Practice Exam #1 Spring 2022 Q16

valeriyak18valeriyak18
edited April 2022 in PRACTICE EXAM

Hello,

I have a question regarding the discounting effect.
When we calculate the PV factor, why do we use the net undiscounted policy liabilities excluding PfADs as the PV?

Thanks,
Val

Comments

  • Staff-T1Staff-T1

    We need to include the investment rate PFaD for the PV. It's just the way the formula is defined in the CIA educational notes

  • valeriyak18valeriyak18

    Yes, but should we not use the discounted amount and not the undiscounted amount?

  • valeriyak18valeriyak18
    edited April 2022

    unless there is a typo in the problem and it's supposed to be "net discounted policy liabilities excluding PfADs = 64,000" ?

    It is written "net udiscounted policy liabilities excluding PfADs" in the problem, I don't know if it's supposed to be undiscounted or discounted...

  • Staff-T1Staff-T1

    It's a typo - It should be discounted :)

  • grahamgraham

    It's fixed. Thx!

  • ChristoRoyerChristoRoyer

    Another question I have for this question: In order to get the PAV, we add the FCF to the RA. However, if I remember well, in the IFRS-2 text, it states that RA is part of the FCF. Since FCF is not the same thing as Present Value of Future Cashflow. Is there some kind of notation I'm missing here?

  • Staff-T1Staff-T1

    There's two FCFs. FCF = Future cash flow or also fulfillment cash flow. Fulfillment cash flows are the ones that have discounting and RA

  • ChristoRoyerChristoRoyer
    edited May 2023

    Great thank you. And I guess if it is not obvious we can just make an assumption and saying "I assume FCF = Fulfillment Cash Flow and it includes the RA" will be enough

  • ChristoRoyerChristoRoyer

    But in the answer sheet, it literally say that APV = Fulfillment Cashflow + RA. Was it an error in this case?

  • Staff-T1Staff-T1

    Yeah and yeah it is a typo for your second point

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