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

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+1 vote
by (480 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. 
by (100 points)

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

by (480 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 :)