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#1
07-21-2019, 03:51 PM
 LadyFingers SOA Join Date: Apr 2019 Location: Sunny Southern California Studying for LTAM College: UCSB Alum Favorite beer: I don't drink. Posts: 28
Calculating Actuarial Present Value for weird interest rate

I'm working a problem about a 25 year endowment insurance benefit with a 'bonus' attached to the insured value for each year survived. Assume lives follow SULT at 5%.

Insured amount is 250,000, bonus is 2.5%, compounded annually for each year survived.

The APV of the term insurance portion is calculated as
250,000 * 1/1.025 * term insurance formula at interest rate 1.05/1.025-1 = 2.439%

I'm not sure how to find this amount on an exam. I can't imagine that I would be expected to actually run through the summation for 25 years.

Is there a way to convert the life table to some other interest rate, that I don't know about?

Last edited by LadyFingers; 07-21-2019 at 04:01 PM..
#2
07-21-2019, 03:58 PM
 Gandalf Site Supporter Site Supporter SOA Join Date: Nov 2001 Location: Middle Earth Posts: 31,375

Does your source include a solution?

As I recall, a fair number of questions in the textbook assume readers have a spreadsheet with the mortality, so that they can do such calculations. That means that many of the textbook questions could not be used directly on the exam.
#3
07-21-2019, 04:00 PM
 LadyFingers SOA Join Date: Apr 2019 Location: Sunny Southern California Studying for LTAM College: UCSB Alum Favorite beer: I don't drink. Posts: 28

That's what I figured, I just wanted to be sure that I'm not missing something. I'm happy to just move past this. The solution just states the answer.
#4
07-21-2019, 04:01 PM
 LadyFingers SOA Join Date: Apr 2019 Location: Sunny Southern California Studying for LTAM College: UCSB Alum Favorite beer: I don't drink. Posts: 28

Quote:
 Originally Posted by Gandalf Does your source include a solution? As I recall, a fair number of questions in the textbook assume readers have a spreadsheet with the mortality, so that they can do such calculations. That means that many of the textbook questions could not be used directly on the exam.
And hey -- thanks!