Hi Could u please explain why in the solution to Q2 v) the maturity smoothing has been multiplied by 10 % and estate distribution by 90% in analysing movements in the estate?
You could think about it as 10% less is paid out in asset shares and put into a smoothing account in the estate so should be positive. However, 5% of the total smoothed asset share amount (from maturities) is coming from the estate (0.05*10,582*0.9), which is has a negative impact on the estate of -476. The total of 1058-476 equals 582 which is the difference between the impact on assets and impact on asset share: Change in assets = change in asset share + change in the estate Therefore: Change in the estate = change in assets – change in asset share = -10,000 – (-10,582) = +582
Hi, For part (vii) the ASET mark scheme states that "smoothing is currently reducing payouts as smoothed is less than unsmoothed asset share". How do we know this? Is this because in the question it states Smoothed = 90% of asset share (is the asset share the same as the unsmoothed asset share?)
Yes, we're told in the information that "The asset share amounts shown have not had any smoothing applied." ie it is unsmoothed
