The notes say that investment costs will be directly allocated to the investment expenses and hence allowed for in assessing the investment return to use for pricing. Does the investment return refers to the i in (Prem-Expenses)*(1+i)? Then they say the yield reduction approach may be better with an "equating present values" formula. Please explain.
It's just saying that if you are using a simple formula method to set the price, eg equating the PV Premiums with the PV of Benefits and expenses, then it would be hard to allow for investment expenses explicitly. So it's easier to reduce the yield instead.
