Premium Bases Interest Rate MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Premium Bases Interest Rate, a fundamental topic in the field of IC 92 Actuarial Aspects of Product Development. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Premium Bases Interest Rate MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Premium Bases Interest Rate mcq questions that explore various aspects of Premium Bases Interest Rate problems. Each MCQ is crafted to challenge your understanding of Premium Bases Interest Rate principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 92 Actuarial Aspects of Product Development tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Premium Bases Interest Rate MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Premium Bases Interest Rate MCQs | Page 5 of 9

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Q41.
Why is it critical to choose an appropriate investment return for products with investment guarantees?

a.

To ensure overcharging for investment guarantees

b.

To meet the desired investment guarantee without cost implications

c.

To minimize reserves for term insurance products

d.

To increase caution in asset selection for endowment products

Discuss
Answer: (b).To meet the desired investment guarantee without cost implications Explanation:Choosing an appropriate investment return ensures that the desired investment guarantee can be met without cost implications, preventing overcharging or undercharging for investment guarantees.
Q42.
How does the extent of investment guarantees affect asset selection?

a.

It has no impact on asset selection

b.

More onerous guarantees lead to more cautious asset selection

c.

Guarantees have no bearing on investment return assumptions

d.

Guarantees result in less cautious asset selection

Discuss
Answer: (b).More onerous guarantees lead to more cautious asset selection Explanation:More onerous guarantees lead to more cautious asset selection as the life company needs to ensure that the guarantee can be met, influencing the types of assets in which premiums are invested.
Q43.
What is the significance of considering the size of margins required for the investment assumption?

a.

It ensures undercharging for investment guarantees

b.

It determines the sensitivity of the investment assumption

c.

It has no impact on the modeling results

d.

It increases the investment return assumptions

Discuss
Answer: (b).It determines the sensitivity of the investment assumption Explanation:Considering the size of margins required for the investment assumption determines the sensitivity of the investment assumption, ensuring appropriate pricing and risk management.
Q44.
Why is establishing the importance of the investment assumption crucial in modeling?

a.

To determine overcharging for investment guarantees

b.

To assess the sensitivity of the investment assumption

c.

To minimize reserves for endowment products

d.

To increase caution in asset selection for term insurance products

Discuss
Answer: (b).To assess the sensitivity of the investment assumption Explanation:Establishing the importance of the investment assumption is crucial in modeling to assess its sensitivity and ensure appropriate consideration in pricing and risk management decisions.
Q45.
What are the two key factors that contribute to sensitivity to the investment assumption?

a.

Size of the reserves built up and the level of investment returns

b.

Investment guarantees and reinvestment risk

c.

Size of the reserves built up and investment guarantees

d.

Reinvestment risk and the extent of future investment yields

Discuss
Answer: (c).Size of the reserves built up and investment guarantees Explanation:The size of the reserves built up (relative to the cashflow) and the investment guarantees given are the two key factors that contribute to sensitivity to the investment assumption.
Q46.
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

Discuss
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.
Q47.
What is reinvestment risk?

a.

Uncertainty of future investment returns

b.

Uncertainty of current investment returns

c.

Certainty of future investment returns

d.

Certainty of current investment returns

Discuss
Answer: (a).Uncertainty of future investment returns Explanation:Reinvestment risk refers to the uncertainty of the return that can be obtained from investments in the future.
Q48.
How does the expectation of future positive cash flow impact the investment assumption?

a.

It decreases the reliance on expected future investment returns

b.

It increases the reliance on expected future investment returns

c.

It has no impact on the investment assumption

d.

It decreases the importance of the reinvestment risk

Discuss
Answer: (b).It increases the reliance on expected future investment returns Explanation:Expectation of future positive cash flow indicates a need for future investment, increasing the reliance on expected future investment returns in the investment assumption.
Q49.
In what scenario would future reinvestment yields still be important even if the predicted cash flow is negative?

a.

When there is no mismatching of assets and liabilities

b.

When assets are available for longer terms

c.

When there is a mismatching of assets and liabilities by term

d.

When assets are exactly matched with the benefit payout

Discuss
Answer: (c).When there is a mismatching of assets and liabilities by term Explanation:Even if the predicted cash flow is negative in the future, the mismatching of assets and liabilities by term may still require selling and buying assets in the future, making future reinvestment yields important.
Q50.
How does the degree of matching affect the influence of future investment rates on the investment return assumption?

a.

The greater the degree of matching, the greater the influence of future investment rates

b.

The greater the degree of matching, the less influence future investment rates should have

c.

The degree of matching has no impact on the influence of future investment rates

d.

The degree of matching increases the importance of reinvestment risk

Discuss
Answer: (b).The greater the degree of matching, the less influence future investment rates should have Explanation:The greater the degree of matching between assets and liabilities, the less influence future investment rates should have on the investment return assumption.
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