Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Help me in answering the following questions An insurance company has liabilities of f10 million due in 10 years time and $20 million due in

image text in transcribed

Help me in answering the following questions

image text in transcribedimage text in transcribed
An insurance company has liabilities of f10 million due in 10 years time and $20 million due in 15 years time, and assets consisting of two zero-coupon bonds, one paying $7.404 million in 2 years time and the other paying $31.834 million in 25 years time. The current interest rate is 7% per annum effective. (i) Show that Redington's first two conditions for immunisation against small changes in the rate of interest are satisfied for this insurance company. [5] (ii) Determine the profit or loss, expressed as a present value, that the insurance company will make if the interest rate increases immediately to 7.5% per annum effective. [2] (iii Explain how you might have anticipated, before making the calculation in (ii), whether the result would be a profit or loss. [2] [Total 9]The expected annual effective rate of return from an insurance company's investments is 6% and the standard deviation of annual returns is 8%. The annual effective returns are independent and (1+ i,) is lognormally distributed, where i, is the return in the / th year. (a) Calculate the expected value of an investment of El million after ten years. (b) Calculate the probability that the accumulation of the investment will be less than 90% of the expected value. [8]

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Medical Law And Ethics

Authors: Jonathan Herring

9th Edition

0192856561, 978-0192856562

More Books

Students also viewed these Law questions

Question

What is intrinsic motivation? (p. 257)

Answered: 1 week ago