Q.no.April 2001

1)-Any one tell me how can solve the question (Q.no. 12 in past paper April 2001) .Which is : On 15 March 1996 the goverment of a country issued an index-linked bond of term 6 years.........
2)-Question in ASI past paper June 2004 Q.no- 14.(How can solve this question)
The annual rates of interest from a particular investment ,in Which part of an insurance company's funds is invested ,are independently and identically distributed.
Each year ,the distribution of i(t),where i(t) is the rate of interest earned in year in year t,is lognormal with parameters σ ^2 and μ .
i(t) hes mean value .07 and SD.02,the parameter μ =.06748 and
σ^2=.0003493.
a)- the insurance company has liabilities of Rs1000000 to meetin one year from now. it currently has assets of Rs950,000.Assets can either be invested in the risky investment described above or in an investment which has a guaranteed return of 5% per annum effective. Find to two decimal place. the probability that the insurance company will be unable to meet its liabilities if:
i)-All assets are invested in the investment with the guaranteed return.
ii)-85% of assts are invested in the in the invested which does not have the guaranteed return and 15% of assets are invested in the asset with the guaranteed return.
b)-determine the variance of the return from the portfolios in a)i) and a)ii) above.

 

June 04-14

Hi there,

The key is (1+i(t) follows a lognormal distribution (μ , σ ^2)

Basically you should solve the equation(pls check formula):

Per Yellow book Mean and variance of lognormal are
exp(μ +1/2σ^2)= 1+0.07
exp(2μ +σ^2)+ ((exp σ ^2) - 1)= 0.02^2

Solve by replacing equ 1 ( to the power of 2) in the next equation etc.

I had a number of issues to understand this chapter . There are many past exams on this chapter yesterdat I tried A00/11 part 1 similar to above but part II is the challenge . But I gave up and learnt through the answer

Your questions
Question in ASI past paper June 2004 Q.no- 14.(How can solve this question)
The annual rates of interest from a particular investment ,in Which part of an insurance company's funds is invested ,are independently and identically distributed.
Each year ,the distribution of i(t),where i(t) is the rate of interest earned in year in year t,is lognormal with parameters σ ^2 and μ .
i(t) hes mean value .07 and SD.02,the parameter μ =.06748 and
σ^2=.0003493.

 

ASI- Lognormal

Hi there,

Sorry I did not read your question probably . Obviously, proof of the parameters was not required.

Last months, I downloaded someASI questions . However, for my level they are quite a challenge and obviously I gave up.

But I would like to understand the answer to it too.

Sorry for the confusion

Thank you

Regards

 

Actually sir ,I am not understand properly,In the solution why ,
take (1+r)^(6t-8)/6 .