What should be the interest rate

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Reference no: EM131001641

Consider a 3-year life annuity on (60). The sequence of payments (beginning at time 0) is 4, 2, 1. You are given that q60 = 0.2, q₆₁ = 0.4, q₆₂ = 0.5. The interest rate is a constant 25%. The insurer sells 100 such contracts, charging (1 + r) times the equivalence principle single premium. What should r be so that there is at least a 95% chance that premiums will cover the benefits? (Use a normal approximation.)

Reference no: EM131001641

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