Q&A - Part 2, Q 2.22

CT 6 , Q&A - Part 2, Q 2.22

Solution on page 23 uses:

P [ 5000 x 160 x (1+i) - S (1+i)^1/2 > 52500 ] = 0.90

Considering the part highlighted in red above:

How do we get it ?

What if the claims are paid 3 months OR 7 months for that matter ?

My guess is: S (1+i )^1/4 ...for 3 months & S (1+i )^7/12 ...for 7 months , but can anyone explain the reasoning behind it.

 

Anyone ?

 

Don't know if you still need this.

The calculation is being done at the end of the year. The question states that claims are made midway through the year. Therefore the aggregate claims have been accumulated a half year to the end of the year.

Happy studying!