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Residuals in Makeham's Formula : Tutorial Test 10

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asked Aug 26, 2018 in BUS 2016H - Financial Mathematics by anonymous
I tried to do it using 2 Makehams and using residuals but none worked. Thanks in advance

1 Answer

+1 vote
answered Aug 27, 2018 by TianheRen (460 points)
Best answer
image Hi,

Please see the attached picture. Note that this is not the only way to solve this problem, it’s just what I personally prefer to. 
commented Aug 27, 2018 by NRMAZH001 (100 points)

Why does C1 include the entire redemption amount rather than just the redemption for period 0-30 ?

commented Aug 28, 2018 by TianheRen (460 points)

image Hi

Please see the attached photo. The results comes from simplifying the first principles, note that we can usually find patterns after we simplify the long equations, which means it would not be necessary to derive everything during a test or exam (that’s too time consuming). However, just be cautious with changes in Makehams, because we cannot simply apply one trick to all the problems. So its important to understand the derivation instead of only learning the trick. 

The explanation is quite long but the logic should follow. Hope it helps :)