Net payment cost index ($10,095.24/500) = 20.19 - Reading 12 RM for individuals (New reading) EOC #15

Hi everyone,

On the question 15 in the reading 12, they ask for the net payment cost index calculations. A the last step of the calculation, they used the divisor “500” and then found: 10095.24/500=20.19.

Do you know where this 500 is coming from?

Thanks by advance++

This divisor is coming from insurance policy amount. Therefore, in this questions insurance policy amount should be $500.000

Always divide insurance policy amount by 1000 to get unit of insurance.

Then divide annualized cost from previous step by such calculated unit of insurance to get insurance periodical cost per unit what is required output.

Ok thanks !

Sorry were does this question come from, I thought there were no EOC for reading 12

The CFA added supplemental questions in Candidate Resources.

Additional candidate resources, there are EOC’s located there…sigh

Thanks

that question is now part of the EOC in chapter 32.

However, the $500 is not listed in the text.

Assume it should be added in the ‘errata’.

For Perrin’s case?

It did state in Table 1 that Face Value = $500,000 and they want to calculate Net Payment Cost Index per $1,000 per year.

So, to convert the Net Payment Cost Index from $500,000 to $1,000 => divide by 500,000/1,000 = 500.

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Got it! Thanks

FYI, the convention in the life insurance industry is to price and sell in units of $1,000. Some of us old-timers even still say per mille.

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This is why it is called “index”

:slight_smile:

Sorry to bring up an old question - but the LOS of this section says “Describe” - will these types of questions be asked?

They can be.

If there’s a calculation in the white text, you’d better know it.

In an LOS, Describe is often interpreted very loosely.

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Sigh and thanks.

Exactly.