Analysis of Surplus

[joe90]

Q&A Bank
Q4.1 (iii)

I cant seem to work out this answer?

I approach these questions by setting A0 = L0. Then I calculate A1 and L1 as if everything works out as expected. A1 should equal L1 on this basis. Then I change one item at a time to get its contribution to surplus.(I leave New Business as an item to add in as an item of surplus)

However, I cant even get A1 = L1 here.

A1 = 7,357,798 X 1.04 - 5000 X 100 X (1 - 0.002451) - 20 X 1.027 X (1 - 0.002451)X100 = 7,151,287

L1 = 5000 X 14.254 X (1-0.002451)X100 + 100X(1-0.002451)X20.159X20X1.027
= 7,150.836

Could somebody help me here?

If you dont have access to this question I cant type it up?

Cheers!

 

[Mark Willder]

Q&A Bank
Q4.1 (iii)

I cant seem to work out this answer?

I approach these questions by setting A0 = L0. Then I calculate A1 and L1 as if everything works out as expected. A1 should equal L1 on this basis. Then I change one item at a time to get its contribution to surplus.(I leave New Business as an item to add in as an item of surplus)

However, I cant even get A1 = L1 here.

A1 = 7,357,798 X 1.04 - 5000 X 100 X (1 - 0.002451) - 20 X 1.027 X (1 - 0.002451)X100 = 7,151,287

L1 = 5000 X 14.254 X (1-0.002451)X100 + 100X(1-0.002451)X20.159X20X1.027
= 7,150.836

Could somebody help me here?

You've made a small slip in L1. You've used 1.027 instead of 1.0297. So L1 should be 7,150,945

Similarly if you use 1.0297 in A1 you get 7,151,281.

The two answers don't quite tie up, but you're within the rounding error we see in the solution. The difference is caused by rounding as we only have the annuity factor to 3 decimal places.

Best wishes

Mark