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CT1 IFoA Sept 2007 Q11 (iii)

J

Janboyd

Member
Please can someone help me with the numerator of the duration of the liabilities?

100v (1×1 + 1.05v×2 + 1.05^2 v^2 ×3+…+1.05^59 v^59×60) = (1.03/1.05) 100 v (1.05v×1 + 1.05^2 v^2 ×2 + 1.05^3 v^3 ×3+…+1.05^60 v^60×60)

The part inside the brackets can be regarded as (Ia)60 evaluated at a rate of interest i such that v = 1.05/1.03

but (1.03/1.05) x100 x1.05v doesn't equal 100v?
 
correct, it equals 100. But there are two v's. One outside and one inside the brackets.
 
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