Hi, In Assignment X3 (Question 3), the solution mentioned that if the insurer wants to deduct an initial charge through the unit pricing mechanism, then a bid and offer price for the units is required. Would like to understand why both bid price and offer price are required? As we will be able to get the offer price by using bid price divided by (1-Initial Charge); and able to get the bid price by taking offer price multiply by (1-Initial Charge)? Best regards, Aaron
Hi Yao The policyholder buys at the offer price and sells at the bid price. The offer price is higher than the bid price and this charge goes to the insurer. So the bid/offer spread is the initial charge that the Core Reading refers to in the unit pricing chapter. Yes we can get the offer price by using bid price divided by (1-Initial Charge); and get the bid price by taking offer price multiply by (1-Initial Charge). Best wishes Mark
