Hi I need some help with question 18 attached below. I dont even know where to start with it. 18. consider a life aged 56, subject to A1967-70 (ultimate) mortality. find from first principles by using tables lx and dx only, the net annual premiums, payable in advance, required for (i) temporary assurance, (ii) pure endowment and (iii) an endowment policy. all with sum assured 50000 payable at year-end and term 4 years. the relevant interest rate is 6%.
First of all, question 18 from where??? Since the question refers to A1967/70 mortality (used in the Green Formulae and Tables - the forerunner to the Yellow Formulae and Tables) I'm guessing that it's rather old! You need to go back to first principles to work out the expected present value (EPV) of an annuity for premium payment (you're asked for annual premiums) and set this equal to the EPV of each of the benefits given to calculate the relevant premium. To calculate these EPVs from first principles, think about the events that needs to happen for a payment to be made and what the probability of these events are. Then apply discounting for the appropriate period and sum over the diffferent possibilities. See Chapters 1 and 2 of the course for some useful summation formulae.
