If you still interested in this Q4,
The first part of question, I think is correct as is in the solution. Only the death benefit is increased by 100,000 to 200,000 on taking the option. So you can think of this benefit (after exercising) as 100,000 Endownment+100,000 Term policies (as the notes do). Or see it as just 100,000 "Pure Endownment"+200,000 Term policies.
The main point is that if the PH who exercised the option dies they would get 200,000, else if they survive to maturity they would get only 100,000 (as it is not part of the option).
I guess this also answer the 2nd part.
Cheers
Last edited by a moderator: Aug 18, 2009