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September 2021 Q7(i)

Discussion in 'SP2' started by AKS01, Apr 17, 2022.

  1. AKS01

    AKS01 Very Active Member

    Hi,

    I'm struggling to understand the mark scheme for this question.

    I understand that we need to show the dividends need to be V(0)(1+i'')-Sq''+E''(1+i'')-V(1)
    My understanding of this is that the surplus is the value of the contract with investment earned less the value of the contract on the valuation basis is the surplus that is paid as the dividend.

    But why do we then replace the V(1) with (-V'(1) + (V'(1)-V(1))... I would never have thought to split this up in the exam so I was wondering if there was a part in the question that suggested doing this that I have missed.

    Thanks
     
    AKS01, Apr 17, 2022
    #1
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi

    If it's an reassurance, I don't think you're missing anything in the question that 'suggests' doing this. Perhaps more a case of knowing the starting and ending expressions and using a common algebraic 'trick' perhaps to help us along the way between them.

    All the very best for the SP2 exam
    Lynn
     
    Lynn Birchall, Apr 18, 2022
    #2

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