Actuarial Science Solution
Actuarial Science Solution
Michael M. Parmenter’s
THEORY OF INTEREST
AND LIFE CONTINGENCIES,
WITH PENSION APPLICATIONS:
A Problem-Solving Approach
Third Edition
by
ACTEX Publications
Winsted, Connecticut
Copyright © 1999, 2010
by ACTEX Publications
ISBN: 978-1-62542-840-0
TABLE OF CONTENTS
Chapter 1 1
Chapter 2 13
Chapter 3 18
Chapter 4 35
Chapter 5 44
Chapter 6 53
Chapter 7 60
Chapter 8 74
Chapter 9 92
Chapter 10 120
Chapter 11 135
Chapter 12 148
iv
INTRODUCTORY NOTE
a (n )
5. (a) If 1 in œ a(n 1) is constant, then
(c) The result is intuitive. Clearly A(n) A(0) is the total interest
earned over n periods, which is the sum of the interest earned in
each period.
a(1) a(0) a(2) a(1)
(d) i1 i2 â in œ a(0) a(1) â
a(n) a(n1)
a(n 1) Á a(n) a(0),
so no. The ir are rates, not amounts, so they are not additive to
any meaningful concept.
y(y1) 2 y(y1)(y2) 3
1 2i(y) 2 4i 6 i â
2y(2y1) 2 2y(2y1)(2y2) 3
1 2yi 2 i 6 i â
y y y2
or 2 i2 (4y 4) 6 i3 (8y2 24y16) â 2 i (4y 2)
y
6 i3 (8y2 12y4) â
But (4y 4) is less than (4y 2), so we reach a contradiction,
implying x 2y. Therefore statement (a) is true.
15. (a)
(0,1)
a(t ) 1 it
iŠ1 d2 ‹ œ i id id
2 œ i 2 œ 2 2.
i d
d3 d 3 œ d 3 (since d œ iv) œ i2 d
18. (a) 2 œ
(1 d) v2 ( di )2
(i d )2 (id)2
(b) 1 v œ d œ i2 d
(c) (i d)d œ (id)d œ id 2 , which is the exception
(d) i3 i3 d œ i3 (1 d) œ i3 v œ i3 Š di ‹ œ i2 d
(e) Already is i2 d
C: i œ Š1 .118 10 ‹
10
1 œ .12603
Thus C is the most advantageous to the investor (largest effective
annual rate), whereas A is most advantageous to Acme Trust
(smallest effective annual rate).
(b) ”1 d4 •
4
(4)
œ (1.06)2 , so
(c) ”1 i12 •
12
(12)
œ (1.06)2 , so
23. (a) We are given 100(1j) œ 107, so j œ .07 effective per half-
year.
(b) i(2) œ 2j œ 14%
(c) i œ (1.07)2 1 œ 14.49%
(d) ”1 d3 • œ (1.07)2 , so
3
(3)
24. ”1 i n • œ (1i)1În œ
(n) (1i)1Î6
œ (1i)1Î24 . Therefore
(1i)1Î8
1 œ 1 , so n œ 24.
n 24
similarly,
Œ1 30 Œ1 5 (1 d) œ (1 i) (1 i) (1 d)
i(30) d (5) 1/2 1/30 1/5 1/2
œ (1 i)1/6 (1 d)1/2
d (m) œ m–1 Œ1 im —
1
(m)
Then
œ m mŒ m
m i(m)
2 (m) 2 (m)
œ m m † i (m) m œ m † i (m) .
mi mi
d ? œ i (1i)t † ln(1i). ?
30. Let ?t œ 1 it (1i)t , so that dt t t
d
is maximized at the value of t for which dt ?t œ 0. Thus we have
or i œ $ (1i)t . Then
ln i œ ln $ t † ln (1i) œ ln $ t † $ .
2 3
31. (a) Recall that i œ e$ 1 œ $ $2! $3! â. If $ is doubled,
then we have
$ 2 8$ 3 â
iw œ e2$ 1 œ 2$ 42! 3!
œ 2i positive terms,
so iw 2i.
2 3
œ $ $2! $3! âÞ
$ 2 8$ 3 â
d w œ 1 e2$ œ 2$ 42! 3!
so d w 2d.
2 3
32. From Exercise 31(a), i $ œ $2! $3! â so
i $ œ 1 $ $ 2 â. As i Ä 0, $ Ä 0 as well, so
$2 2! 3! 4!
lim i 2 $ œ 2!
1 œ .50, as required.
iÄ0 $
10 Chapter 1
œ exp.04 † ln(1r)kt0 ‘
0 0
œ exp’ln(1r).04 ¸0 “
t
.04
ln(1).04
œ eln(1t) œ (1t).04
d cln A(t)d
d
dtA (t)
34. $t œ œ dt
A (t )
d ln k (t1) ln a t3 ln b d t ln c‘
œ dt
œ ln a 3t2 ln b d t ln d ln c
2 3 4
36. e$ œ 1i, so v œ (1i)1 œ e$ œ 1 $ $ $ $ â
2x 3x 4x
œ i Š1
n 1‹ 2 i â
1 2
œ d Š1n 1‹d â
2
Dc A(t)d
40. Recall from (1.30) that $t œ A(t) . Then
Dc A(t)d A(t) † D2 c A(t)d Dc A(t)d † Dc A(t)d
D($t ) œ D” •œ
A (t) c A (t)d2
D c A (t ) d ŠDc A(t)d‹
2
2
c A (t) d 2
œ A (t)
D2 c A(t)d 2
œ A(t) ($t ) . q.e.d.
12 Chapter 1
2 3 4
41. From (1.33) we have $ œ i i2 i3 i4 â . From
2 3 4
$ œ ln v œ ln(1 d)1 , we have $ œ d d2 d3 d4 â .
Adding we obtain 2$ œ (di) Š d2 i2 ‹ Š d3 i3 ‹ â,
2 2 3 3
so $ œ d i d 2 i2 d 3 i3
2 4 6 â . q.e.d.
2 3
42. Since, from (1.34), i œ $ $ $ â, then
2x 3x
2 3 4
i$ œ $ $ $
â . Similarly,
2x 3x 4x
$ d œ $ ”$ $ $ $ â• œ $ $ $ â ,
2 3 4 2 3 4
2x 3x 4x 2x 3x 4x
so clearly i $ is larger.