The government puts a price ceiling on the cost of a large pizza. Consumers will loose from this policy.- true,false or Uncertain.
1. Angela is a college student. She takes a full load of classes and has only 5 hours per week for her hobby. Angela is artistic and can make 2 clay pots per hour or 4 coffee mugs per hour. a. Draw Angela's production possibilities frontier for pots and mugs. Exhibit 2 20 Mugs 18 16 14 2 8 10 12 14 16 18 20 Pots b. What is Angela's opportunity cost of 1 pot? 10 pots? C. What is Angela's opportunity cost of 1 mug? 10 mugs? d. Why is her production possibilities frontier a straight line instead of bowedout like those presented in Chapter 2? 2. Suppose a worker in Germany can produce 15 computers or 5 tonnes of grain per month. Suppose a worker in Poland can produce 4 computers or 4 tonnes of grain per month. For simplicity, assume that each country has only one worker.(10 points) You are given the following information about a fixed indexed annuity (FIA) product under development. Interest credited rate method One-year point-to-point return on the S&P 500 index Interest credited 0.00% rate floor Set by the company each year based on a hedging Point-to-point cap budget that is 1.50% less than the net earned rate, with a guaranteed minimum cap of 2.00% Participation rate 100% Net earned rate Calculated separately for each bond portfolio, with a new portfolio set up for each new issue year. Hedging strategy Static (a) (4 points) (i) Propose two different ways the product design could be modified to allow for a higher credited rate each year without increasing the hedging budget. Justify your answer. (ii) Evaluate how the crediting rate would vary between the two proposals depending on the one-year index return. (b) (2 points) Identify an example of each of the following items defined in "ASOP 2: Non-guaranteed Charges or Benefits for Life Insurance Policies and Annuity Contracts" for a non-guaranteed benefit in the given FIA product information: (i) Determination Policy (ii) Policy Factor (iii) Policy Class(c) (4 points) Critique the following statements on the FIA pricing model with respect to the following actuarial standards of practice (ASOP): (i) ASOP 54: Pricing of Life and Annuity Products (ii) Setting Assumptions, Exposure Draft, ASOP A I set the net earned rate assumption based on data from the investment department. Their data showed the average yield of the bond investment portfolio over the past 5 years. B. Since we can manage the cap to get the desired pricing spread, we can rely on a single pricing model run with our baseline pricing assumptions to understand the product's profitability. C. I have applied the same lapse rate assumptions of an existing fixed annuity product to this FIA product because it is being sold by the same distribution channel. D. I used the existing annuity maintenance expense assumption set by the Chief Actuary.Using the same notation as in the previous question, consider a P-Brownian motion W. under a filtration F.- (1) Show that the process X, = W., is also a Brownian motion, where a is a a constant. [3] (ii) Obtain a stochastic differential equation for the process Y, = exp(5W -467?), where b is a constant, and state with reasons whether or not it is a martingale. [3] (iii) Obtain a stochastic differential equation for the process Z, = W. -3:W,, and state with reasons whether or not it is a martingale
