) 1000 ( 0.013) 75 (1.2 )( 0.05 )

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

MCL-09-08

- 148 -

Question #245
Key: E

Let G denote the expense-loaded premium.

APV (actuarial present value) of benefits = 100010 20 A30 .
APV of premiums = Ga&&30:5 .

APV 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=

MCL-09-08

(1000

10 20 A30

+ 20 + 10 a 30:9

+ 20 + 10 a30:9

(1 0.15) a&&30:5 0.15

(1000

10 20 A30

0.85 a&&30:5 0.15

- 149 -

Question #246
Key: E

Let G denote the expense-loaded premium

APV (actuarial 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
2
1.04 1.04 1.042

APV of premium = G
APV of expenses = 0.02G + 0.03G + 15 + ( 0.9 )( 2 ) v
16.8
1.04
= 0.05G + 16.15
= 0.05G +

Equivalence principle: G = 1286.98 + 0.05G + 16.15

1303.13
G=
= 1371.72
1 0.05

Question #247
Key: C

APV (actuarial present value) of benefits = 3499 (given)

APV of premiums = G + ( 0.9 )( G ) v
=G+

0.9G
= 1.8571G
1.05

APV 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 )
+
1.05
1.052
=108.78+0.2857G
= 70 + 0.2G +

Settlement expenses are 20 + (1)(10 ) = 30 , payable at the same time the death benefit is
paid.
30
So APV of settlement expenses =
APV of benefits
10,000

MLC-09-08

- 150 -

= ( 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
Key: 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
Actuarial present value (APV) of benefits = 10,000 A50:20
= 3608.40

APV of premiums = 495 a&&50:20

= 5589.44
APV 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

APV of amounts available for profit and contingencies

= APV premium APV benefits APV expenses
= 5589.44 3608.40 803.81
= 1177.23

MLC-09-08

- 151 -