Question

A special insurance policy pays $1000 at the end of the year of death for the first 5 years and $500 at the end of the year of death for the next 5 years. Mortality follows the Illustrative Life Table and i = 0.06.

Calculate the actuarial present value of a policy on (50).

(Answer is 44.71 but idk how to get there)

Answer 1

This question is solved in two parts : first for $ 1000 and then for $ 500.

The interest rate used here is 6%.

So the discount rate v = 1 / (1 + i) = 1 / (1 + 0.06) = 1.06-1

The mortality values are used from the illustrative life table.

So, the actuarial present value of the policy is $ 44.71.