Alex and Bob are business partners. They share a birthday today and Alex is turning 60 and Bob is turning 55. They want to buy a deferred reversionary annuity, that will pay $10,000 per annum to Bob after the death of Alex if it occurs after 5 years. Use AM92 ultimate at 4%. You are given that = 10.5982 Ã¤.65:60 =
(a) What is the expected present value of this deferred reversionary annuity?
(b) Rather than paying for this annuity with a single premium, Alex and Bob wish to pay level premiums annually in advance over the next 5 years. Give an equation that could be solved to find the value of this level premium and explain the reason for your answer.