CA1 September 2008

[nish44]

Have I left it long enough? Is it safe to post about this exam yet???

I'm going to anyway.

I thought paper 1 was hard but fair. There was some direct bookwork and some familiar themes (like the consortium wanting to build overseas hotels and the risks associated after construction)

I hated paper 2. Several questions where I couldn't pinpoint exactly WHAT was being asked (eg. how to "define the target funding level" of a benefit scheme, "describe the benchmarks" for the investment opportunities). Although, it is entirely possible that its just me being stupid.

I did notice however that during the reading time for paper 2 the mood in the entire room dropped. You could just feel the shock in everybody's system.

Does anyone get the feeling that this was a "transistion" paper that is trying to give an indication of what the new CA1 exams will be like?

Thoughts?

 

[Nadeem_Ladha]

Agree with everything you said:

- fair paper 1
- ambiguous questions in paper 2 throughout

Nadeem

 

[Underdog]

I thought paper 2 was a bit horrible:

5 distinct ways to beat the benchmark?
Defining the "level" of funding?
Risk Premiums... urgh
How does the last question part (ii) differ from the risks passed on to the insurer in part (i)

Might make people feel better if they also found these tough. Doesn't help any of us though...

 

[SpringbokSupporter]

I found the paper really tough, paper 2 was tougher than paper 1. Found questions to be arbitrary - ended up using general knowledge to answer and this is definitely not a good sign

 

[wannabeactuary]

Does anyone get the feeling that this was a "transistion" paper that is trying to give an indication of what the new CA1 exams will be like?

Thoughts?

Paper 2 definitely felt like a 'transition' paper, but you'd think that would be best left to a Specimen paper rather than being used as a live test

Unlike Paper 1, I thought there were no 'easy' questions in the afternoon to build that all-important confidence that's crucial to set the momentum for another 3 hour marathon.

It seems that under the new system the Profession has recognised that a 6 hour paper tests stamina as much as ability.

Curiously, the comments from other students were mixed at the end of the day with some preferring the afternoon paper. Difficult to judge where the pass mark will lie as a consequence but my guess is the 'standard' 55%.

Good luck all!

 

[samuel_von_gudmange]

Risk Premiums... urgh

"urgh" indeed!

I assumed it meant risk-premium as in equity risk-premium, and the question was asking about the profit that the company's share-holders would want to make on that product in return for the risk it added to their business.

I realised a bit too late that it meant the premium that they charge to cover the risk - ie the premium that would be charged assuming that expenses are zero and without any loading for profit (I think?). I think I managed to turn some of what I'd wrote around.

Did this confuse anyone else?

5 distinct ways to beat the benchmark?

I got:
Short-selling stocks to make a profit when their prices fall.
Stock-picking - ie. moving into defensive, low-beta stocks, which will fall by less than the rest of the market.
Derivatives I had to split into three to get the five different methods - short position in futures, buying puts or selling calls.

I thought the last question on Paper 2 was quite trivial for 16 marks - basically just describing those options for providing cover. I suppose it depends on how harshly they mark it though.

All-in-all, I thought both papers were ok compared to past papers. Paper 2 had parts on it that were ambiguous, but I find that ambiguity is a bit of a theme in CA1, so I wasn't expecting much better.

Note that I only think it was ok compared to past papers though I wouldn't say it was a paper where I had any chance of coming out feeling like I had more than a 50:50 chance of passing.

 

[pig]

I was struggling with time! It's not that normal for me!

 

[Wezerlee]

Hmmm

Jeez am I glad that’s over or what. Most relieved to be able to talk about it at last - I sat this in Australia so by the time I finished (at 5pm) it was only 8am in the UK (at which point I would have been trying to settle my nerves and choke down some cornflakes in preparation for a very long day if I was home). Also no cathartic moaning about it in the pub afterwards, in fact I felt guilty telling my husband how it had gone in case this counted as spilling the beans!

The day didn’t start well when an ambiguously worded exam permit from the Australian Institute meant that I arrived at the exam centre 5 minutes after reading time was supposed to start. Luckily I was the only person sitting it so it all worked out fine in the end. Just as well I asked when paper 2 was starting – 30 minutes EARLIER than the time on my permit. Grrr.

I’ve not sat an actuarial exam for years (missed the 100, 200 etc numbering completely) so I must have been foolishly optimistic when I decided to go for CA1 as my comeback!!! As usual I ended up totally unprepared and spending the last few weeks before the exam trying to cram as much info as possible into my rapidly shrinking brain. As soon as I opened up paper one though the old feelings came rushing back – what did most of the questions have to do with all those notes I worked through? Admittedly this is probably due to me not knowing the course well enough. Like others I felt I was falling back on common sense an awful lot. I do think though that if I’d been more confident about the bookwork (or could remember some more of it) then I might have been more confident of my application skills and climbed slightly higher up the fail grades.

I’ll be controversial here though – I much preferred paper 2, but that’s probably due to having spent half of my life working in pensions, and there was a good bit of pensions stuff in there. A colleague also published an article a couple of weeks ago on the pros and cons of compulsory fixed rate money purchase contributions (as is the case here in Oz) and whether these would provide adequate benefits for all. Thank heavens for reading anything at lunchtimes to avoid the Acted notes in the run up to the exams - looks like it was worth it for once!

Got utterly confused by "define the target funding level" though – I thought that could mean several different things, and I’m not sure exactly which one they were driving at. Most annoying and I feel a bit of a div for not being able to decide given my job

Also got utterly fed up seeing the word “risk”; it definitely felt like a trial run for April 2009. I think I’ll be there. Pah!

(Sorry this doesn’t really count as constructive feedback on the actual exam; to anyone who reads this later, perhaps looking for inspiration in the run up to later CA1 exams – learn the stuff well and do lots of past papers i.e. everything I didn’t do very well, but don't rely on regurgitating the core reading - which I didn't do by not learning much of it)

 

[pig]

Did this confuse anyone else?.

Yes that really confused me too - but I thought the rest of the question was referring to GI so I just assume they mean risk premium = claim risk premium.

besides, they've already asked a risk premium question in paper 1 so I thought they may not repeat.

I got:
Short-selling stocks to make a profit when their prices fall.
Stock-picking - ie. moving into defensive, low-beta stocks, which will fall by less than the rest of the market.
Derivatives I had to split into three to get the five different methods - short position in futures, buying puts or selling calls.

I got

1. short selling
2. buy defensive stock
3. government bonds that give +ve returns (assume bear market means negative return..)
4. buy shares in multinational that trade with bull markets
5. buy shares in export co that trade with bull market.

although 4 and 5 is pretty much the same and not 'distinct'

I thought about putting derivatives down but if fair pricing is true, the price would have incorporated the probably of bear market and price accordingly??

I thought the last question on Paper 2 was quite trivial for 16 marks - basically just describing those options for providing cover. I suppose it depends on how harshly they mark it though.

I think I can only come up with points that worth 2-3 marks? (out of 16)

 

[samuel_von_gudmange]

originally posted by pig:
I thought about putting derivatives down but if fair pricing is true, the price would have incorporated the probably of bear market and price accordingly??

Isn't the same true of any asset? If the market expected it's value to fall, and incorporated this information into the price, then the price of the asset won't fall - it already has done.

You could make a similar argument about short-selling - if the expected fall in value has been incorporated into the prices, then prices have fallen, and short-selling won't acheive anything either.

Also, even if assets are priced fairly, this only means that prices incorporate the probability of a bear market, as you said. If I place a bet on something then the odds I get will reflect market's estimate of the probabilities - so, if I agree with the market, I expect to get no return. If I disagree with the market, then I will expect to make a profit.

Whether I agreed with the market or not, I will still end up with a profit if that thing actually happens. I think we were told to pick something that would outperform if the market falls - not something that will definately outperform.

So I think derivatives would have been right. Sorry to blather on about it - I wanted to be sure because I have ST5 next week (fool that I am).

I also sort of included companies with overseas exposure in my stock-picking answer, since they too have a lower correlation with the domestic market. I might not have made it entirely clear in my answer though. It just goes to show that opinions will differ about what qualifies as a distinct point!



Sam

 

[pig]

Isn't the same true of any asset? If the market expected it's value to fall, and incorporated this information into the price, then the price of the asset won't fall - it already has done.

Sam

I guess you are right. I think the question seems to imply us putting something like derivatives down but I couldn't get that round my head in the exam... but hopefully some other points will also be valid...

I also wonder whether they expect a big paragraph to explain the 'thinking process' before the points... I just jumped into describing possible solution! oops.