Ch 13 Q 13. 10

[Kanishka]

Can someone help me with how to calculate the 'cost of increase in reserve column '?

 

[Robert Chadburn]

The formula that's being used here is:
{reserve held at start of year} + {interest earned on the reserve} - {reserve held at end of year per survivor} x {probability of surviving to end of year}
Always add this formula to the cashflows in order to get the in-force profit flows (profit vector).
Eg, for year 1:
= 0 + 0 - P x (1 - q60) = - Px (1 - 0.008022) = -Px0.99198
(noticing that we are told that the reserve for each policy in force is just equal to P at all durations).
For year 2:
= P x (1.07) - Px(1-0.009009) = P x 0.0079009
Etc.
Robert