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April 2020 Q4(i)

Discussion in 'SP2' started by AKS01, Apr 7, 2022.

  1. AKS01

    AKS01 Very Active Member

    Hi,

    In this question, the examiners report says that profitability is the same for both contracts on day 1 only... why is this?
    It just states that profitability is the same for both products in the question so I'm confused as to how that would suggest that profitability would change over time?

    Thanks,
     
    AKS01, Apr 7, 2022
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi

    The contracts have been priced to have the same expected profitability. However, their actual profitability will depend on the experience. Actual experience may turn out to be different to that expected and so the eventual profitability will differ.

    Best wishes

    Mark
     
    Mark Willder, Apr 8, 2022
    #2
    AKS01 likes this.

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