Premium Bases Margins MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Premium Bases Margins, 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 Margins 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 Margins mcq questions that explore various aspects of Premium Bases Margins problems. Each MCQ is crafted to challenge your understanding of Premium Bases Margins 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 Margins MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Premium Bases Margins MCQs | Page 3 of 7

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Q21.
How is the expected return on an asset (Ei) calculated in the CAPM formula?

a.

Ei = rf + (Em - rf)

b.

Ei = rf x (Em - rf) x bi

c.

Ei = rf + (Em - rf) x bi

d.

Ei = rf - (Em - rf) x bi

Discuss
Answer: (c).Ei = rf + (Em - rf) x bi Explanation:The expected return on an asset (Ei) in the CAPM formula is calculated using the equation Ei = rf + (Em - rf) x bi, where rf is the return on a risk-free asset, Em is the expected market return, and bi is the beta factor of the asset.
Q22.
What does a beta value greater than 1 imply in the context of the CAPM?

a.

The asset's return is less volatile than the market return

b.

The asset's return is more volatile than the market return

c.

The asset's return is equal to the market return

d.

The asset's return is not affected by market fluctuations

Discuss
Answer: (b).The asset's return is more volatile than the market return Explanation:A beta value greater than 1 in the CAPM implies that the asset's return is more volatile than the market return. This suggests that the asset's value will increase more than the market average during market upswings and decrease more during market downturns.
Q23.
What does the Capital Asset Pricing Model (CAPM) primarily focus on when estimating risk?

a.

Specific risk of the asset

b.

Market risk of the asset

c.

Historical returns of the asset

d.

Diversification benefits of the asset

Discuss
Answer: (b).Market risk of the asset Explanation:The CAPM primarily focuses on estimating the market risk or systematic risk of the asset, which is the risk associated with overall market movements. It does not consider the specific risk associated with the issuing company, as this can be diversified away.
Q24.
Why does the CAPM not account for specific risk in its risk estimation?

a.

Specific risk is assumed to be negligible for the asset

b.

Specific risk is eliminated through diversification

c.

Specific risk is accounted for separately in the model

d.

Specific risk is considered irrelevant for market analysis

Discuss
Answer: (b).Specific risk is eliminated through diversification Explanation:The CAPM does not account for specific risk because it assumes that investors can diversify their portfolios to eliminate company-specific risk. Therefore, the model focuses only on market risk or systematic risk.
Q25.
How is the investment returns assumption adjusted to include a margin?

a.

Subtracting the margin from the best estimate investment return

b.

Adding the margin to the best estimate investment return

c.

Multiplying the margin by the best estimate investment return

d.

Dividing the best estimate investment return by the margin

Discuss
Answer: (a).Subtracting the margin from the best estimate investment return Explanation:The pricing investment return (Ip) is calculated by subtracting the margin from the best estimate investment return (Ib). This adjustment accounts for the potential variability in actual investment returns compared to the expected values.
Q26.
Why is a margin taken in mortality assumptions?

a.

To increase the probability of lower actual deaths than expected

b.

To decrease the probability of higher actual deaths than expected

c.

To maintain a balance between competitive premiums and risk

d.

All of the above

Discuss
Answer: (c).To maintain a balance between competitive premiums and risk Explanation:Margin is included in mortality assumptions, particularly for products with significant death benefits, to strike a balance between offering competitive premiums and managing the risk of adverse future experience.
Q27.
How is the pricing mortality assumption adjusted for term, endowment, or unit-linked products with high death benefits?

a.

By subtracting the margin from the best estimate mortality assumption

b.

By multiplying the best estimate mortality assumption with the margin

c.

By adding the margin to the best estimate mortality assumption

d.

By dividing the best estimate mortality assumption by the margin

Discuss
Answer: (c).By adding the margin to the best estimate mortality assumption Explanation:For such products, the pricing mortality assumption is calculated by multiplying the best estimate mortality assumption by one plus the margin. This adjustment accounts for the potential variability in actual mortality rates compared to the expected values.
Q28.
In what scenario would a company make a loss based on the adjusted mortality assumption?

a.

If the actual number of deaths is less than the adjusted mortality assumption

b.

If the actual number of deaths is more than the adjusted mortality assumption

c.

If the actual number of deaths matches the adjusted mortality assumption

d.

None of the above

Discuss
Answer: (b).If the actual number of deaths is more than the adjusted mortality assumption Explanation:If the actual number of deaths exceeds the adjusted mortality assumption, the company would incur a loss because it would have to pay out more death benefits than anticipated.
Q29.
How is the pricing expense assumption adjusted to reduce the risk of adverse future experience?

a.

By subtracting the margin from the best estimate expense assumption

b.

By multiplying the best estimate expense assumption with the margin

c.

By adding the margin to the best estimate expense assumption

d.

By dividing the best estimate expense assumption by the margin

Discuss
Answer: (c).By adding the margin to the best estimate expense assumption Explanation:The pricing expense assumption is adjusted by multiplying the best estimate expense assumption by one plus the margin. This adjustment helps to account for potential higher expenses than expected, reducing the risk of adverse future experience.
Q30.
How are margins incorporated into the persistency assumption for insurance products?

a.

By adding the margin to the best estimate withdrawal assumption

b.

By subtracting the margin from the best estimate withdrawal assumption

c.

By multiplying the best estimate withdrawal assumption with the margin

d.

By dividing the best estimate withdrawal assumption by the margin

Discuss
Answer: (c).By multiplying the best estimate withdrawal assumption with the margin Explanation:Margins are applied to the best estimate withdrawal assumption by multiplying it with one plus or minus the margins, depending on whether higher or lower withdrawal rates are beneficial for the company, respectively.
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