Question 5.2

[nad07]

How is A_30:10 obtained from the AM92 ultimate mortality?

 

[Varsha Agarwal]

A_40-v^10*10p30*A_30.

 

[John Potter]

Something to be careful of here, a very common mistake in CT5, is to forget the survival benefit.

A_30:10 = A_30 - v^10 10p30 A_40 + v^10 10p30

Here we have split into death benefit + survival benefit. Then we accelerate the death benefits ONLY because they are paid immediately on death:

=sqrt(1+i)* [A30 - v^10 10p30 A40] + v^10 10p30

TIP: Always stick CT5 discount factors v^10 10p30 in you calculator memory - you invariably will need to use more than once in a given question

Whenever you look up values in AM92, always perform 3 checks in your head:
1. Have I got the correct interest rate? 4% or 6%
2. Is it Select or Ultimate?
3. Do x and n add up to 60 or 65? (this last one is irrelevant here because x and n add up to 40 but very often you can just look the value up)

Good luck!
John

 

[nad07]

Thank you =]