LIPF: Exercise 5.3

[Sunny_D]

LIPF exercise 5.3 seems very easy, but I don't undertand why the commisons are 10.5(t=1), 1.0395(t=2), and 0.9818(t=3). It says 80% of first-year premiums and 10% of renewal premiums. I'm just confused. Any help would be appreciated!

[rekrap]

Commission = (HiComm%*HiCommPrem + LoComm%*LoCommPrem)*(1+SalesExp%)*SF
Since the commission rate isn't split this is just (10.5*80%)*(1.25)*(1) in year 1 or 10.5

[rekrap]

FYI, for the renewal year 80% becomes 10% and 1.25 becomes 1.1, of course.

[Sunny_D]

Thanks!!