Q&A Bank - Part4 - Q4.9

[scr123]

"Bob is now aged 40 and earned £35,000 over the last year"
This corresponds to a salary for 39 to 40 ie salary index s39.

The solution states that you have to divide by s39 because the normal formula corresponds to s40.

But...
Chapter 14 pg 20 of the notes:
"Let the members salary in the year preceding the valuation date be S"
ie. we are using s(x-1) hence for x=40, the salary index=s39
Hence the normal formula should be valid.

Is the solution incorrect in dividing or have I missed something?

 

[Edwin]

"Bob is now aged 40 and earned £35,000 over the last year"
This corresponds to a salary for 39 to 40 ie salary index s39.

The solution states that you have to divide by s39 because the normal formula corresponds to s40.

But...
Chapter 14 pg 20 of the notes:
"Let the members salary in the year preceding the valuation date be S"
ie. we are using s(x-1) hence for x=40, the salary index=s39
Hence the normal formula should be valid.

Is the solution incorrect in dividing or have I missed something?

The expression was arrived at from first principles by defining:-

Dx=v^x*lx
and
sDx=s(x-1)Dx

->sD40=s39D40

They often go about how commutation aren't fixed, and that as long as you define them and maintain a consistency, u'l be fine.

See page 27.