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CP2 Sept 2020 Exam Paper 1 - Part (ii)

D

Darragh Kelly

Ton up Member
Hi,

Regarding part (ii) - validation of the current fund value using the sample policy data, I carried out the check quite differently to the IFoA's model solution. So for validating the current value for each of the 100 policys, I first calculated the annual average rate of return (of the investment fund) from their start date to 2019 (used an average IF statement for this). I then calculated a future value annuity factor (annual basis) for the premiums using the annual average rate of return calculated above, multiplied by the annual premiums deposited into the account for each of the 100 policies. Finally I compared this value to the fund value provided. In some instances I was within a few %, but in other instances the relative differenices were as high as 81% [Relative differencies calculated using ABS((my fund value/question fund value)-1)]. I know the data isn't reliable as told in question and this was before corrections were applied to the data, just wondering was my method ok for a validation check? I note it was quite different to the IFoA's solution which I wasn't able to follow.

Thanks,

Darragh
 
Hi Darragh

There was no single approach needed here. If you checked the points included in the marking schedule you would have been awarded credit. Given there were 6 marks on offer, it was important to do something substantial to reflect this (which it sounds like you did). It was also worth nothing here that the checks weren't required to continue with the remainder of the question, so if you were finding these tricky, leaving them and moving on would have been a sensible approach (not that you necessarily struggled!).

Thanks
Sarah
 
Great Sarah thanks. I actually re-validated the data as 6 marks seemed a bit light for what I originally did. So instead I just calculated the accumulated funds using the stochastic interest rates provided. My approach was still different the IFoA's but my average difference (measured in %) in the fund values for all 100 policies was within a % of the IFoA's average difference. So I was happy to move on then. The rest of the question went easier.

Thanks for your help.

Darragh
 
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