Question
Consider two people age 40. a. What is the expected number of years that both are alive? b. What is the expected number of years
Consider two people age 40. a. What is the expected number of years that both are alive? b. What is the expected number of years that at least one is alive? c. What is the actuarial present value of a pension that pays $50,000 per year as long as at least one of the two 40-year-old people survive? Use a 5% discount rate. [Remember actuarial present value means that you must discount in the usual way to get present value, but you also must weight (i.e., multiply) every yearly payment by the probability that at least one of the two 40-year-old people is alive in order to receive the $50,000 payment.
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