SOA Exam FM Sample Question 26
Study guide: Exam FM-2
An insurance company has an obligation to pay the medical costs for a claimant. Annual claim costs today are 5000, and medical inflation is expected to be 7% per year. The claimant will receive 20 payments.
Claim payments are made at yearly intervals, with the first claim payment to be made one year from today.
Calculate the present value of the obligation using an annual effective interest rate of 5%.
- A) 87,900
- B) 102,500
- C) 114,600
- D) 122,600
- E) Cannot be determined
Answer this question and see the worked solution
Concepts tested
- Geometric Increasing Annuity
- Present Value
- Geometric Progression
- Non-level Annuities
- Real Rate of Interest