MWRR: Question 6 of September 2014

[VibronicSquirrel]

Hi there,

I'm really struggling to get the right MWRR value for the whole year on the September 2014 paper, Q6ib.

I have the ASET and revision guides (which have almost the full answer in) but uses the assumption (1+i)^-x = 1+xi which isn't in line with my understanding of binomial expansion (shouldn't it be 1-xi?).

The answer provided is 10.23%.

Could someone please tell me why the answer given is correct?

 

[David Wilmot]

Apologies - this is an error, as you have identified. I will create an errata document and ensure this is corrected in the next edition.

Personally I’d solve this by accumulating rather than discounting (thereby avoiding the negatives!) as:

4200 = 3600(1+i) + 56 (1+3i/4) + 30(1+i/2) + 187(1+i/4) -52

i.e. using the approximation (1+i)^x = (1+xi)

Solving the above equation gives i=10.23%, as stated.

 

[VibronicSquirrel]

Thanks, David.

This was the way I had done the question in the notes but the method in the ASET had confused me.

I'll use the accumulating method in the exam!

 

[almost_actuary]

Apologies - this is an error, as you have identified. I will create an errata document and ensure this is corrected in the next edition.

Personally I’d solve this by accumulating rather than discounting (thereby avoiding the negatives!) as:

4200 = 3600(1+i) + 56 (1+3i/4) + 30(1+i/2) + 187(1+i/4) -52

i.e. using the approximation (1+i)^x = (1+xi)

Solving the above equation gives i=10.23%, as stated.

Hello,

I am stuck on the same question but the quarterly MWRR calculations (your explanation has helped me with the annual one!)

Would you be able to walk me through how to calculate Q1, Q2, Q3 and Q4?

p.s. I bought the ASET this year for the first time and the mistake is still in there, just to let you know!

 

[almost_actuary]

Hi, I'm resitting this exam and still stuck on the quarterly calculations! Can anyone please help?

For example, for t=2 I am getting
3600(1+i) + 56 (1+ 0.5i) + 30 = 4050

Which gives me i=10.03% but the answer given in the revision guide is 11.67%

 

[Colin McKee]

Hi, Your calculation for this quarter has two external cashflows which is confusing me a bit. I have assumed that the 56 appears at the end of Q1 and the 30 appears at the end of Q2. So my calculation for Q1 would be 3600(1+i) +56=3600 which solves for -1.56%. My calculation for Q2 is 3600(1+i) +30 = 4050 which solves for 11.67% and so on.
Looking at the most recent ASET, the discounting method mentioned at the very top of this post is still there. I will get an error document on the website again. Apologies.

 

[Camdown]

Hi - just want to let you know that I have the updated ASET pack for the April 2020 sitting and the mistake is still there...

 

[Colin McKee]

Aargh. I will circulate a note again and try to ensure that it is updated next time. Sorry.