Calculus
Pricing & Reserving
for Life Insurance
Products
Unit 1
Practice
Questions
1. CT5 September 2012 Q4
Calculate 3p55.75 using the assumption of Uniform Distribution of Deaths.
Basis:
Mortality ELT15 (Females)
Ans: 0.98274
2. CT5 September 2013 Q18
Show, using the random variable approach, that the expected present value of an
annuity of 1 per annum payable annually in arrears to a life now aged x, deferred for n
years is equal to 𝑎𝑥 - 𝑎𝑥∶ 𝑛| .
Ans: -
3. CT5 April 2013 Q10
A special whole life assurance policy issued to a life aged 40 exact provides a benefit of
£1,000 on death within 20 years of inception, £2,000 on death between 20 and 40 years
from inception and £3,000 on death thereafter. Benefits are payable at the end of the
year of death.
Calculate the expected present value and variance of the present value of this policy.
Basis:
Mortality AM92 Ultimate
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PRACTICE QUESTIONS
Interest 4% per annum
Ans:
Expected = £509 to nearer £
Variance = 13,926 = (£118)2
4. CT5 September 2014 Q7
A life aged 40 exact purchases an endowment assurance policy whereby the sum
assured on survival at age 60 exact is £20,000 and the benefit payable on death during
the term is £10,000. Death benefits are payable at the end of the year of death.
Calculate the expected present value and variance of the benefits under this policy.
Basis: Mortality AM92 Select
Interest 4% per annum
Expenses Ignore
Ans:
EPV = 8943.6
Variance = (807)2
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PRACTICE QUESTIONS
5. CT5 September 2014 Q8
(i) In the context of random variables define Tx and Kx.
(ii) State the random variable for the following expected values:
(a) 𝐴̅𝑥
(b) 𝑎𝑥
(c) 𝐴[𝑥]: 𝑛̅|
(d) 5|𝑎̈ 𝑥
Ans:
(i) Tx is the total future lifetime of an ultimate life aged x
Kx is the curtate future lifetime of an ultimate life aged x
(ii) (a) vTx
(b) 𝑎̅̅̅̅̅
𝐾𝑥 |
(c) 𝑣 min [𝐾[𝑥]+1,𝑛]
(d) v5 𝑎̈ ̅̅̅̅̅̅̅̅̅
𝐾𝑥 −4| if Kx ≥ 5
0 otherwise
6. CT5 April 2016 Q1
Calculate 0.5 p 90.25 using the method of Uniform Distribution of Deaths. Show all your
workings.
Basis:
Mortality ELT15 (Males)
Ans: 0.892158
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PRACTICE QUESTIONS
7. CT5 April 2016 Q3
(a) 25p30
(4)
(b) 𝑎̈ [40]:15
̅̅̅̅|
(c) 𝐴150:20|
̅̅̅̅̅
Basis:
Mortality AM92
Rate of interest 4% per annum
Ans:
(a) 0.962984
(b) 11.287
(c) 0.10162
8. CT5 April 2016 Q6
(i) Prove that 𝐴𝑥∶ 𝑛| = 1 – 𝛿𝑎𝑥∶ 𝑛| for the following basis.
Basis:
Force of mortality μx is constant for all x
Force of interest δ throughout
An endowment assurance pays a sum assured of 10,000 immediately on death or on
survival to the end of the term of the policy.
(ii) Calculate, showing all your workings, the premium payable continuously for a life
aged 40 exact for an endowment assurance with a term of 20 years.
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PRACTICE QUESTIONS
Basis:
Mortality μx = 0.01 for all x
Rate of interest 5% per annum
Ans:
(i) -
(ii) £362.4
9. CT5 September 2016 Q1
A whole life assurance policy provides a benefit of 100,000 payable immediately on the
death of a male life who is now aged 45 exact.
Calculate, showing all your workings:
(a) the expected present value of this policy.
(b) the variance of the value of this policy.
Basis:
Mortality AM92 Ultimate
Rate of interest 4% per annum
Ans:
EPV = 28151.7
Variance = (13825)2
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PRACTICE QUESTIONS
10. CT5 September 2016 Q4
Calculate, showing all your workings:
(a) 10| 5 q 65
(12)
(b) 𝑎̈ [30]∶ 15 |
Basis:
Mortality AM92
Rate of interest 4% per annum
Ans:
(a) 0.18282
(b) 11.307
11. CT5 September 2016 Q6
(i) Show, using the method of Uniform Distribution of Deaths, that:
10
2.5q80.75 = 117
(ii) Calculate, showing all your workings, 𝑎̈ 80:4|
̅
Basis:
Mortality lx = 110 - x for all x
Rate of interest 5% per annum
Ans:
(i) -
(ii) 3.545 to 3 decimal places
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PRACTICE QUESTIONS
12. CT5 April 2017 Q1
Calculate 2.75p77.4 assuming a Uniform Distribution of Deaths.
Basis:
Mortality PMA92C20
Ans: 0.88550
13. CT5 April 2017 Q3
Calculate:
(a) 12p73
(b) 10| 𝑎56
(c) 𝐴64∶ 10
̅̅̅̅|
Basis:
Mortality AM92
Rate of interest 4% per annum
Ans:
(a) 0.45728
(b) 6.727
(c) 0.69809
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PRACTICE QUESTIONS
14. CT5 September 2017 Q3
Calculate 2.25q85.5 using the method of Uniform Distribution of Deaths.
Basis: ELT15 (Males)
Ans: 0.31964
15. CT5 September 2017 Q6
(i) Calculate 𝑎̈ 40:4̅|
(ii) Derive the value of 𝐴140∶ ̅4| using your result from part (i).
Basis:
Interest 5% per annum
From the following life table extract
Ans:
(i) 3.6699
(ii) -
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PRACTICE QUESTIONS
16. CT5 September 2017 Q9
A special whole life assurance policy is issued on a life aged 50 exact.
Under this policy the sum assured, payable at the end of the year of death, is 1 unit for
the first 10 years decreasing to 0.75 units thereafter.
(i) Calculate the expected present value of the benefit.
(ii) Determine the variance of the present value of the benefit.
Basis:
Mortality AM92 Ultimate
Interest 4% per annum
Ans:
(i) 0.25536
(ii) (0.14192)2
17. CT5 September 2018 Q5
A two-year term assurance policy is issued to a life aged x. Under this policy an
immediate payment of 100,000 is made if death occurs in the first year, rising to
150,000 if death occurs in the second year.
Calculate the expected present value of this policy.
Basis:
Mortality 𝑝𝑥 = 0.99 and 𝑝𝑥+1 = 0.975
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PRACTICE QUESTIONS
The force of mortality can be assumed to be constant over each year of age
Force of Interest 5%
Ans: 4421 rounded
18. CT5 September 2018 Q7
Calculate 𝐴̅70.75 assuming a constant force of mortality between ages 70 and 71 only.
Basis:
Mortality PMA92C20
Rate of Interest 4% per annum
Ans: 0.578754
19. CT5 September 2018 Q3
A life insurance company sells a special immediate annuity policy to a life aged 65 exact.
The policy provides an annuity of 30,000 a year payable monthly in advance.
Payment is guaranteed for the first five years and thereafter ceases immediately on the
death of the policyholder.
Calculate the expected present value of this annuity.
Basis:
Mortality PFA92C20
Rate of Interest 4% per annum
Expenses Ignore
PRLIP-1 UNIT 1
PRACTICE QUESTIONS
Ans: 434,189
20. CM1A April 2019 Q3
Describe the main features of an endowment assurance contract.
Ans:
An endowment assurance provides a survival benefit at the end of the term, but it also
provides a lump sum benefit on death before the end of the term.
The benefits are provided in return for a series of regular premiums (or a single
premium).
The sum assured payable on death or survival need not be the same, although they often
are.
21. CM1A September 2020 Q2
Calculate, using standard approximations where necessary:
Basis
Mortality: AM92
Interest rate: 4% per annum
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PRACTICE QUESTIONS
Ans:
(a) 0.007574
(b) 0.10276
22. CM1A April 2021 Q5
The force of mortality, 𝜇𝑥∗ , experienced by a particular population at all ages x (where x is
not necessarily an integer) is 20% higher than that under the PMA92C20 table.
Calculate the following, based on 𝜇𝑥∗ , assuming a rate of interest of 7% p.a.
Ans:
(i) 2.762234
(ii) 0.819293
23. CM1A April 2021 Q6
A special whole life assurance policy is issued to a life aged 45 exact. The policy provides
a benefit of $40,000 on death within 15 years of inception, and $50,000 on death
thereafter. Benefits are payable at the end of the year of death.
(i) Calculate the expected present value of the benefit payments.
(ii) Calculate the variance of the present value of the benefit payments.
PRLIP-1 UNIT 1
PRACTICE QUESTIONS
Basis:
Mortality: AM92 Ultimate
Interest: 6% p.a.
Ans:
(i) EPV = $ 7,670.11
(ii) ($5,372)2
24. CM1A April 2022 Q4
(a) Write down the formula for the variance of the present value of an n-year temporary
annuity of £1 p.a. payable at the end of each year, issued to a life aged x exact.
(b) Calculate, showing all working, the variance of the present value of a 20-year
temporary annuity of £5,000 p.a., payable at the end of each year, issued to a life aged
44 exact.
Basis:
Mortality AM92 Ultimate
Interest 4% p.a. effective
Ans:
a.
b.
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PRACTICE QUESTIONS
25. CM1A September 2022 Q1
Calculate, showing all working, 3.5q56.25, assuming a constant force of mortality between
integer ages.
Basis: Mortality ELT15 (females)
Ans: 0.02187
26. CT5 September 2012 Q1
Calculate:
(a) 12 p43
(b) 10|5q55
(c) 𝑎̈ 45:10
̅̅̅̅|
Basis:
Mortality AM92
Rate of interest 6% per annum
Ans:
a. 0.97269
b. 0.08027
c. 7.740
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PRACTICE QUESTIONS
27. CM1 April 2023 Q1
(i) Describe in words a|b q [x]+1
(ii) Calculate, showing all working, 5|3 q [38]+1
Basis:
Mortality AM92 (select)
Ans:
(i) The probability that a life aged x+1 exact who entered the select population at age x
exact will survive a years and then die within the following b years, that is, they will
die between exact ages x+1+a and x+1+a+b.
(ii) 0.00485161
28. CM1 April 2023 Q3
(4)
Calculate 𝑎 1 , showing all working.
824
Basis:
Mortality PMA92C20
Interest 4% per annum effective
Ans: 6.0957
29. CM1 September 2023 Q1
A mortality table gives the value of A50 = 0.3 at an interest rate of 5% p.a. effective.
Calculate, using appropriate approximations where necessary and showing all
PRLIP-1 UNIT 1
PRACTICE QUESTIONS
working, the values for:
(a)𝐴̅50
(b)a50
(c) 𝑎̅50
(4)
(d) 𝑎̈ 50
using the same basis.
Ans:
(a) 0.307409
(b) 13.7
(c) 14.2
(d) 14.325
30. CM1 April 2024 Q1
Calculate 4.25q87.25 assuming PMA92C20 mortality and that there is a uniform
distribution of deaths between integer ages. You should show your working.
Ans: 0.458800
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PRACTICE QUESTIONS
