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Can I use the approximate UDD formula for annuities payable pthly?

0 votes
asked Nov 2, 2017 in BUS 3024S - Contingencies by Kelly (390 points)

In a test or exam, when calculating the annuity payable p-thly, can I apply the approximate UDD assumption? i.e. set alpha(m)=1 and beta(m)=(m-1)/(2m)

It's fairly accurate and a lot faster than using the direct UDD or Woolhouse formula. This comes up a lot in pensions.


1 Answer

0 votes
answered Nov 8, 2017 by Njabulo (360 points)

That result was derived in Test 1 2015, Q6b. There is nothing wrong with applying it if it was thought/derived in class this year and you can justify why the approximation holds. But if not, just to be safe, I would suggest using the direct UDD or Woolhouse formula.Check with your lecturer as well.