Question

How does the size of reserves affect sensitivity to changes in investment return?

a.

Larger reserves lead to lower sensitivity

b.

Larger reserves increase sensitivity

c.

Smaller reserves lead to higher sensitivity

d.

Smaller reserves decrease sensitivity

Answer: (b).Larger reserves increase sensitivity Explanation:Larger reserves result in a greater proportion of total cashflow (and profit) arising from investment income, increasing sensitivity to changes in the investment return.

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Q. How does the size of reserves affect sensitivity to changes in investment return?

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