Actuaries are frequently called into court cases involving accidents that cause disability. Their job is to calculate the amount of damages to be paid by estimating the future lost income of the disabled person. Consider the following: A man, age 53, is injured in an accident at his place of work and is unable to work for the rest of his life. Since his accident was due to the negligence of his employer, he sues his employer for damages. He hires Actuary A to estimate the amount of damages he can sue for. The employer hires Actuary B to also estimate the amount of damages. The two actuaries come up with two different sets of assumptions: Actuary A Actuary B Current salary $87,000 $87,000 Annual raise 3.5% 1.25% Retirement age 65 62 Interest rate, i(1) 5% 7.5% Assume salary is paid monthly (and at the end of each month) and that the current salary is what is being paid in the first year. You will need to take the annual salary and divide it by 12 to get the monthly salary. You can also assume that the man just turned age 53 at the time of the accident. (but be careful of what interest rate you use for your calculations) Calculate the amount to be awarded to the man as a lump sum payment made today to cover his future lost income under the assumptions of each of the two actuaries. (Hint: Set up columns for age, time, end of month salary, and present value of the salary under the two actuarys assumption). (4 + 4 = 8 marks)

2. Actuaries are frequently called into court cases involving accidents that cause disability. Their job is to calculate the amount of damages to be paid by estimating the future lost income of the disabled person. Consider the following: A man, age 53, is injured in an accident at his place of work and is unable to work for the rest of his life. Since his accident was due to the negligence of his employer, he sues his employer for damages. He hires Actuary A to estimate the amount of damages he can sue for. The employer hires Actuary B to also estimate the amount of damages. The two actuaries come up with two different sets of assumptions: Actuary Actuary A B Current salary $87,000 $87,000 Annual raise 3.5% 1.25% Retirement age 65 62 Interest rate, (1) 7.5% Assume salary is paid monthly and at the end of each month) and that the current salary is what is being paid in the first year. You will need to take the annual salary and divide it by 12 to get the monthly salary. You can also assume that the man just turned age 53 at the time of the accident. (but be careful of what interest rate you use for your calculations) Calculate the amount to be awarded to the man as a lump sum payment made today to cover his future lost income under the assumptions of each of the two actuaries. (Hint: Set up columns for age, time, end of month salary, and present value of the salary under the two actuary's assumption). (4+ 4 = 8 marks) 5% 2. Actuaries are frequently called into court cases involving accidents that cause disability. Their job is to calculate the amount of damages to be paid by estimating the future lost income of the disabled person. Consider the following: A man, age 53, is injured in an accident at his place of work and is unable to work for the rest of his life. Since his accident was due to the negligence of his employer, he sues his employer for damages. He hires Actuary A to estimate the amount of damages he can sue for. The employer hires Actuary B to also estimate the amount of damages. The two actuaries come up with two different sets of assumptions: Actuary Actuary A B Current salary $87,000 $87,000 Annual raise 3.5% 1.25% Retirement age 65 62 Interest rate, (1) 7.5% Assume salary is paid monthly and at the end of each month) and that the current salary is what is being paid in the first year. You will need to take the annual salary and divide it by 12 to get the monthly salary. You can also assume that the man just turned age 53 at the time of the accident. (but be careful of what interest rate you use for your calculations) Calculate the amount to be awarded to the man as a lump sum payment made today to cover his future lost income under the assumptions of each of the two actuaries. (Hint: Set up columns for age, time, end of month salary, and present value of the salary under the two actuary's assumption). (4+ 4 = 8 marks) 5%