How to find non unit reserve without zeroisation

[mayanksogani96]

I get profit amount but not able to calculate non unit reserve without zeroisation.
Please see and help me
Thanks

 

[Robert Chadburn]

You use the formula as given in the screen shot, for column (14)t. Basically, the reserve at the start of the year needs to satisfy this equation:
(NUR)t x (1+i) = -(CF)t + (1-q)x(NUR)t+1
and rearranging this gives the formula they have used for (14)t.

So, the reserve at the start of the year, plus interest on the reserve, needs to cover the the net cash OUTGO during the year (hence the minus sign), and it also needs to cover the reserve required at the end of the year for those who survive the year (hence we multiply by the survival probability).

Where we don't allow negative reserves (ie so we just zeroise the profit flows) then any negative values of NUR in the formula are set to zero. But where we do allow negatives, as here, then we can just apply this formula regardless of the sign of the reserves used. This is what they have done here.

For example, (NUR)2 = [-1,627 + (1-0.002)x(-1,770)]/1.06 = -3,201
(The difference from their answer will be because I have used their rounded figures in my calculation.)

Robert