Question

What is the primary principle underlying the formula method of determining premiums?

a.

Present value of premiums = Present value of benefits - Present value of expenses

b.

Present value of premiums = Present value of benefits + Present value of expenses

c.

Present value of premiums = Future value of benefits - Present value of expenses

d.

Present value of premiums = Future value of benefits + Future value of expenses

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (b).Present value of premiums = Present value of benefits + Present value of expenses Explanation:The primary principle underlying the formula method is that the present value of premiums equals the present value of benefits plus the present value of expenses.

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Q. What is the primary principle underlying the formula method of determining premiums?
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