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Questions: 3 ) What would the balance sheet look like if the EIOPA interest rate curve would drop with 1 % the coming split second

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.

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