(i) State what is meant by corporate governance. [2] (ii) Describe the items that should be included in a corporate governance code. [5] A social media company which is privately owned is planning an Initial Public Offering (IPO) and it is considering how to structure bonus payments for senior employees. The Remuneration Committee is considering the following proposals to base bonuses on: How the share price performs. (a) (b) How many new users they attract each year. (c) How the site is rated by its users. The rate at which the earnings per share grows each year. (iii) Comment on each of these proposals. [8] (iv) Suggest the principles which should form the basis of a senior management bonus scheme. [4] Consider a market in which the Capital Asset Pricing Model (CAPM) holds. (i) Write down the equation of the Security Market Line, defining all the notation you use. [2] In this market, the risk-free rate of interest is 9.44% per annum. There are only two risky assets in the market with the following attributes. Rate of return (per annum) Variance/Covariance Matrix State Probability Asset 1 Asset 2 Asset 1 Asset 2 1 0.2 10.00% 11.00% Asset 1 0.00142 0.00379 2 0.3 15.00% 30.00% Asset 2 0.00379 0.01146 3 0.1 18.00% 25.00% 4 0.4 20.00% 40.00% (ii) Determine the weight of each asset in the market portfolio to be consistent with B = 0.46, B = 1.36. (iii) Calculate the Market Price of Risk. [3] [2] An actuary is modelling a set of data which consists of 100 consecutive observations, y1 y2y100. The data has the following statistics: 100 100 100 2(x-5) i=1 100 1=2 y=A=10.5 290 (--)(-)-C=60 100 (-2)(-)-D=-240 1-3 (i) Calculate the values of the sample auto-correlations r and r2. [3] (ii) Calculate the first two sample partial auto-correlation values and $2. [2] The actuary is considering two different models for this data: Model X: yao+ay-1+ Model Y: y = bo+by-1+b2y1-2 + & where &, is a standard white-noise process, with variance o. (iii) Estimate the parameters (including o) for both Models X and Y, using the method of moments. [10] (iv) Explain whether each of Models X and Y satisfy the Markov property. [3] For each of the following processes: simple random walk Markov jump process compound Poisson process Markov chain counting process (a) State whether the state space is discrete, continuous, or can be either. (b) State whether the time set is discrete, continuous, or can be either. . [5]