Spring 2016 Q13

Tony88passTony88pass
in CIA.MfAD

Hi Graham,

I know the calculation for the premium liabilities is outdated here but just wanted to compared what I got with yours, I got the modified duration equal to 1.7464.

Also, does the calculation for discounting of maint expense implicitly tell it will be paid within a year? Can we just assume that in the exam?

Thanks,
Tony

Comments

  • grahamgraham

    That looks correct. See also this forum thread:

    And about the maintenance expenses: You can assume 1 year for the payment.

  • Tony88passTony88pass

    Just another question, are we still supposed to know how to calculate the yield rate if given a similar bond table in this problem?

  • grahamgraham

    I would say yes. Even though it involves bond valuations (which are discussed in the discontinued CIA.Accounting reading) all you had to do here was calculate the weighted average of yields for individual bonds. They did not give you the book value so you had no choice but to use the market value. (Even if you had used the par value, the answer would not have been much different.)

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