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303 April 2004 Q8 iv

E

eaml

Member
I am slightly confused why my attempt isn't working.

For EL I have set up the following equation:

1.4 (RoC) = 1.12P / CP, where P = premium & C = capital as a % of premium

This comes out as C = 80% of premium which is wrong. Can anyone spot where I am making a mistake?
 
You seem to have an extra 1. in front of both of your expressions:

RoC = profit / capital = 40% and profit / premium = 12%

Thus substituting for profit we get:

40% = (12% * premium) / capital

thus capital = 30% premium
 
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