CAS Exam MAS-I Fall 2018, Question 12
Study guide: Exam MAS-I
You are given the following information about a warranty insurance policy for a machine:
- The policy coverage allows for at most one claim
- The policy lasts for three years
- A benefit amount of 500 is paid at the end of year if a claim is made
- The annual probability that a machine is still functioning at the end of the year, given it was functioning at the beginning of the year, is as follows:
Year, t |
p_t |
|---|---|
| 0 | 0.90 |
| 1 | 0.80 |
| 2 | 0.70 |
- If there is no claim during the policy term, 100 is returned to the policyholder at the end of the policy term
- Annual interest rate,
i = 0.05
Calculate the actuarial present value of this policy.
- A) Less than 225
- B) At least 225, but less than 250
- C) At least 250, but less than 275
- D) At least 275, but less than 300
- E) At least 300
Answer this question and see the worked solution