Hi I don't quite agree with the answer provided for Question 15.6, page 9, Chapter 15. The assumptions listed state that Salary increases are continuous. In the Numerator I think there should be an exp[(65-40)*0.07] and in addition the annuity factor in the numerator should be calculated at the FORCE of interest (0.09-0.07) and thus i = exp(0.02)-1 What do you guys think? Thanks
The assumptions of salary increases being continuous is just to simplify the calculations, but we are expected to assume that figures for i and e are annually compounded (the 304/ST4 questions set so far take this approach). I would only adopt the approach of using forces of interest if the questions explicitly says to do this.
