Hi, For this model can someone clarify whether what i have assumed is correct? The first scenario requires a pass rate of 40%. So i assigned a 0 to the variables less than 0.6 and 1 otherwise. For scenario 2. I calculated the persistency rates as instructed. Where i am getting confused is wrt to the adjustment that needs to be made to my pass/fail criteria. I have assumed for a particular time period if the random variable is less than (1-PassRate)/Persistency Rate then assign a 0, otherwise 1. If i do this then the number of people qualifying at the end of the ten year period is only 3 out of the two hundred which seems rather low...... Is what i have done correct? and if not what is the correct adjustment to make? Also if i a completed my model based on the above and it was incorrect what are the consequences in terms of number of marks lost assuming i have adequatley explained everything int he audit trail?
For your first question - yes, you're right. For the second one - the persistency rate tells you whether they're there to write the exam or not, rather than whether they pass or not. However, a better line of thinking (which will help you in the exam as well) for both of these questions is "How can I check that what I'm doing is right?" Not only will you get comfort that you're doing the right thing, but you'll have a reasonableness check you can put in your answer that will get you marks. Example for the first one - how many exam passes would you expect in total, given the number of attempts? Does what you've calculated tally up with it? The second one is slightly trickier, but hopefully you get the idea.
