Q6 (iii) September 2010

[AaronD]

Hi,

I'm looking at the way the per policy asset share is calculated for cohort A.

In particular I can't wrap my head around the calculation for the investment rate. The calculation in the revision books is:

it = (net investment income during the year) / (starting asset share + prems - commission - expenses)

I assume its some manipulation of the generalised asset share formula but if this were the case, why isnt shareholder transfers etc incldued in the calc?

Thanks,
Aaron

 

[Mark Willder]

Hi,

I'm looking at the way the per policy asset share is calculated for cohort A.

In particular I can't wrap my head around the calculation for the investment rate. The calculation in the revision books is:

it = (net investment income during the year) / (starting asset share + prems - commission - expenses)

I assume its some manipulation of the generalised asset share formula but if this were the case, why isnt shareholder transfers etc incldued in the calc?

Thanks,
Aaron

Hi Aaron

We're not using the asset share formula here. Instead we use the following relationship:

Interest earned = Funds at start of year x interest rate

as there are no cashflows during the year, we get a full year's interest on all the money at the start of the year.

We don't include the shareholder transfers here because they happen at the end of the year.

I hope that helps, but let me know if you have further questions.

Best wishes

Mark

 

[AaronD]

Thanks Mark, makes more sense!

Aaron