SOA Exam FAM Sample Question 7.30

Study guide: Exam FAM

Ten years ago J, then age 25, purchased a fully discrete 10-payment whole life policy of 10,000.

All actuarial calculations for this policy were based on the following:

(i) Mortality follows the Standard Ultimate Life Table

(ii) $i = 0.05$

(iii) The equivalence principle

In addition:

(i) $L_{10}$ is the present value of future losses random variable at time 10.

(ii) At the end of policy year 10, the interest rate used to calculate $L_{10}$ is changed to 0%.

Calculate the increase in $E[L_{10}]$ that results from this change.

[A modified version of Question 18 on the Fall 2017 exam]

Concepts tested