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25 July, 07:01

Calculate the single risk premium (to 2 decimal places) to be charged today on an insurance product that pays regular claims of $500 in 1,2,3, ...,25 years from today. Use an interest rate of 4% per annum.

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  1. 25 July, 10:03
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    We are given with the following:

    A = 500

    n = 25

    i = 0.04

    We solve for the single risk premium by this formula:

    P = A [ (1 + i) ^n - 1] / [ i (1 + i) ^n]

    P = 500 [ (1 + 0.04) ^25 - 1] / [0.04 (1 + 0.04) ^25]

    P = 78111.04

    The premium is $78,111.04.
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