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#1




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.
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#2




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)(100001200). 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)(100003100). 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 benefityou should place it where you would put premiums/expenses. Last edited by Adapt and Chill; 04232018 at 04:06 PM.. 
#3




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
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