Just recreate the chart using 1100 for each year's premium, and 275 for Year
1's Variable Expense (10% higher than 250) and 55 for year 2 through 5 (10%
higher than 50). Also use new cumulative persistency factors of .8,
..68,.578,.4913,.418. Each year's Present value of profit comes out to
Yr 1: (1100-800-275-150)*.8/1.1= (100)
yr 2: (1100-776-55-40)*.68/1.1=141.56
Yr3: (1100-752.72-55-40)*.578/1.21=120.51
Yr4: (1100-730.14-55-40)*.491/1.331=101.39
Yr 5: (1100-708.23-55-40)*.418/1.464=84.73
Total =348.13 and 348.13*1000(=number of policies) = 348130 (close enough)
For part 2, i just took 348200/.8 * (x) = 152390
when I solve for x I get .35 which is the new persistency rate. therefore the
decrease in policy counts would be .65.
I can't believe I actually solved a problem without tearing my hair out!!
These are few and far between.