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Past Paper A: Paper 2

  • Thread starter JustAnotherStudent
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J

JustAnotherStudent

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Link to question paper and exam report at bottom of this post.

The question is based on a 63 year old Female and a property with 800k. She wants to sell 15% of it for an annuity.

15% of 800k = 120k. Less 5% fee of 6k. So final capital release of 114k.

The annuity rate look like it should be 4.4% based on the table provided in the question paper.

So, 4.4% of 114k is £5,016 PA.

The exam report says its £4,068 PA. I don't see why?

Exam question:
http://www.actuaries.org.uk/researc...ions-exam-paper-day-2-capital-release-product

Exam report:
http://www.actuaries.org.uk/researc...ions-examiners-report-day-2-capital-release-p
 
I think I can see where the figure of 4,068 is coming from in the examiners report - the report states that it is assuming a spouses pension is chosen so the joint life annuity rate for a 63 year old female with 100% spouses pension is 29.5 (single life rate of 25.1 plus additional 4.4 for spouses pension). 120,000 divided by 29.5 gives 4,068.

The only thing that isn't clear to me is how the 5% admin fee comes in - maybe a tutor can help here?
 
ChasingAces said:
I think I can see where the figure of 4,068 is coming from in the examiners report - the report states that it is assuming a spouses pension is chosen so the joint life annuity rate for a 63 year old female with 100% spouses pension is 29.5 (single life rate of 25.1 plus additional 4.4 for spouses pension). 120,000 divided by 29.5 gives 4,068.

The only thing that isn't clear to me is how the 5% admin fee comes in - maybe a tutor can help here?
Click to expand...

Correct! The examiners have inexplicably ignored the 5% fee. Presumably they would have also accepted a figure net of the fee.
 
In the question there is also the line

"You do not need to consider the possibility of the customer selling the property before dying."

However the in the specimen solution there is the following paragraph...

"You can sell the property at any time and you will receive the proportion of the sale proceeds
that you did not sell to us when the product started. Selling the property will not affect the
income you receive – this will continue unchanged, and will vary as before."

Are the examiners ignoring their own instruction or am I missing something?

Chris
 
Agreed - I don't think you are missing something!
 
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