Questions:

$3)$ What would the balance sheet look like if the EIOPA interest rate curve would drop with $1\%$ the

coming split second $($and the equity investments will stay at the current level$)?$

a$.$ Approximate the new balance sheet using the duration approximation

b$.$ Approximate the new balance sheet using the duration $+$ convexity approximation

c$.$ Calculate the exact balance sheet without using approximations

Suppose that $$Bronze$$ is holding the same assets and liabilities for the coming $10$ years and suppose that

the equity investments stay at the current levels and interest rates do not change during the entire $40$

years. $($Ignore the interest rate change in $3).)$

$4)$ What does the balance sheet look like at T$=10$ one split second before the zero$-$bond matures? What

is the value of the Net Assets?

At T$=10$ the zero bond expires and is reinvested in a new zero$-$coupon bond with again a maturity of $10$

years.

$5)$ What is the size of the new zero$-$bond cash flow at T$=20?$

$6)$ What does the balance sheet look like at T$=20$ one split second before the new zero$-$bond expires?

What is the value of the Net Assets?

At T$=20$ the expiring zero$-$bond expires and is reinvested again in a new zero$-$coupon bond with again a

maturity of $10$ years.

$7)$ What does the balance sheet look like at T$=30$ one split second before the new zero$-$bond expires?

What is the value of the Net Assets?

At T$=30$ the expiring zero$-$bond expires and is reinvested again in a new zero$-$coupon bond with a maturity

of $40$ years.

$8)$ What does the balance sheet look like at T$=40$ one split second before the new zero$-$bond expires?

What is the value of the Net Assets?

$9)$ Describe the change in the value of the Net Assets between t$=0$ and T$=40.$ Explain what causes the

changes you see.

$10)$ Do you think the balance sheet as shown above gives a fair picture of the Net Assets $/$ the buffer the

company has at T$=0?$ Please comment.