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Here's the question, an answer and used table. My question is to how to find the 1.01 number? Thanks! 1. The relevant interest rate for
Here's the question, an answer and used table. My question is to how to find the 1.01 number? Thanks! 1. The relevant interest rate for insurance contracts is 2% per annum (semiannual compounding applies) and all premiums are paid annually at the beginning of the year. A $2,000,000 term insurance contract is being proposed for a 40-year-old male in average health. Assume that payouts occur halfway throughout the year. Using the mortality rates estimated by the U.S. Social Security Administration in Figure 26.2), which of the following amounts is closest to the insurance company's breakeven premium for a two-year term? A. $4,246 B. $4,287 C. $4,332 D. $8,482 1. B One-year term: The expected payout for a one-year term is 0.002092 $2,000,000 = $4,184. Assuming the payout occurs in six months, the breakeven premium is $4,184 / 1.01 = $4,142.57. Two-year term: The expected payout for a two-year term is the sum of the expected payouts in both the first year and the second year. The probability of death in the second year is (1 0.002092)
Here's the question, an answer and used table. My question is to how to find the 1.01 number?
Thanks!
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