Hi, Please could anyone help me with how the investment return was calculated in Exam 303 April 2001 Question 4?
They've just rolled up the cashflows like a glorified bank account. For year 2 say, we start with 83.5. Roll this up for half a year (83.5*1.04^0.5=85.1536), then subtract claims and expenses at mid-year (85.1536-15-30=40.1536), then earn another half-year's return to get the amount held at the end of the year (40.1536*1.04^0.5=40.9488). The investment return is just the balancing item.
I'm going to encourage you to try this yourself Joy, using the same method I've outlined above. In other words: Calculate the amount received at the start of year 1. Roll it up for half a year. Subtract the cashflow paid out mid-year. Roll it up for the remaining half year, to find the year-end balance. The investment return is the balancing item.
