CAS Exam MAS-I Spring 2018, Question 13
Study guide: Exam MAS-I
A company plans to offer a warranty on their product, which pays 1000 at the end of the year of failure if their product fails within a certain number of years, N. You are given the following information:
- The annual interest rate is 5%
- The rates of failure,
q, for each year are given by the following table:
Age x |
q_x |
|---|---|
| 0 | 0.01 |
| 1 | 0.03 |
| 2 | 0.10 |
| 3 | 0.15 |
| 4 | 0.30 |
- The length of the warranty,
N, is set to be the largest number of years such that the actuarial present value of the warranty is less than 200.
Calculate N.
- A) 1
- B) 2
- C) 3
- D) 4
- E) 5
Answer this question and see the worked solution