Tom Mboya University College: Mac 206: Actuarial Mathematics 1

TOM MBOYA UNIVERSITY COLLEGE
UNIVERSITY EXAMINATIONS 2019/2020
SECOND YEAR SECOND SEMESTER EXAMINATIONS

FOR THE DEGREE OF BACHELOR OF ACTUARIAL
SCIENCE WITH IT
MAC 206: ACTUARIAL MATHEMATICS 1
INSTRUCTIONS
• Answer Question ONE (COMPULSORY) and any other THREE questions.
• Question ONE carries 25 marks, the rest 15 marks each.

QUESTION ONE [25 marks]
(a) Define the following terms as used in actuarial mathematics. [5 marks]
(i) Reversionary annuities.
(ii) Contingent probability.
(iii) Life annuities.
(iv) t qxy
(v) t P xy
¯
(b) You are given the survival function S0 (x) = 1

(1+x)2
for x ≥ 0 Describe the event and
calculate or formulate each of the following: [8 marks]
(i) 10 q10
(ii) 10|10 q10
(iii) t px
(iv) t|u qx
(v) P [K10 = 10]
(vi) P [Kx = k]
(vii) P [T10 ≤ 10]
(viii) P [K10 ≤ 10]
(c) Show that P [T20 < 10|T20 > 5] = 5 P25
x2
(d) Using S0 (x) = 1 − 100
for 0 ≤ x ≤ 10 = ω, describe the probability distribution of
K4 . [4 marks]
(e) Z is the present-value random variable for a whole life insurance for b payable at the
moment of death of (x). Given:
(i) δ = 0.04
(ii) µx+t = 0.02, t ≤ 0
1
(iii) the single benefit premium for this insurance is equal to Var(Z).
Calculate b. [5 marks]
(f) Below is an extract from English life table 15 (males).
Age,x lx
58 88,792
59 87,805
Estimate l58.25 assuming a uniform distribution of death between exact ages 58 and
59. [3 marks]
QUESTION TWO [15 marks]

x2
(a) Using S0 (x) = 1 − 100
for 0 ≤ x ≤ 10 = ω, find F0 (x), t p4 and 2|2 q4 . [5 marks]
(b) You are given that q50 = 0.00592 and i = 0.06. Find the variance of the present value
random variable for a one-year term insurance issued to (50) with face amount Ksh
10, 000. [4 marks]
(c) Brian and Jennifer each take out a loan of X. Jennifer will repay her loan by making
one payment of Ksh 8, 000 at the end of year 10. Brian will repay his loan by making
a payment of Ksh 11, 200 at the end of year 10. The nominal semi-annual rate being
charged to Jennifer is exactly one-half the nominal semi-annual rate being charged to
Brian. Calculate X. [4 marks]
(d) Define the curtate future lifetime from age x and state its probability function. [2
marks]
QUESTION THREE [15 marks]

(a) Z is the present value random variable for a discrete one-year term insurance of 1000
issued to (x). You are given:
2
(i) E[Z] = 19
(ii) V ar[Z] = 17, 689
calculate i. [4 marks]
(b) For a force of mortality µx that is known to follow Gompertz’ Law, calculate the
parameters B and c if µ50 = 0.017609 and µ55 = 0.028359. [3 marks]
(c) If the force of interest at time t is δ(t) = 0.02 + 0.01t find the accumulated 8 of an
investment of Ksh 10, 000 at time.
(i) 0 [3 marks]
(ii) 5 [3 marks]
(d) Explain endowment life contract. [2 marks]
QUESTION FOUR [15 marks]

(a) You are given:
(i) T (x) is the random variable for the future lifetime of (x).
(ii) µ(x + t) = µ, t ≥ 0 is the constant force of mortality.
(iii) δ = µ
Determine Var([āT̄ ]) in terms of µ and/or δ. [5 marks]
(b) A mortality table, which obeys Gompertz’ Law for older ages, has µ70 = 0.025330
and µ90 = 0.126255. Find the probability that a life aged 60 will survive for 20 years.
[6 marks]
(c) Ksh 5000 is invested in an account which pays nominal interest of 8% pa convertible
half yearly. Find the amount in the account after 3 years. [2 marks]
(d) A payment of Ksh 8000 is due in 5 years’ time. Calculate the present value of this
payment at an interest rate of 9% pa convertible monthly. [2 marks]
3
QUESTION FIVE [15 marks]
(a) For independent lives (35) and (45):
(i) 5 p35 = 0.90
(ii) 5 p45 = 0.80
(iii) q40 = 0.03
(iv) q50 = 0.05
Calculate the probability that the first death of (35) and (45) occurs in the 6th year.
[5 marks]
(b) John, age 40, and Mary, age 50, are independent lives following the same mortality,
as follows:
Calculate the probability that John and Mary both live at least 10 years and then
Age (x) 10 qx
40 0.039
50 0.085
60 0.192
both die during the following 10 years. [3 marks]
(c) For a special fully-continuous last-survivor insurance of 1 on (x) and (y), you are
given:
(i) δ = 0.05
(ii) T(x) and T(y) are independent.
(iii) µ(x + t) = µ(y + t) = 0.07, for t > 0
(iv) premiums are payable until the first death
Calculate the level annual benefit premium. [4 marks]
4
(d) Express 5% pa effective discount as a nominal annual discount rate convertible quar-
terly. [1
mark]
(e) Find the annual effective discount rate equivalent to a nominal discount rate of effec-
tive interest rate and vice versa. [2
marks]
QUESTION SIX [15 marks]

x2
(a) Using S(x) = 1 − 100
for 0 ≤ x ≤ 10, describe the probability distribution of K(4). [7
marks]
x2
(b) Using S(x) = 1 − 100
for 0 ≤ x ≤ 10, find the mean, variance and median T (4). [8
marks]

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TOM MBOYA UNIVERSITY COLLEGE

UNIVERSITY EXAMINATIONS 2019/2020

SECOND YEAR SECOND SEMESTER EXAMINATIONS

MAC 206: ACTUARIAL MATHEMATICS 1

• Answer Question ONE (COMPULSORY) and any other THREE questions.

• Question ONE carries 25 marks, the rest 15 marks each.

(i) Reversionary annuities.

(ii) Contingent probability.

(iii) Life annuities.

(b) You are given the survival function S0 (x) = 1

(ii) 10|10 q10

(v) P [K10 = 10]

(vii) P [T10 ≤ 10]

(viii) P [K10 ≤ 10]

(c) Show that P [T20 < 10|T20 > 5] = 5 P25

(ii) µx+t = 0.02, t ≤ 0

(f) Below is an extract from English life table 15 (males).

QUESTION TWO [15 marks]

QUESTION THREE [15 marks]

(ii) V ar[Z] = 17, 689

(d) Explain endowment life contract. [2 marks]

QUESTION FOUR [15 marks]

(ii) µ(x + t) = µ, t ≥ 0 is the constant force of mortality.

Determine Var([āT̄ ]) in terms of µ and/or δ. [5 marks]

(i) 5 p35 = 0.90

(ii) 5 p45 = 0.80

(iii) q40 = 0.03

(iv) q50 = 0.05

both die during the following 10 years. [3 marks]

(ii) T(x) and T(y) are independent.

(iii) µ(x + t) = µ(y + t) = 0.07, for t > 0

(iv) premiums are payable until the first death

Calculate the level annual benefit premium. [4 marks]

QUESTION SIX [15 marks]

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