Actuarial Outpost CA practice WA #2 question 3
 Register Blogs Wiki FAQ Calendar Search Today's Posts Mark Forums Read
 FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

 Enter your email to subscribe to DW Simpson weekly actuarial job updates. li.signup { display: block; text-align: center; text-size: .8; padding: 0px; margin: 8px; float: left; } Entry Level Casualty Health Life Pension All Jobs

 Long-Term Actuarial Math Old Exam MLC Forum

#1
04-23-2018, 04:36 PM
 ActuaryFromMTL Member SOA Join Date: Mar 2017 Studying for MONEY Posts: 135
CA practice WA #2 question 3

Hi all,

If someone has a subscription to CA, how come the solution for the solution for exercise 3 b) doesn't take into account the benefit from going from state 0 to states 1, 2 ? Which are 1,000 and 10,000.

If I look at their formula sheet page 4, there is a b^(ij) that I don't see in their solution.

Thanks.
__________________
P
FM
C
VEEs
MFE
FAP
LTAM (confident)
PA
APC
#2
04-23-2018, 04:57 PM
 Adapt and Chill Member SOA AAA Join Date: Sep 2017 College: Davidson College Posts: 126

The solution for 3(b) does account for the benefit of transitioning into state 2.

When finding the time 7.9 reserve for V(0), the state 2 benefit is included in the term -(.015)(10000-1200). This is the force of mortality for 0->2 multiplied by the state 2 benefit minus the release of reserves for state 0.

When finding the 7.9 reserve for V(1), the state 2 benefit is included in the term -(.02)(10000-3100). This is the force of mortality for 1->2 multiplied by the state 2 benefit minus the release of reserves for state 1.

The state 1 benefit is paid continuously, so it's the -1000 in the V(1) solution. Because it's not a lump sum paid instantaneously upon transition, you don't include it in the same place as the death benefit---you should place it where you would put premiums/expenses.

Last edited by Adapt and Chill; 04-23-2018 at 05:06 PM..
#3
04-23-2018, 05:40 PM
 ActuaryFromMTL Member SOA Join Date: Mar 2017 Studying for MONEY Posts: 135

Thanks Adapt and Chill. You are right.

Here is the mistake I made.

I thought the 10,000 in font of 0.015 for V(0) was actually the reserve at state 2 but THAT is the b^(ij) I was looking for. The reserve in state 2 is 0 because the benefit is already paid at that point
__________________
P
FM
C
VEEs
MFE
FAP
LTAM (confident)
PA
APC