3. An insurance policy provides a benefit of $1 payable immediately on the death of the last survivor of a male life aged 55 exact and a female life aged 50 exact. Assume that the mortality of the male life and the female life follow the constant force of mortality rule with the rates of 0.03 and 0.02, respectively. Also assume the force of interest equal to 4%. Compute the expected present value of the policy as well as the variance of the random present value.
3. An insurance policy provides a benefit of $1 payable immediately on the death of the last survivor of a male life aged 55 exact and a female life aged 50 exact. Assume that the mortality of the male life and the female life follow the constant force of mortality rule with the rates of 0.03 and 0.02, respectively. Also assume the force of interest equal to 4%. Compute the expected present value of the policy as well as the variance of the random present value.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:3. An insurance policy provides a benefit of $1 payable immediately on the death of the
last survivor of a male life aged 55 exact and a female life aged 50 exact. Assume that
the mortality of the male life and the female life follow the constant force of mortality
rule with the rates of 0.03 and 0.02, respectively. Also assume the force of interest
equal to 4%. Compute the expected present value of the policy as well as the variance
of the random present value.
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