question archive Assuming that you are an employee of an insurance company and asked you to calculate the only net premium for a yearly equal payment contract for a person who is now 59 years old if the value of the payment is 1,000 dinars to be paid immediately
Assuming that you are an employee of an insurance company and asked you to calculate the only net premium for a yearly equal payment contract for a person who is now 59 years old if the value of the payment is 1,000 dinars to be paid immediately
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Assuming that you are an employee of an insurance company and asked you to calculate the only net premium for a yearly equal payment contract for a person who is now 59 years old if the value of the payment is 1,000 dinars to be paid immediately. Does the answer differ if the payment is to be paid after a year of contracting? Note (US 1958 life schedule was used to answer)
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Life expectancy = (66.6 + 72.9)/2 = 70 years [Source : https://u.demog.berkeley.edu/~andrew/1918/figure2.html ]
Risk Free rate = 0.589% [Yahoo Finance, Treasury 10 years]
No. of Payment = 11 + 1
PV of the Annuity = 1000 + PMT [(1-(1/(1+i)^n))/i]
=> PV = 1000 + 1000*[(1-(1/(1+0.589%)^11))/0.589%] = 11620.981 dinars
If the payment Starts from next year then,
PV of the Annuity = PMT [(1-(1/(1+i)^n))/i]
=> PV = 1000*[(1-(1/(1+0.589%)^11))/0.589%] = 10620.981 dinars
Therefore the Premium amount will decrease by 1000 dinars if the payment is deferred.
