I am unable to understand the solution given for 14.30. I feel they have missed certain steps due to which I dont understand it.
I have got most parts of the question. I didn't get the following (1-AC)*p*12/15 Is the above expression for t<365? Why has it not been worked out for t>365? Is it because we make the calculation yearly that t is ignored?
The expression is for the UPR for a contract with 2 years to run. If the risk doubles each year for each of the 4 years of the cover and is constant each year, then if the risk is 1 unit in the first year of cover, it will be 2 in the second, 4 in the third and 8 in the fourth year. There are therefore 15 units in total with 12 remaining with 2 years to run.
Basically here the 4 years of warranty commences only after the t days time period gets over right? Could you please confirm this once for me? Thanks
The 4 years of extended warranty cover commences after the original one year warranty expires as it says in the question.
