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October 2013, Q2

K

Komal Gupta

Active Member
Impact of higher expenses on prospective SV
The solution says:
Higher mortality rates reduce the value of the annuity function as payments are now expected to be paid for a shorter period. Therefore:
- The value of annual expenses would increase
- The value of premiums would decrease
Why will the value of annual expenses increase? Shouldn't it decrease since annuity function is decreasing and no change in expense amount?
 
Komal Gupta said:
Impact of higher expenses on prospective SV
The solution says:
Higher mortality rates reduce the value of the annuity function as payments are now expected to be paid for a shorter period. Therefore:
- The value of annual expenses would increase
- The value of premiums would decrease
Why will the value of annual expenses increase? Shouldn't it decrease since annuity function is decreasing and no change in expense amount?
Click to expand...
Hi Komal

Yes, you're right that the annual expenses would decrease. Where did you see the solution that you quote? The ActEd revision books say decrease.

Best wishes

Mark
 
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