Question: Based on the information shown below for Pegasus, Inc.:
Q1. Compute the reported ROA for each portfolio component for 2003 and 2004.
Q2. Compute the mark to market ROA for each portfolio component.
Q3. Explain what the data set forth in A and B suggest about investment performance for 2004 compared with 2003 and which is a method of determining ROA is a better measure of the performance of Pegasus’s portfolios.
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INVESTMENTS IN MARKETABLE SECURITIES ($000s omitted)
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12/31/02
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12/31/03
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12/31/04
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Fixed Maturities:
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Available for Sale-market value
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$30,864
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$29,346
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$31,245
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Cost
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28,102
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37,984
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29,582
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Equity Securities:
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Available for Sale-market value
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3,075
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3,008
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2,922
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Cost
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1,430
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1,450
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1,318
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GROSS INVESTMENT INCOME (000s omitted)
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Years ended December 31
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2003
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2004
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Interest income - Fixed Maturities
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$2,244
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$2,115
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Realized Gains and Losses - Fixed Maturities
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20
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(76)
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Dividend Income - Equity Securities
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78
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46
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Realized Gains and Losses -Equity Securities
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22
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95
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Total Investment Income
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$2.364
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$2,180
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