Would someone please explain how the Expected death cost is calculated for year 1, 2 and 3 (-1604.4, -1801.8,-2022.4)? Thanks
Would you please help with cost of increase in reserves as well? Finding profit testing to be quite the challenge
Hey! For Expected death cost, you need to multiply the death benefit by the probability that a person dies within that year. It important to note that death is the only decrement in this question and in other questions, you may need to take into account other decrements. Therefore, for this question we have the sum assured (200 000) multiplied by the probability of death per year. I have attached a picture showing my calculations (hope the quality is alright as I had to compress the file in order to upload). I hope it helps. Remember we are looking at ULTIMATE life in the AM92 table.
For increase in reserves: You look at the value of reserves held at the end of the previous year, accumulate it to this year and subtract the reserves from this year multiplied by probability of survival (since death is the only decrement). Attached find my formulas and workings.
