hi,
I am incorrectly calculating the EPV(Death Benefit) compared to the solutions and cannot work out why.
The DB is a whole life assurance to life aged 45, with SA of 150,000 payable immediately on death. Bonuses of 1.92308% vest immediately. Use Am92@6%.
I understand the bonuses and discount factors of 6% cancel out, thus leaving a discount rate of 4% so we end up with:
150,000 x A(bar)(45) @4%.
Which can then be further simplified to:
150,000 x ((1.04)^0.5) x A(45) @4%
However in the solution it is
150,000 x ((1.06)^0.5) x A(45) @4%
I don't understand why this is,
surely; A(bar)(x) @4% = ((1.04)^0.5) A(x) @4%
why would you instead use an interest rate of 6% instead of 4% to turn this into a payable at YE Assurance, when it is being valued using i=4%?
please advise
Thanks in advance
Last edited by a moderator: Feb 24, 2017