Hi Pls explain why in Q6 iii) we have raised the power to 17.5? Renewal expenses have been 5 per annum more than expected, and over 35 years this will have accumulated to around 35 × 5 × 1.04^17.5 = 350. Interest has been 4% per annum as opposed to 6% per annum assumed in pricing. This will have had a significant impact on the surrender value. At a high level assuming 50% of the premium is left after expenses and life cover, the impact could be 400 × .95 × 35 × (1.06^17.5 − 1.04^17.5) = 10,000.
Hi Expenses have been incurred over a 35 year period. So on average they have been paid at time 35/2=17.5. Best wishes Mark
