TEAM-E

SHIFNA SHERIN P-225

AYSHA HANNA-217
SARA SHAHAMA VP-240
MUHAMMED JUNAID -248
TEMPORARY ANNUITIES PAYABLE
ANNUALLY IN ADVANCE
PRESENT VALUE RANDOM VARIABLE
EXPECTED PRESENT VALUE
ACTURIAL NOTATION
VARIANCE
Defnition :
A Temporary immediate annuity due has payments that are made in advance and are limited to a
specified term

1.PRESENT VALUE RANDOM VARIABLE :

Consider a temporary immediate annuity-due contract to pay 1 at the start of each of the next n years ,
provided a life now aged x is then alive.

The present value of the benefit is+1,n]

Another way to write this is as follows . If we let Y denote the present value of the temporary annuity-due ,
then :

Y= if < n

if

and so we can see that the number of payments is the smaller of k x+1 and n
2.EXPECTED PRESENT VALUE:

The expected present value is:

E [ ] = p( =k)

= p(=k) + =k)

= E[ ]

= k\qx + npx

= q +
k\ x p
n x

= k\qx + npx

= j px

3.ACTURIAL NOTATION:
4.VARIANCE :

For a temporary immediate annuity-due

var[ ] = [2 - (2 )]

This is proved in the same way as the variance formula for the whole life annuity-due:

var[ = var[ ]

= var[]

= ( 2AX:n – (AX:n )2)

The last line above uses the result for the variance of an endowment assurance from the previous chapter.
We can now use this to prove the corresponding result for a temporary immediate annuity payable in arrears.
Q. Explain why -

Solution
The identity - = 1 works for whole life annuities, but when considering temporary annuities
-
In terms of summations, we have:

= v p x + v 2 2p x + … + v n n p x

And = 1 + v px + … + vn-1 n-1px

comparing these, we see that the first and the last terms are different. In fact:

- = 1 - v n n px
Q. Calculate the value of a40:3 when the effective annual rate of interest is 6% and:

lx =100-x at all ages x ≤ 100

Solution:

using the given formula, we have:

a40:3 = j jp40 = v + v2 +

= 2.58564