Question
As an investment manager of an insurance fund, you have been advised the following scenario by your actuary: the fund currently has Rs. 250 million
As an investment manager of an insurance fund, you have been advised the following scenario by your actuary:
the fund currently has Rs. 250 million invested across different assets;
insurance premium income inflow is expected to be Rs. 100 million a year for the next five years approaching zero thereafter. Assume these inflows are received and invested at the end of each year;
compensation for liabilities is expected to drain out some Rs. 150 million a year beginning the end of year 6 out to the end of year 10.
Investments earn 8% pa.
Find out:
a) How much money will be left in the fund at the end of the 10th year?
b) If you were required to pay a perpetuity out of the money left in the fund at the end of the 10th year, how much could you afford to pay?
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