Annuity plan participants’ life span: Please answer Question…
Annuity plan participants’ life span: Please answer Questions 1 – 4 based on the following: A company that sells annuities (a form of insurance or investment entitling the investor to a series of annual sums) must base the annual payout on the probability distributions of the length of life of the participants in the plan. Suppose the probability distribution of the lifetime of the participants is approximately a normal distribution with a mean of 68 year and a standard deviation of 4 years. The Tables and Graph below show the Normal Distribution for the above scenario. Normal Distribution: Values by Standard Deviation Increment Mean 68 Standard Deviation 4 Std Dev from Mean Value (Mean + z*SD) Cumulative Percentile % of Distribution in Band -3.0 56.00 0.1% 0.1% -2.5 58.00 0.6% 0.5% -2.0 60.00 2.3% 1.7% -1.5 62.00 6.7% 4.4% -1.0 64.00 15.9% 9.2% -0.5 66.00 30.9% 15.0% 0.0 68.00 50.0% 19.1% 0.5 70.00 69.1% 19.1% 1.0 72.00 84.1% 15.0% 1.5 74.00 93.3% 9.2% 2.0 76.00 97.7% 4.4% 2.5 78.00 99.4% 1.7% 3.0 80.00 99.9% 0.5% Percentile and band % assume a normal distribution. “% of Distribution in Band” is the share of the distribution between this row and the row above (first row = area below -3.0 SD). The chart below marks the mean/median and the +/-2.5 SD and +/-5 SD points.