FRM Part I · FRM Exam Part I · Insurance Companies and Pension Plans
A life table starts with 100,000 lives at age 60. By age 61, 99,000 are alive, and by age 62, 97,920 are alive. What is the probability that a person alive at age 61 dies before reaching age 62?
The conditional probability of dying between 61 and 62 is 1,080 deaths divided by the 99,000 survivors at age 61, which is about 1.09%. Dividing by the original 100,000 would wrongly give 1.08%, because the base must be those alive at 61.
- A1.08%
- B2.08%
- C1.09%Correct
- D2.00%
Explanation
Deaths between 61 and 62 are 99,000 - 97,920 = 1,080. Conditional on being alive at 61, the probability is 1,080/99,000 = 1.0909%, about 1.09%. Using 100,000 as the base gives 1.08%, the wrong-base error. Option B is not a valid figure from the data.
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