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#1
05-01-2011, 03:53 PM
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2005 Q18
In 2005 Exam 9 Q18 solution 2: it is using loss reserve=1600 to get the required Surplus(1600/2.5=640). However, it shows EF=-640 for time=0.
Shouldn't EF be -740 (Premium=1500, loss reserve+surplus=1600+640=2240, so a total capital inflow of 2240-1500=740 is needed)? Then the Equity Flow at t=2 also changes, and my IRR calculated this way is 10.7%. Can anyone confirm if my method is right? Thanks! 
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