Question 3.9 and general question

[cipherap15]

1. Is this the best place to ask questions? Being from Canada I cant just ask a buddy or whoever to explain something when I'm stumped.

2. Question 3.9(Pg 7). How is the reserve calculated? 107.2 = Setting up the reserve.

Setting up reserve = (100 - 5) * 12.85 / 11.39. There's no equation given and I cant seem to figure it out using just logic.


Setting up the reserve part of the question just stumped me.

I havent written an actuarial exam in some time so it might just be my fundamentals are out of whack. Any help is much appreciated.

 

[cipherap15]

Lynn Burchall solution

She gave this solution that I luckily found on the net. Question is, where did this come from? It's not in the notes. Will this become obvious to me when I come to later chapters. I couldn't just come up with this and I still don't fully understand the logic.

Hi

The reserve is being calculated as:
reserve = annuity amount x annuity factor.

The annuity factor (using the reserving basis rate of interest) is 12.85

The annuity amount is:
(100 - 5) / annuity factor on pricing basis
so
(100 - 5) / 11.39

Hope this helps
Lynn

 

[Lynn Birchall]

Hi cipherap15

1. Yes, this is the best place to ask any questions about ST2.

2. The fact that the reserve for an annuity benefit is calculated as amount of annuity benefit x annuity factor is being assumed from the earlier subjects, ie CTs or their equivalents. Hopefully this is something you remember from previous actuarial studies.

In this particular question, we're not told the amount of annuity benefit. So, the (100 - 5) / 11.39 is working out an annuity benefit using the pricing info given in the question. It's using the idea that:
single premium = value of benefits + value of expenses

Hope this helps and that the ST2 studies go well
Thanks
Lynn

 

[cipherap15]

Been awhile

It's been sometime and I wrote the North American SOA exams but from what I remember, reserves where annuities and assurance are included the form was

Vo = Ax - P * ax <---- ax is just the annuity.

And then depending on the time t, you could calculate the reserve at that time. The form shown in the question is confusing.

In the question, it's done differently. Am I thinking of a different type of reserve with my equation above?

Thanks Lynn for replying to my other question.

Also, will it go into more depth with regards to reserves later(This is just chapter 3)? If yes, then I'm assuming I'll get a better understanding later. Thanks.

 

[Lynn Birchall]

It's been sometime and I wrote the North American SOA exams but from what I remember, reserves where annuities and assurance are included the form was

Vo = Ax - P * ax <---- ax is just the annuity.

And then depending on the time t, you could calculate the reserve at that time. The form shown in the question is confusing.

In the question, it's done differently. Am I thinking of a different type of reserve with my equation above?

The formula you've written looks like a reserve for an assurance contract (perhaps? depends how terms are defined), where the Ax is valuing the annuity benefit and the P*ax is valuing future regular premiums.

Also, will it go into more depth with regards to reserves later(This is just chapter 3)? If yes, then I'm assuming I'll get a better understanding later. Thanks.

Yes, reserves are covered more later. Chapter 20 in particular should help with the reserve formula.

Lynn

 

[cipherap15]

Quick reply - Lynn

Hi Lynn,

Vo = Ax - P*ax

it comes up in the solution to 7.1 on pg 21. Its written as V = S*Ax - P*ax

Ax -- you were mentioning its the annuity benefit. I didnt put the bar above Ax but its for the DB and not the annuity benefit.

This is the type of reserve formulas I remember. Don't remember the Reserves and where they come from in this question below. Hopefully it'll come together later.

 

[Lynn Birchall]

Hi

Argh yes, sorry I mis-typed there. It's a reserve for an assurance contract with, as you say:
the S*Ax term which is the value the assurance benefits
minus the P*ax term which is the value of the future premiums.

The equivalent then when we want a reserve for an annuity contract is simply:
the
annuity*ax term to value the annuity benefits
(there are no future premiums to be subtracted as it's an immediate annuity).

As you say, will hopefully come together later, especially when get to the reserving chapters.

Thanks
Lynn

 

[cipherap15]

Yes

Thank you so much. It's coming together now. I have the month off so I am just studying all day every day now til the exam. Think it should be enough time. Finished 1-7 in 5 days and I think I know it well.

With regards to my questions though. Is there something on BPP, I could just pay for and ask all my questions and have them answered promptly? The forums take a bit longer but am happy with them.

I have one question on the boards with 0 replies and it's the one that actually bothering me the most. Could you take a glance at that? Titled "And Another one"

Thanks so much Lynn.

 

[Lynn Birchall]

Hi again

Glad to see that your other query now seems to be sorted

I'm sorry it's taken a few days to get replies. There are lots of tutorials happening at the moment, which can mean replies take a little longer to appear. Hopefully things may get a bit quicker in a week or so if the forums get a bit busier & as the tutorial season ends.

If ever you have an urgent / important query, please feel free to email ST2@bpp.com to flag it and to 'prod' a response!

Hope your study month goes well
Thanks
Lynn