Consider the following two life insurance policies:

·       A: $150,000 is payable upon death, paid at the end of the year of death, provided death occurs after the first year but before the end of the 4^th year from sale of the policy.

·       B: $50,000 is payable upon survival to the end of the 4^th year from sale of the policy (paid at the end of the 4^th year).

The policy is sold to a 60 year old who has the following probabilities of dying:

x

q_x

60

0.01

61

0.03

62

0.05

63

0.07

64

0.09

65

0.12

a)    Calculate the probability of dying during the second year from purchase. (use 5 decimal places)

[1 mark]

b)    Calculate the probability of surviving to the end of the fourth year. (5 decimal places)

[1 mark]

c)     Calculate the expected present value of insurance policy A using an effective interest rate of 6% per annum.

[3 marks]

d)    Calculate the expected present value of insurance policy B using an effective interest rate of 6% per annum. 

Answer rating: 100% (QA)

a To calculate the probability of dying during the second year from purchase we need to subtract the probability of dying during the first year from t... View the full answer