Show that premium for contract b is higher than contract a

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Reference no: EM131001600

1. An endowment insurance on (x) provides for 1000 at the end of the year of death, provided this occurs within 4 years, and 1000 at time 4 if (x) is still alive. Net level annual premiums are payable for 4 years. You are given that q_x = 0.05, q_x+1 = 0.08, q_x+2 = 0.10. Interest rates are 5% for the first 2 years and 6% thereafter. Find Var (1L) in two ways: first, by finding the exact distribution of 1L; and second, by finding 2V and 3V.

2. A failure time takes the values 1 or 2 each with probability 1/2. The interest rate is 0. Insurance contract A pays 5 at failure. Insurance contract B pays 1 if failure occurs at time 1, and 5 if failure occurs at time 2. Show that using the variance premium principle with β = 1, the premium for contract B is higher than that for contract A.

Reference no: EM131001600

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