12. A five year unit linked contract, issued to a life aged 60 exact at entry, has the following vector of in-force expected cash flows (before any non-unit reserves are set up): (130,207.5,74,450,1265) Use the following basis: MortalityInterestAM92Ultimate2%p.a.effective. (i) Calculate the Net Present Value of profit assuming the company does not set up any non-unit reserves assuming a risk discount rate of 5% p.a. effective. (ii) The insurer now sets up non-unit reserves to zeroise any future negative cash flows, other than any occurring at the end of first policy year. Determine the revised profit of in-force expected cash flows. [5] (iii) Calculate the Net Present Value of Profit using the revised vector and a risk discount rate of 8% p.a. effective. (iv) Explain the change in the answers from (i) to (iii). [3] [Total 13] 12. A five year unit linked contract, issued to a life aged 60 exact at entry, has the following vector of in-force expected cash flows (before any non-unit reserves are set up): (130,207.5,74,450,1265) Use the following basis: MortalityInterestAM92Ultimate2%p.a.effective. (i) Calculate the Net Present Value of profit assuming the company does not set up any non-unit reserves assuming a risk discount rate of 5% p.a. effective. (ii) The insurer now sets up non-unit reserves to zeroise any future negative cash flows, other than any occurring at the end of first policy year. Determine the revised profit of in-force expected cash flows. [5] (iii) Calculate the Net Present Value of Profit using the revised vector and a risk discount rate of 8% p.a. effective. (iv) Explain the change in the answers from (i) to (iii). [3] [Total 13]