Reply To: [ILA Track] Intro to ILA Module Exercise Task 3: Actuarial Pricing Memo

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#1571
Steve Zeske
Participant

I went forward and calculated ROI how the Atkinson & Dallas book defines it. I got an ROI around 11% for the baseline 40-year pricing horizon. I did not go ahead and try to determine the other 2 possible solutions that would solve PV(Profits) = 0 since 11% seemed like a reasonable value. Generally, the other possible solutions to an IRR equation are unreasonable like <0% or >100%.  I used the same ROI definition for the sensitivities to stay consistent.

I used the 4% pricing discount rate to discount negative distributable earnings, also consistent with the methodology in the Atkinson & Dallas book. I’m still just unsure if this is the right rate, but I don’t see any other logical value to use.

I have not actually submitted the module exercise yet. Since I’m in no hurry, I decided to wait for a reply on this post.

What were you thinking?