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general doubts

Discussion in 'SP2' started by Sagar_sagar, Sep 18, 2021.

  1. Sagar_sagar

    Sagar_sagar Active Member

    Q1. what is the use of bid price on offer basis and
    offer price on bed basis ?

    Q2. Why for with-profit business present value of profit is calculated as PV of shareholder transfer under EV calculation. why not full business profit is considered ?
     
    Sagar_sagar, Sep 18, 2021
    #1
  2. Lindsay Smitherman

    Lindsay Smitherman ActEd Tutor Staff Member

    Q1: bid price on offer basis = to pay out claims (p/hs cashing in their units) if the company is pricing under an offer basis (even if there is a net inflow of cash, there will still be some claims that need to be paid out)
    offer price on bid basis = to use to purchase units with premiums coming in, if the company is pricing under a bid basis (even if there is a net outflow of cash, some p/hs are likely to still be paying premiums in)

    Q2: EV = value of shareholders' interest in the company. Thus it includes PV future shareholder profits = PV future shareholder transfers.
    [Wouldn't count the full business profit as a lot of this would go to the policyholders, not shareholders.]
     
    Lindsay Smitherman, Sep 20, 2021
    #2

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