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September 2021 Q7(i)

A

AKS01

Very Active Member
Hi,

I'm struggling to understand the mark scheme for this question.

I understand that we need to show the dividends need to be V(0)(1+i'')-Sq''+E''(1+i'')-V(1)
My understanding of this is that the surplus is the value of the contract with investment earned less the value of the contract on the valuation basis is the surplus that is paid as the dividend.

But why do we then replace the V(1) with (-V'(1) + (V'(1)-V(1))... I would never have thought to split this up in the exam so I was wondering if there was a part in the question that suggested doing this that I have missed.

Thanks
 
Hi

If it's an reassurance, I don't think you're missing anything in the question that 'suggests' doing this. Perhaps more a case of knowing the starting and ending expressions and using a common algebraic 'trick' perhaps to help us along the way between them.

All the very best for the SP2 exam
Lynn
 
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