Edu 2013 11 MLC Exam Pj9e1x PDF

Exam MLC
Society of Actuaries
Models for Life
MLC
Contingencies
Canadian Institute of Tuesday,

Actuaries
November 5, 2013
8:30 a.m. – 11:45 a.m.
INSTRUCTIONS TO CANDIDATES
1. Write your candidate number here ____________. Your 12. Use the blank portions of each page for your scratch work.
name must not appear. Extra blank pages are provided at the back of the examination
book.
2. Do not break the seal of this book until the supervisor tells
you to do so. 13. When the supervisor tells you to do so, break the seal on the
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3. Tables and numerical values necessary for solving some of
the questions on this examination will be distributed by the On the front of the answer sheet, space is provided to write
Supervisor. and code candidate information. Complete the information
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4. This examination consists of 25 multiple-choice questions. (one in each column) corresponding to the letters or numbers
printed. For each empty box blacken the small circle
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the number of questions which you answer correctly. No
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question seems too difficult, leave it and go on.
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sometimes they do occur. If you believe a question is
defective, the supervisor or proctor cannot give you any 14. After the examination, the supervisor will collect this book
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answer sheet. THE EXAMINATION ROOM.
© 2013 by the Society of Actuaries

Printed in the U.S.A. 475 N. Martingale Road
Exam MLC - Front Cover Schaumburg, IL 60173-2226
**BEGINNING OF EXAMINATION**
1. You are given:
(i) A x = 0.30
(ii) A x + n = 0.40
(iii) A x:n1 = 0.35
(iv) i = 0.05
Calculate a x:n .
(A) 9.3
(B) 9.6
(C) 9.8
(D) 10.0
(E) 10.3
Exam MLC: Fall 2013 –1– GO ON TO NEXT PAGE

USE THIS PAGE FOR YOUR SCRATCH WORK
EXTRA BLANK PAPER IS PROVIDED AT THE END OF THE EXAM BOOK

2. For (x) and (y) with independent future lifetimes, you are given:
(i) a x = 10.06
(ii) a y = 11.95
(iii) a xy = 12.59
(iv) A xy1 = 0.09
(v) δ = 0.07
Calculate A1xy .
(A) 0.15
(B) 0.20
(C) 0.25
(D) 0.30
(E) 0.35


3. You are given:
(i) An excerpt from a select and ultimate life table with a select period of 2
years:
x l [ x] l [ x]+1 l x+2 x+2

50 99,000 96,000 93,000 52
51 97,000 93,000 89,000 53
52 93,000 88,000 83,000 54
53 90,000 84,000 78,000 55
(ii) Deaths are uniformly distributed over each year of age.
Calculate 10,000 2.2 q [51] + 0.5 .
(A) 705
(B) 709
(C) 713
(D) 1070
(E) 1074


4. In a homogeneous Markov model with three states: Healthy (H), Sick (S), and Dead (D),
you are given:
(i) The monthly transition probabilities are:
H S D
H 0.75 0.20 0.05
S 0.30 0.50 0.20
D 0.00 0.00 1.00
(ii) Initially there are 10 Healthy lives with independent future states.
Calculate the probability that exactly 4 lives will die during the first two months.
(A) 0.0005
(B) 0.0245
(C) 0.1132
(D) 0.2136
(E) 0.4414


5. Russell, age 40, wins the SOA lottery. He will receive both:

• A deferred life annuity of K per year, payable continuously, starting at age 40 + e 40 and

• An annuity certain of K per year, payable continuously, for e 40 years
You are given:
(i) μ = 0.02
(ii) δ = 0.01
(iii) The actuarial present value of the payments is 10,000.
Calculate K.
(A) 214
(B) 216
(C) 218
(D) 220
(E) 222

Exam MLC: Fall 2013 – 10 – GO ON TO NEXT PAGE

6. For a fully discrete whole life insurance of 1000 on a select life [55], you are given:
(i) Ultimate mortality follows the Illustrative Life Table.
(ii) During the three-year select period, q [ x ]+ k = (0.7 + 0.1k ) q x + k , k = 0, 1, 2.
(iii) i = 0.06
(iv) The benefit premium for this insurance is 24.453.
Calculate 1V , the benefit reserve at the end of year 1 for this insurance.
(A) 17.1
(B) 18.4
(C) 19.8
(D) 20.6
(E) 21.6


7. For a semi-continuous 20-year endowment insurance of 100,000 on (45), you are given:
(i) Benefit premiums of 258 are payable monthly.
(ii) Mortality follows the Illustrative Life Table.
(iii) Deaths are uniformly distributed over each year of age.
(iv) i = 0.06
(A) 35,700
(B) 35,900
(C) 36,100
(D) 36,300
(E) 36,500


8. For a fully discrete whole life insurance of 100,000 on (45), you are given:
(i) Mortality follows the Illustrative Life Table.
(ii) i = 0.06
(iii) Commission expenses are 60% of the first year’s gross premium and 2%
of renewal gross premiums.
(iv) Administrative expenses are 500 in the first year and 50 in each renewal
year.
(v) All expenses are payable at the start of the year.
(vi) The gross premium, calculated using the equivalence principle, is 1605.72.
Calculate 5V e , the expense reserve at the end of year 5 for this insurance.
(A) −1400
(B) −1350
(C) −1300
(D) −1250
(E) −1200


9. For a fully discrete 20-year term insurance of 100,000 on (50), you are given:
(i) Gross premiums are payable for 10 years.
(iii) i = 0.06
(iv) Expenses are incurred at the beginning of each year as follows:
Year 1 Years 2-10 Years 11-20

Commission as % of premium 40% 10% Not applicable
Premium taxes as % of premium 2% 2% Not applicable
Maintenance expenses 75 25 25
(v) Gross premiums are calculated using the equivalence principle.
Calculate the gross premium for this insurance.
(A) 1950
(B) 2000
(C) 2050
(D) 2100
(E) 2150


10. For a multiple state model, you are given:
(i)
State 0 State 1
Healthy Disabled
State 2
Dead
(ii) The following forces of transition:
(a) μ 01 = 0.02
(b) μ 02 = 0.03
(c) μ 12 = 0.05
Calculate the conditional probability that a Healthy life on January 1, 2004 is still
Healthy on January 1, 2014, given that this person is not Dead on January 1, 2014.
(A) 0.61
(B) 0.68
(C) 0.74
(D) 0.79
(E) 0.83


11. For a fully discrete 5-year term insurance of 100,000 on (80), you are given:
(i) l 80 = 1000
(ii)
x lx dx
83 920 50
84 870 60
(iii)
Time to Maturity Annual Spot Rate
1 0.04
2 0.04
3 0.04
4 0.05
5 0.06
(iv) The following values calculated at i = 0.04 :
• a80:5 = 4.3868
• 1
A80:5 = 0.1655
Calculate the annual benefit premium for this insurance.
(A) 3660
(B) 3680
(C) 3700
(D) 3720
(E) 3740


12. An insurance company sells 15-year pure endowments of 10,000 to 500 lives, each age x,
with independent future lifetimes. The single premium for each pure endowment is
determined by the equivalence principle.
You are given:
(i) i = 0.03
(ii) μ x (t ) = 0.02t , t ≥ 0
(iii) 0L is the aggregate loss at issue random variable for these pure
endowments.
Using the normal approximation without continuity correction, calculate

Pr ( 0 L > 50, 000 ) .
(A) 0.08
(B) 0.13
(C) 0.18
(D) 0.23
(E) 0.28


13. For a 3-year term insurance of 1000 on (70), you are given:
(i) q 70ILT+ k is the mortality rate from the Illustrative Life Table, for k = 0,1, 2.
(ii) q 70+ k is the mortality rate used to price this insurance, for k = 0,1, 2.
(iii) q 70+ k = (0.95) k q 70

ILT
+k , for k = 0,1, 2.
(iv) i = 0.06
Calculate the single benefit premium.
(A) 85.5
(B) 89.0
(C) 91.5
(D) 93.5
(E) 95.0


14. For a special 10-year deferred whole life annuity-due of 50,000 on (62), you are given:
(i) Level annual benefit premiums are payable for 10 years.
(ii) A death benefit, payable at the end of the year of death, is provided only
over the deferral period and is the sum of the benefit premiums paid
without interest.
(iii) a62 = 12.2758
(iv) a62:10 = 7.4574
(v) A62:10
1 = 0.0910
10
(vi) A
k =1
1
62: k
= 0.4891
Calculate the benefit premium for this special annuity.
(A) 34,400
(B) 34,500
(C) 34,600
(D) 34,700
(E) 34,800


15. For a fully discrete 3-year term insurance of 1000 on (x), you are given:
(i) p x = 0.975
(ii) i = 0.06
(iii) The actuarial present value of the death benefit is 152.85.
(iv) The annual benefit premium is 56.05.
Calculate p x + 2 .
(A) 0.88
(B) 0.89
(C) 0.90
(D) 0.91
(E) 0.92


16. For fully discrete whole life insurances of 1 issued on lives age 50, the annual benefit
premium, P, was calculated using the following:
(i) q 50 = 0.0048
(ii) i = 0.04
(iii) A51 = 0.39788
A particular life has a first year mortality rate 10 times the rate used to calculate P. The
mortality rates for all other years are the same as the ones used to calculate P.
Calculate the expected present value of the loss at issue random variable for this life,
based on the premium P.
(A) 0.025
(B) 0.033
(C) 0.041
(D) 0.049
(E) 0.057


(i) i = 0.05
(ii) L denotes the loss at issue random variable based on the benefit
0
premium.
(iii) If K 45 = 10, then 0 L = 4450.
(iv) a55 = 13.4205
(A) 1010
(B) 1460
(C) 1820
(D) 2140
(E) 2300


18. For a fully discrete whole life insurance of 1000 on (x), you are given:
(i) The following expenses are incurred at the beginning of each year:
Year 1 Years 2+
Percent of premium 75% 10%
Maintenance expenses 10 2
(ii) An additional expense of 20 is paid when the death benefit is paid.
(iii) The gross premium is determined using the equivalence principle.
(iv) i = 0.06
(v) ax = 12.0
2
(vi) A x = 0.14
Calculate the variance of the loss at issue random variable.
(A) 14,600
(B) 33,100
(C) 51,700
(D) 70,300
(E) 88,900


(i) Commissions are 80% of the first year premium and 10% of subsequent
premiums. There are no other expenses.
(iii) i = 0.06
(iv) 0 L denotes the loss at issue random variable.
(v) If T 45 = 10.5, then 0 L = 3767.
Calculate E [ 0 L ] .
(A) −900
(B) −810
(C) −720
(D) −630
(E) −540


20. A new employee is hired at exact age 45, with a starting salary of 50,000. Salary
increases occur at the end of each year. Consider the following two pension plans:
1. A defined benefit plan that pays at retirement an annual annuity-due of 1.5% of

the final 3-year average salary for each year of service;
2. A defined contribution plan that contributes X % of the employee’s salary at the

start of each year before retirement and earns 5% per year.
You are given:
(i) a65 = 10.0
(ii) Salary increases are 5% per year.
(iii) The employee retires at exact age 65.
(iv) The actuarial present value of the defined benefit annuity-due at age 65 is
equal to the defined contribution account balance at age 65.
Calculate X.
(A) 11.0
(B) 11.7
(C) 12.3
(D) 13.0
(E) 13.6


21. You are pricing an automobile insurance on (x). The insurance pays 10,000 immediately
if (x) gets into an accident within 5 years of issue. The policy pays only for the first
accident and has no other benefits.
You are given:
(i) You model (x)’s driving status as a multi-state model with the following 3
states:
0 - low risk, without an accident
1 - high risk, without an accident
2 - has had an accident
(ii) (x) is initially in state 0.
(iii) The following transition intensities for 0 ≤ t ≤ 5 :

μ x01+t = 0.20 + 0.10t
μ x02+t = 0.05 + 0.05t
μ 12
x + t = 0.15 + 0.01t
2
No other transitions are possible.
(iv) 3 p 01
x = 0.4174
(v) δ = 0.02
(vi) The continuous function g (t ) is such that the expected present value of
a
the benefit up to time a equals  0
g (t )dt , 0 ≤ a ≤ 5, where t is the time of
the first accident.
Calculate g (3).
(A) 1400
(B) 1500
(C) 1600
(D) 1700
(E) 1800


22. For a universal life policy with a death benefit of 10,000 plus the account value on (60),
you are given:
(i)
Month Monthly Percent of Monthly Cost Monthly Surrender
Premium Premium of Insurance Expense Charge
Charge Rate per 1000 Charges
12 100 15% 3.00 10 400
(ii) The credited interest rate is i (12) = 0.048.
(iii) The account value at the end of month 11 is 1500.
The universal life policy is surrendered at the end of month 12. The cash surrender value
is used as a single premium to purchase a whole life annuity-due whose first 10 annual
payments are guaranteed. For this annuity, you are given:
(i) Mortality follows the Illustrative Life Table.
(ii) i = 0.06
(iii) The annuity is priced using the equivalence principle.
Calculate the amount of the annual annuity payment.
(A) 97
(B) 100
(C) 103
(D) 106
(E) 109


23. For a universal life policy with a death benefit of 150,000 plus the account value on (25),
you are given:
(i)
Percent of Annual Cost Annual End of Year

Annual Premium of Insurance Expense Account
Year Premium Charge Rate per 1000 Charges Value
1 3000 70% 1.22 75 -
2 3000 10% 1.27 R -
3 3000 10% 1.33 R 6028.95
(ii) The credited interest rate is i = 0.04 .
Calculate R.
(A) 5.0
(B) 7.5
(C) 10.0
(D) 12.5
(E) 15.0


24. The ILT Club has 4000 members all age 25 with independent future lifetimes. The
mortality for each member follows the Illustrative Life Table.
Calculate the largest N, using the normal approximation, such that the probability that
there are at least N survivors at age 85 is at least 90%.
(A) 930
(B) 950
(C) 970
(D) 990
(E) 1010

Exam MLC: Fall 2013 – 48 – STOP

25. You are given:
(i)
x lx
60 99,999
61 88,888
62 77,777
63 66,666
64 55,555
65 44,444
66 33,333
67 22,222
(ii) a= 3.4 2.5

q 60 assuming a uniform distribution of deaths over each year of
age.
(iii) b= 3.4 2.5

q 60 assuming a constant force of mortality over each year of age.
Calculate 100,000( a − b).
(A) −24
(B) 9
(C) 42
(D) 73
(E) 106
**END OF EXAMINATION**
Exam MLC: Fall 2013 – 49 – STOP


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Exam MLC

Canadian Institute of Tuesday,

© 2013 by the Society of Actuaries

1. You are given:

(iii) A x:n1 = 0.35

Exam MLC: Fall 2013 –1– GO ON TO NEXT PAGE

EXTRA BLANK PAPER IS PROVIDED AT THE END OF THE EXAM BOOK

Exam MLC: Fall 2013 –2– GO ON TO NEXT PAGE

(iv) A xy1 = 0.09

Exam MLC: Fall 2013 –3– GO ON TO NEXT PAGE

EXTRA BLANK PAPER IS PROVIDED AT THE END OF THE EXAM BOOK

Exam MLC: Fall 2013 –4– GO ON TO NEXT PAGE

x l [ x] l [ x]+1 l x+2 x+2

(ii) Deaths are uniformly distributed over each year of age.

Calculate 10,000 2.2 q [51] + 0.5 .

Exam MLC: Fall 2013 –5– GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 –6– GO ON TO NEXT PAGE

(i) The monthly transition probabilities are:

Exam MLC: Fall 2013 –7– GO ON TO NEXT PAGE

EXTRA BLANK PAPER IS PROVIDED AT THE END OF THE EXAM BOOK

Exam MLC: Fall 2013 –8– GO ON TO NEXT PAGE

You are given:

(iii) The actuarial present value of the payments is 10,000.

Exam MLC: Fall 2013 –9– GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 – 10 – GO ON TO NEXT PAGE

(i) Ultimate mortality follows the Illustrative Life Table.

(ii) During the three-year select period, q [ x ]+ k = (0.7 + 0.1k ) q x + k , k = 0, 1, 2.

(iv) The benefit premium for this insurance is 24.453.

Exam MLC: Fall 2013 – 11 – GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 – 12 – GO ON TO NEXT PAGE

(i) Benefit premiums of 258 are payable monthly.

(ii) Mortality follows the Illustrative Life Table.

(iii) Deaths are uniformly distributed over each year of age.

Exam MLC: Fall 2013 – 13 – GO ON TO NEXT PAGE

EXTRA BLANK PAPER IS PROVIDED AT THE END OF THE EXAM BOOK

Exam MLC: Fall 2013 – 14 – GO ON TO NEXT PAGE

(i) Mortality follows the Illustrative Life Table.

(v) All expenses are payable at the start of the year.

Exam MLC: Fall 2013 – 15 – GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 – 16 – GO ON TO NEXT PAGE

(i) Gross premiums are payable for 10 years.

(ii) Mortality follows the Illustrative Life Table.

(iv) Expenses are incurred at the beginning of each year as follows:

Year 1 Years 2-10 Years 11-20

(v) Gross premiums are calculated using the equivalence principle.

Calculate the gross premium for this insurance.

Exam MLC: Fall 2013 – 17 – GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 – 18 – GO ON TO NEXT PAGE

(ii) The following forces of transition:

Exam MLC: Fall 2013 – 19 – GO ON TO NEXT PAGE

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Exam MLC: Fall 2013 – 20 – GO ON TO NEXT PAGE

(iv) The following values calculated at i = 0.04 :

Calculate the annual benefit premium for this insurance.