Attained Age Method - death in service benefit costing Assignment x6.4

[mulita]

part b of the question has a solution that includes AAM formula with a denominator of PV of 1% of salary to expected death. I wish to find out why 1% is used in this case. I note that 1% was also used in a question on page 24 under funding methods. Grateful for your help

 

[Justine Peggs]

The 1% is used so the result is automatically calculated as the percentage i.e. 1.6 to represent 1.6% of salary.

 

[mulita]

Thanks.. so if PV of expected benefits is 400 000 and PV of expected salary is 1,000,000 then, simple AAM method, without the 1% of salary we get 4/10 which is 0.4, I.e. 40%

If we put 1% to the denominator I.e. 4/(1% of 10) then we get 40, I.e. 4000%

So I still don't quite get it.

 

[Justine Peggs]

By putting 1% in the denominator you calculate the percentage directly i.e. the 40 represents 40%