Pricing of Products II MCQs

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

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Pricing of Products II MCQs | Page 1 of 6

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Q1.
What are the two methods of determination of price?

a.

Formula method and Cash deposit method

b.

Formula method and Investment method

c.

Calculation method and Cash flow method

d.

Premium method and Profit method

Discuss
Answer: (a).Formula method and Cash deposit method Explanation:The two methods of determination of price are the formula method and the cash flow method. The formula method involves using equations to determine premiums, while the cash flow method projects expected incomes and outflows into the future to determine the best premium rate or charges.
Q2.
How is pricing done in the formula method?

a.

By calculating expected incomes and outflows

b.

By using a formula or formulae to determine premiums

c.

By projecting future market trends

d.

By estimating the insurer's profit margin

Discuss
Answer: (b).By using a formula or formulae to determine premiums Explanation:In the formula method, pricing is done by using a formula or formulae to determine premiums. This involves using the equation of value with discount factors to calculate the present value of future payments.
Q3.
What is the primary characteristic of the cash flow method?

a.

It relies solely on the insurer's profit margin

b.

It uses mortality rates to determine premiums

c.

It projects expected incomes and outflows into the future

d.

It calculates premiums using a fixed radix

Discuss
Answer: (c).It projects expected incomes and outflows into the future Explanation:The primary characteristic of the cash flow method is that it projects expected incomes and outflows into the future to determine the best premium rate or charges.
Q4.
How is a life table used in insurance pricing?

a.

To calculate the insurer's profit margin

b.

To project future market trends

c.

To draw a hypothetical population using mortality rates

d.

To determine the insurer's discount factors

Discuss
Answer: (c).To draw a hypothetical population using mortality rates Explanation:A life table is used in insurance pricing to draw a hypothetical population using mortality rates at different ages. This helps in understanding the mortality risk associated with different age groups.
Q5.
Which method of determination of price is best suited for complex products?

a.

Formula method

b.

Cash flow method

c.

Calculation method

d.

Premium method

Discuss
Answer: (b).Cash flow method Explanation:The cash flow method is best suited for complex products as it projects expected incomes and outflows into the future, allowing for a more comprehensive analysis of pricing variables beyond just premiums.
Q6.
What is the fundamental principle of the formula method for determining premiums?

a.

Present value of premiums = Present value of benefits + Present value of expenses

b.

Future value of premiums = Future value of benefits + Future value of expenses

c.

Present value of premiums = Future value of benefits + Present value of expenses

d.

Present value of premiums = Present value of benefits - Present value of expenses

Discuss
Answer: (a).Present value of premiums = Present value of benefits + Present value of expenses Explanation:In the formula method, the fundamental principle is the equation of value, where the present value of premiums equals the present value of benefits plus the present value of expenses.
Q7.
Which function is used to determine the number of survivors at a certain age in a life table?

a.

Dx

b.

Cx

c.

Nx

d.

Mx

Discuss
Answer: (c).Nx Explanation:Nx is used to determine the number of survivors at a certain age in a life table, calculated by summing up the number of survivors at each age.
Q8.
What does Ax represent in commutation functions?

a.

Present value of benefit of 1 payable on death at any age after x

b.

Present value of benefit of 1 payable on survival at age x

c.

Present value of benefit of 1 payable on death at age x

d.

Present value of benefit of 1 payable on survival at any age after x

Discuss
Answer: (a).Present value of benefit of 1 payable on death at any age after x Explanation:Ax represents the present value of benefit of 1 payable on death at any age after x in commutation functions.
Q9.
What is the formula for calculating Ax: nืš in commutation functions?

a.

Ax: nืš = (Mx - Mx+n) / Dx

b.

Ax: nืš = Dx+n / Dx

c.

Ax: nืš = Nx / Dx

d.

Ax: nืš = Nx+1 / Dx

Discuss
Answer: (a).Ax: nืš = (Mx - Mx+n) / Dx Explanation:The formula for calculating Ax: nืš in commutation functions is Ax: nืš = (Mx - Mx+n) / Dx, which represents the present value of benefit of 1 payable on death at any age after x but before x+n.
Q10.
What is the purpose of the formula method in determining premiums?

a.

To calculate future values of premiums

b.

To project incomes and outflows into the future

c.

To use actuarial formulae to determine premiums

d.

To rely on cash flow projections for premium determination

Discuss
Answer: (c).To use actuarial formulae to determine premiums Explanation:The purpose of the formula method is to use actuarial formulae to determine premiums based on present values of benefits and expenses.
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