I have a question on April 2013 Q1 (iii). In the examiner’s report, expected valuation rate of interest margin of 2.5% is used.
Expected unwind/release of the valuation rate of interest margin of 2.5%
= .025 × 5.60% × 5,200
1- How is this 2.5% interest rate margin determined?
The impact on movement in yields on the asset side makes sense to me but for liabilities a value of 5,088 is used.
The impact on liabilities from a 1% movement in yields is the difference between the expected and actual values,
i.e. a decrease from expected 5,088 to 5,088 × (1.0546/1.0646)13 (= 4,500) = 587 profit
2- How is this figure of 5,088 calculated?
Expected unwind/release of the valuation rate of interest margin of 2.5%
= .025 × 5.60% × 5,200
1- How is this 2.5% interest rate margin determined?
The impact on movement in yields on the asset side makes sense to me but for liabilities a value of 5,088 is used.
The impact on liabilities from a 1% movement in yields is the difference between the expected and actual values,
i.e. a decrease from expected 5,088 to 5,088 × (1.0546/1.0646)13 (= 4,500) = 587 profit
2- How is this figure of 5,088 calculated?