Question1. Outline the key requirements of a model that will be used to assess the variability of an outcome that depends on uncertain future events.
Question2. An investment management company operates a wide range of funds investing in different types of securities. In the last twelve months new investments into its corporate bond fund have increased rapidly compared with new investments into its other funds. Discuss possible reasons why this may have occurred.
Question3. A charitable trust has a portfolio of assets, mainly invested in conventional government bonds and equities. The only liability of the trust is to pay an annual prize for the best new published book. The prize money has traditionally increased each year in line with inflation.
a) Describe two techniques of valuing the trust’s assets and the implications of each for valuation of the liabilities.
The chairman of the trust has expressed an interest in moving assets from conventional bonds int index-linked bonds.
b) State the formula for deriving the expected return on conventional bonds from the return on index-linked bonds. Define any symbols used.
Question4. Explain how underwriting is used to manage a life insurance company’s risks.
Question5. List all the sources of information that a life insurance company can use in the underwriting process to establish the level of mortality risk for a particular applicant.