TIA MLC Sample Exam 1

Exam Notes:
You have 4 hours to complete the exam of 20 multiple choice and 8 written answer questions.
Each multiple choice question is worth 2 points.
There is no penalty for an incorrect multiple choice answer.
Take exam under strict exam conditions. Do not stop the clock. Do not look at your notes.

TIA MLC Sample Exam 1

1. A life table has been constructed using the following information:
S0 (x) =

r2x
,
r+2x

x0

l0 = 5,000
l20 = 3,000
is defined as the smallest number for which S0 () = 0
Calculate .
A. Less than 77.5
B. At least 77.5, but less than 78.5
C. At least 78.5, but less than 79.5
D. At least 79.5, but less than 80.5
E. At least 80.5

TIA MLC Sample Exam 1

2. You are given the following extract from a 2-year select-and-ultimate mortality table:
[x] l[x]

(ii) 4qx+2 = 5q[x+1]+1

Calculate l[67] .
A. 7940
B. 8000
C. 8060
D. 8130
E. 8200

lx+2

x+2

65

8200

67

66

8000

68

67

7700

69

The following relationships hold for all x:

(i) 3q[x]+1 = 4q[x+1]

l[x]+1

TIA MLC Sample Exam 1

3. You are given the following information:
S0 (x) = 1

x 2

for 0 x <

e40 = 20
Calculate

2|3 q50 .

A. Less than 0.10

B. At least 0.10, but less than 0.12
C. At least 0.12, but less than 0.14
D. At least 0.14, but less than 0.16
E. At least 0.16

TIA MLC Sample Exam 1

4. For a special fully discrete, 30-year deferred, annual life annuity-due of 200 on (30), you are given:
(i) The single benefit premium is refunded without interest at the end of the year of death if
death occurs during the deferral period.
(ii) Mortality follows the Illustrative Life Table.
(iii) i = 0.06
Calculate the single benefit premium for this annuity.
A. 350
B. 360
C. 370
D. 380
E. 390

TIA MLC Sample Exam 1

5. You are given the following information:
Deaths are uniformly distributed between integer ages.
lx = 11,236
x+0.2 = 0.11247
dx+1 = 1,200
Calculate

0.5|1.25 qx .

A. Less than 0.130

B. At least 0.130, but less than 0.134
C. At least 0.134, but less than 0.138
D. At least 0.138, but less than 0.142
E. At least 0.142

TIA MLC Sample Exam 1

6. For a special fully-discrete 20-year endowment insurance (45), you are given:
(i) i = 0.06
(ii) 1000q46 = 4.24
(iii) A47:18 = 0.382
(iv) a
47:18 = 10.918
1
(v) The benefit premium in year 1 is A45:1
.

(vi) The benefit premiums in years 2 through 20 are equal.

Calculate the reserve at the end of year 2.
A. 0.026
B. 0.027
C. 0.028
D. 0.029
E. 0.030

TIA MLC Sample Exam 1

7. You are given the following information:
The lifetime of a die-casting machine is assumed to follow a uniform distribution with = 15.
A manufacturer operates two die-casting machines at its production facility.
Currently, one machine is age 5 and the other is age 9.
The lifetimes of the two machines are independent of each other.
Calculate the probability that the second failure will occur during the third year.
A. Less than 0.075
B. At least 0.075, but less than 0.100
C. At least 0.100, but less than 0.125
D. At least 0.125, but less than 0.150
E. At least 0.150

TIA MLC Sample Exam 1

8. For a special 2 year fully-discrete endowment insurance of 1000 on (40), you are given:
(i) The force of mortality follows Makehams law where A = 0.0002, B = 0.000003 and c = 1.2.
(ii) The annual effective rate of interest is 5%.
(iii) The benefit premium is P in year 1 and 2P in year 2.
Calculate P .
A. 239
B. 275
C. 314
D. 391
E. 467

TIA MLC Sample Exam 1

9. You are given the following information:
The future lifetimes of an individual, aged (75), and an individual, aged (80), are independent.
Mortality follows the Illustrative Life Table, except that q82 is twice that given by the Illustrative Life Table.
Calculate the three-year temporary curtate expectation of the joint life status e75:80:3 .
A. Less than 2.25
B. At least 2.25, but less than 2.35
C. At least 2.35, but less than 2.45
D. At least 2.45, but less than 2.55
E. At least 2.55

TIA MLC Sample Exam 1

10. For a special fully-continuous last-survivor 20-year term insurance of 1000 on (x) and (y) you are
given:
(i) The death benefit is payable at the moment of the second death if the second death occurs
during the next 20 years.
(ii) Level benefit premiums are paid continuously while both (x) and (y) are alive.
(iii) The mortality of (x) and (y) follows a common shock model with states:
State 0 - both alive
State 1 - only (x) alive
State 2 - only (y) alive
State 3 - both dead
(iv) x+t = 0.03 + 03
(v) y+t = 0.05 + 03
(vi) 03 = 0.02
(vii) = 0.06
Calculate the annual premium.
A. 48.48
B. 50.56
C. 52.36
D. 54.98
E. 56.24

TIA MLC Sample Exam 1

11. Students entering a 3-year program are subject to two decrements Academic Failure and Withdrawal.
Number of
Year

Number who

Academic

Number of

Survive to End of

Failures

Withdrawals

Year

1
2
3

68
16
28

Three times as many students fail in year 2 than withdraw in year 3.

Five times as many students survive year 2 as fail in year 3.
Calculate the probability that a student who survives 2 years does not survive to graduation.
A. Less than 27%
B. At least 27%, but less than 29%
C. At least 29%, but less than 31%
D. At least 31%, but less than 33%
E. At least 33%

TIA MLC Sample Exam 1

12. For a 3-year term life insurance on (60), you are given:
(i) The death benefit is 1,000,000.
(ii) The death benefit is payable at the end of the year of death.
(iii) q60+t = 0.014 + 0.001t
(iv) Cash flows are accumulated at annual effective rate of interest of 0.06.
(v) The annual gross premium is 14,500.
(vi) Profits and premiums are discounted at annual effective rate of interest of 0.10.
(vii) The expected profit at the end of each year given that the insurance is in force at the
beginning of the year:
Time in

Calculate the profit margin.

A. 1.05%
B. 0.55%
C. 0.00%
D. 0.55%
E. 1.05%

Years

Profit

-1000

573.80

316.50

6.00

TIA MLC Sample Exam 1

13. For a continuous triple-decrement model, you are given the following information:
(1)

x+t =
(2)

x+t = 2
(3)

x+t = 0.06
( )

t px = e0.21t
(1)

Calculate 5 qx .
A. Less than 0.150
B. At least 0.150, but less than 0.152
C. At least 0.152, but less than 0.154
D. At least 0.154, but less than 0.156
E. At least 0.156

TIA MLC Sample Exam 1

14. Your company has just added two brand new drink machines (one Coke and one Pepsi) to the
companys break room. After some research on the internet you decide to model the failure rate
of the machines as follows:
10
(i) The failure rate for the Coke machine is C
x = ln 8 , x 0

(ii) The failure rate for the Pepsi machine is Px =

2
,
20x

0 x < 20

The lifetimes of the machines are independent. Once a machine fails then it will never be repaired
or replaced. You are also given:
Z
0

20

8
10

t 

20 t
20

2
dt = 2.92

How many years do you expect to be able to buy a Coke or Pepsi in the company break room?
A. 3.97
B. 5.31
C. 7.54
D. 8.23
E. 11.15

TIA MLC Sample Exam 1

15. Assume workers transition through the labor force independently with the transitions following a
homogeneous Markov Chain process for three states:
1. Employed full-time
2. Employed part-time
3. Retired

0.7 0.2 0.1

The transition matrix is: Q = 0.0 0.6 0.4

0.0 0.0 1.0
Worker A is currently employed full-time
Worker B is currently employed part-time
Calculate the probability that at least one of the workers will be employed part-time after two
transitions.
A. Less than 0.42
B. At least 0.42, but less than 0.46
C. At least 0.46, but less than 0.50
D. At least 0.50, but less than 0.54
E. At least 0.54

TIA MLC Sample Exam 1

16. Jack and Jill purchase an annuity for X. You are given the following:
(i) Jack is 40 and Jill is 30.
(ii) The future lifetimes of Jack and Jill are independent.
(iii) The annuity pays 1000 at the beginning of each year to Jill if Jack is dead but only if she is
at least 50 years old.
(iv) Mortality follows the Illustrative Life Table.
(v) i = 0.06
Determine X.
A. 1245
B. 1265
C. 1285
D. 1305
E. 1325

TIA MLC Sample Exam 1

17. For a whole life annuity-due of $1,000 on a life aged (x), payable annually, you are given the
following information:
qx = 0.012
qx+1 = 0.015
Interest rate i = 0.06
a
x+1 = 10.904
If px+1 is decreased by 0.01, calculate the absolute change in the actuarial present value of this
annuity-due.
A. Less than $90
B. At least $90, but less than $95
C. At least $95, but less than $100
D. At least $100, but less than $105
E. At least $105

TIA MLC Sample Exam 1

18. You are given:
(i) The following select-and-ultimate table with 3-year select period:
x

q[x]

q[x]+1

q[x]+2

qx+3

x+3

60 0.09

0.11

0.13

0.15

63

61 0.10

0.12

0.14

0.16

64

62 0.11

0.13

0.15

0.17

65

63 0.12

0.14

0.16

0.18

66

64 0.13

0.15

0.17

0.19

67

(ii) i = 0.03
(iii) Z is the present value random variable for $100 of a 2-year deferred 2-year term insurance
on [60].
Calculate the Var(Z).
A. 1299
B. 1354
C. 1423
D. 1567
E. 1608

TIA MLC Sample Exam 1

19. You are given the following information:
Ax = 0.375
A1 = 0.299
x:10

The force of mortality and force of interest are constant.

Calculate a
x .
A. Less than 6.5
B. At least 6.5, but less than 7.5
C. At least 7.5, but less than 8.5
D. At least 8.5, but less than 9.5
E. At least 9.5

TIA MLC Sample Exam 1

20. For a 30-payment whole life insurance of $10,000 on a life aged x, you are given the following
information:
Interest rate i = 0.06
The level annual benefit premium is $150.46 paid at the beginning of the year
The benefit reserve at the end of year 29 is $5612.04
px+29 = 0.9527
Calculate 10,000Px+30 , the level annual benefit premium for a whole life insurance of $10,000 on
(x + 30).
A. Less than $750
B. At least $750, but less than $800
C. At least $800, but less than $850
D. At least $850, but less than $900
E. At least $900

TIA MLC Sample Exam 1

21. (7 points) For a 10-payment, fully discrete, 20-year term insurance of 1000 on (40), you are given:
(i) i = 0.06
(ii) Mortality follows the Illustrative Life Table.
(iii) The following expenses, which are incurred at the beginning of each policy year:
Year 1

Year 2+

% of premium Constant % of premium Constant

Taxes

4%

4%

Sales Commission

25%

5%

Policy maintenance

0%

10

0%

(a) (2 points) Calculate the net level premium.

(b) (2 points) Calculate the gross premium using the equivalence principle.
(c) (1 point) Calculate the level expense loading in each gross premium.
(d) (2 points) Calculate the expense reserve at the end of year 1.

TIA MLC Sample Exam 1

22. (6 points) You are given the following Markov Chain:

Healthy

Sick

Dead
2

(a) (2 points) Write down the Kolmogorov forward differential equations for t p1j
30 , j = 0, 1, 2 for
this model.
The transition forces are
(i) 01
x = 0.002
2
(ii) 02
x = 0.005x
1
(iii) 10
x = 0.03x

(iv) 12
x = 0.1x
There are 10,000 lives aged 30 that are sick. Transition probabilities are estimated using the
equations from (a) and Eulers method with a step size of h = 0.1.
(b) (3 points) Calculated the expected number of deaths between ages 30.1 and 30.2.
(c) (1 point) Explain why we have to use Eulers method (or some other numerical method) to
calculate the expected number of deaths instead of simply setting up integrals and performing
the integration.

TIA MLC Sample Exam 1

23. (5 points) For a fully-discrete 2-year double indemnity term insurance on (x), you are given:
(i) Decrement (1) is death due to accidental causes.
(ii) Decrement (2) is death due to other causes.
(iii) Decrements are uniformly distributed in the multiple decrement table.
(iv) The death benefit for cause (1) is $200,000 and for cause (2) is $100,000.
(v) q 0 (1)
x = 0.10
(2)

(vi) q 0 x+1 = 0.25

(2)

(vii) x+t = 0.20 for 0 < t < 1.

(1)

(viii) x+1+t = 0.15 for 0 < t < 1.

(ix) The rate of interest is based on the yield curve at t = 0. You are given the following
information about zero coupon bonds based on the yield curve at t = 0:
Years to

Price of 100

Maturity

Bond

97.00

92.00

87.00

(a) (3 points) Show that the level benefit premium rounded to the nearest 50 is $38,850.
(b) (2 points) Calculate the benefit reserve at the end of year 1 for this insurance.

TIA MLC Sample Exam 1

24. (5 points) For a Type A Universal Life insurance issued on (60), you are given:
(i) The death benefit is a level 100,000.
(ii) Account values are calculated annually.
(iii) Level annual premiums of 2500 are payable at the beginning of each year.
(iv) Mortality rates for calculating the cost of insurance follow the Illustrative Life Table.
(v) Interest is credited at an annual effective rate of 6%.
(vi) The interest rate used for accumulating and discounting the cost of insurance calculation is
an annual effective rate of 5%.
(vii) Level expense charges of 75 are deducted at the beginning of each year.
(viii) At the end of the 3rd year the account value is 3,477.65.
(a) (3 points) Show that the cost of insurance charge for the 4th year rounded to the nearest 5
is 1625.
(b) (1 point) Calculate the account value at the end of the 4th year.
Assume that the insured decides to change from Type A (death benefit = 100,000) to Type B
(death benefit = 100,000 + account value) at the beginning of the fourth year. The insurance
company does not charge anything for this change. The premium, mortality rate, expense charge
and credited interest rate for year 4 do not change.
(c) (1 point) Without calculation, will the account value at the end of the 4th year be larger or
smaller than account value calculated in part (b)? Explain your reasoning.

TIA MLC Sample Exam 1

25. (9 points) For a fully discrete whole life insurance of $100,000 on (60), you are given:
(i) Mortality follows the Illustrative Life Table.
(ii) i = 0.06
(iii) $3875 is the premium payable at the beginning of each year.
(iv) Commission expenses are 50% of premium in the first year and 10% of premium in subsequent
years, payable at the start of each year.
(v) Maintenance expenses are 25 per year payable at the start of each year.
Let L be the loss at issue random variable for this policy.
(a) (2 points) Write an expression L in terms K60 . K60 is the curtate future lifetime of (60).
Answer should be of the form L = av K60 +1 + b, where a and b are constants.
(b) (2 points)
(i) Show that the expected loss at issue rounded to the nearest dollar is -128.
(ii) Show that the standard deviation of the loss at issue rounded to the nearest dollar is
32,695.
(c) (2 points) Calculate the probability that L > 0.
An insurance company issues 10,000 of these policies. Assume that the future lifetimes of the
10,000 insureds are independent. Let S be the total loss on these 10,000 policies.
(d) (2 points) Using the normal approximation, calculate the probability that S > 0.
(e) (1 point) Explain why using the normal approximation for S is acceptable, but for L in part
(c) it is not acceptable.

TIA MLC Sample Exam 1

26. (6 points) For a three-year temporary life annuity due on (75), you are given:
(i) The annuity payments are $1000 per month.
Z
(ii)

t dt = 0.01x1.2 , x > 0

(iii) A life table is built at integral ages, and between integral ages assume a uniform distribution
of deaths.
(iv) i = 0.06

 Z x
dtd t p0
t dt .
(a) (2 points) Given that t =
, prove that x p0 = exp
t p0
0
(b) (2 points) Show that a
75:3 = 2.7575.
(c) (2 points) Calculate the actuarial present value of this annuity.

TIA MLC Sample Exam 1

27. (5 points) A whole life insurance policy was issued to (x) for a sum insured of S payable at the end
of the year of death. A gross premium of G is payable at the beginning of each year. Premiums
and reserves earn an annual effective rate of i per year. The expenses are as follows:
Initial commission of a% of the annual premium
Initial expense of B
Renewal commission of c% of each annual premium excluding the first
Renewal expenses of D per annum at the start of the second and subsequent policy years
Settlement expenses of e% of the sum insured
Let t Vxg represent the gross premium reserve on this policy at duration t.
(a) (2 points) Write down an equation linking the gross premium reserve at the beginning and
end of the first policy year.
(b) (1 point) When can we assume that 0 Vxg to be 0?
(c) (1 point) Write down an equation linking the gross premium reserve at the beginning and
end of the t-th policy year.
Given such that p0 = 0
(d) (1 point) Outline a process that would allow us to find the terminal reserves.

TIA MLC Sample Exam 1

28. (13 points) A life aged 40 purchases a participating 4-year endowment insurance contract. The
sum insured is 100,000, payable at the end of the year of death. Premiums of 31,000 are payable
annually in advance.
Reserves are calculated using net premium policy values, modified using the full preliminary term
approach, assuming an interest rate of 6% and 100% of the Illustrative Life Table.
(a) (2 points) Show that the reserves are 0 V = 0, 1 V = 0, 2 V = 31,316 and 3 V = 64,603.
Cash values are a percentage of the reserve. The percentage is 0% for year 1, 10% for year 2 and
20% for year 3. In addition all withdrawing policyholders receive the cash dividend due for the
their final contract year. There are no withdrawals for year 4 because of the maturity benefit.
A profit test is performed with the following assumptions:
(i) Mortality - 80% of the Illustrative Life Table
(ii) Premiums and reserves earn an investment return of 7% per year.
(iii) Withdrawals are 5% per year for the first 3 years and 0% for the fourth year.
(iv) 90% of surplus emerging each year from the second policy anniversary onwards is distributed
to the policyholders as a cash dividend. No dividend is payable during the first policy year.
No dividend is declared if the surplus emerging is negative.
(v) Initial, pre-contract expenses are 15,000, assumed incurred at time t = 0.
(vi) Premium expenses of 1000 are incurred with each premium payment, including the first.
(vii) The risk discount rate for determining the net present value (NPV) is 10% per year.
(b) (7 points) Calculate the profit vector for the contract.
(c) (3 points) Calculate the profit signature for the contract.
(d) (1 point) Calculate the NPV.