Q1. pg 3 "government fix interest bonds" the last line is "the return on these bonds is not variable (although it is variable if not held to redemption)" kindly explain this ?? Q2. pg 7 section 2 c) point "the extent to which the appropriate investments referred to above maybe departed from in order to maximize the overall return will depend, amongst other things, on the extent of company's free assets and the company's appetite for risk" kindly explain this ??
Hi Sagar Q!. If you buy a government bond and hold it to redemption then you know exactly what you are going to get as the coupons and redemption proceeds are fixed. If you don't hold the bond to redemption then you need to sell it, but the sale price is unknown, hence the overall return is unknown. Q2. If the company has lots of free assets then it doesn't need to match as closely. If the assets perform badly the free assets can be used to make up the deficit. Just how much risk the insurer is willing to take depends on its risk appetite, ie some people are more risk averse than others. Best wishes Mark
