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Stuck on QFA Life Assurance Exam Buddy Question

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  • 09-02-2017 6:18pm
    #1
    All Around You
    Registered Users Posts: 21 ✭


    I'm lost on the solution to this question so I figured I'd ask someone instead of continuing to bang my head against the desk.

    Here's the question:

    "Brendan invested €50,000 in a unit linked investment bond at an allocation rate of 100% after allowing for the 1% insurance levy when the unit fund price to which the bond is linked was €1.560. The bond has an early encashment and maturity charge of 5% in the first year, reducing by 1% each year thereafter to zero in the 6th and following years. The bond provides a death benefit of 101% of the value of units.

    If Brendan dies in year three when the unit price is €1.980, what will be the death benefit payout, before any exit tax deduction?"

    Apparently the answer is €62,174. I can't figure out how to arrive at this answer.

    He spends €50,000 on the bond - €49,500 of which will purchase units after the levy. He buys the units at €1.560, so he gets 31,730.

    When he dies, those units are encashed at €1.980, so he encashment gets €62,825.40 which is multiplied by 101% leaving the death benefit at €63,453.

    What am i doing wrong?

    Thanks for even reading. Any help would be appreciated.


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    #2
    Squiggle
    Registered Users Posts: 1,253 ✭✭✭Squiggle


    What am i doing wrong?

    You haven't allowed for this:

    The bond has an early encashment and maturity charge of 5% in the first year, reducing by 1% each year thereafter to zero in the 6th and following years.


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    #3
    All Around You
    Registered Users Posts: 21 ✭All Around You


    Squiggle wrote: »
    What am i doing wrong?

    You haven't allowed for this:

    The bond has an early encashment and maturity charge of 5% in the first year, reducing by 1% each year thereafter to zero in the 6th and following years.

    Thanks for replying.

    I considered that, but why would that matter to the death benefit? If he cashed it in instead of dying, obviously it would matter. Unless an encashment and maturity charge is different from an encashment charge.


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