Smoothed and Un-smoothed AS

[yogesh167]

Please confirm the below formulas if they are correct or not:
1. Cost of smoothing = max (smoothed AS - max (guaranteed benefit amt, unsmoothed AS), 0)
2. Cost of guarantee = max (guaranteed benefit amt - unsmoothed AS, 0)

So this means below two statements are correct too:
1. Smoothing costs will arise only if :
(a) smoothed AS > unsmoothed AS and
(b) guaranteed benefit amount is not greater than both smoothed and unsmoothed AS right?

2. The cost of guarantees is independent of smoothed asset share.

Thanks is advance

 

[Em Francis]

Please confirm the below formulas if they are correct or not:
1. Cost of smoothing = max (smoothed AS - max (guaranteed benefit amt, unsmoothed AS), 0)
2. Cost of guarantee = max (guaranteed benefit amt - unsmoothed AS, 0)

So this means below two statements are correct too:
1. Smoothing costs will arise only if :
(a) smoothed AS > unsmoothed AS and
(b) guaranteed benefit amount is not greater than both smoothed and unsmoothed AS right?

2. The cost of guarantees is independent of smoothed asset share.

Thanks is advance

Hi

There is no absolute definition of cost of guarantees and cost of smoothing: it depends on what order the company chooses to determine them in. You may want to refer to a similar post below:

https://www.acted.co.uk/forums/index.php?threads/cost-of-guarantee-and-smoothing.14896/

Thanks
Em