Questions:

Answer these questions appropriately. Explain your working.

A life table with a select period of 2 years is based on rates of mortality, which satisfy the following relationship: 91 x-]+ 7 3-1 -Xq, (for all values of x , and r = 0,1) 960 = 0.0195 , 961 = 0.0198, 962 = 0.0200 and /63 = 100,000 Calculate: (a) (b) 160]+1 (c) (60] [4] (ii) A select life aged 60 subject to the mortality table described in (i) above purchases a 3-year endowment assurance with sum assured $10,000. Premiums of 3,000 are payable annually throughout the term of the policy or until earlier death. The death benefit is payable at the end of the year of death. Calculate the expected value of the present value of the profit or loss to the office on the contract, assuming an effective rate of interest of 6% pa, and ignoring expenses. [4] [Total 8]Show how you would modify the premium equation below to allow for the expenses indicated: Pa = SA (i) initial expenses of 2% of the sum assured [1] (ii) renewal expenses of 2% of each premium, including the first [1] (iii) claim expenses of 2% of the sum assured [1] (iv) initial expenses of 50% of first premium plus renewal expenses of 3% of each premium excluding the first. [1] [Total 4]14 A quoted company's shares have a nominal value of 10.25 per share. The shares have been trading at prices between f0.40 and 10.43 per share for almost two years. The shareholders are concerned that the share price is not growing. The directors wish to raise further equity by means of a rights issue in order to invest in new projects, but informal discussions with shareholders suggest that a rights issue would be unpopular. One of the directors has suggested a scrip issue in order to boost shareholder confidence in the hope that a rights issue would then be more likely to succeed. Set out the advantages and disadvantages of the director's suggestion. [5] 15 A company requires all proposals for investment projects to be supported by a net present value calculation. One of the directors has suggested that proposals should also indicate opportunity costs. Discuss the advantages and disadvantages of the director's suggestion. [5] 16 Discuss the potential advantages and disadvantages of using probability trees for the evaluation of long term projects. [5] 17 Discuss the ways in which the external auditor adds credibility to a company's published financial statements. [5] 18 Discuss the potential risks and benefits associated with having very rapid receivables and inventory turnover ratios. [5]