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Old 03-21-2014, 04:40 PM
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Jim Daniel Jim Daniel is offline
Join Date: Jan 2002
Location: Davis, CA
College: Wabash College B.A. 1962, Stanford Ph.D. 1965
Posts: 2,727

Originally Posted by pdk17 View Post
Hey everyone, this is my first post on this website. I'm sure you'll see more of me in the future, and hopefully I'll be able to return the help I get.

Anyway, I'm having a difficult time trying to conceptualize the formula for temporary annuities. The specific formula I'm referring to is slide #7 from this site:

I don't fully understand why there is a second term to this. I understand that the formula is important for mean and variance, and also that it can easily be shown that it's equal to the current payment formula. But where I get tripped up is that when I look at a timeline, it seems like all the possible payments are covered in the summation. So how does it intuitively make sense that there should be a term after the summation? Any help would be appreciated. Thanks.

If (x) survives n-1 years then (x) has gotten all n payments. To get just k < n payments, (x) must survive k-1 years and then die the following year.

Jim Daniel
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