Hi Selkirk,
This is still examinable.
Part (i) asks for the features required of the model. This is standard bookwork and is examined regularly so you must make sure you learn it. The only unusual twist is that you need to apply it to the details of this question; a little more tricky but you should have a stab at it.
Part (ii) is more difficult.
Try asking yourself the following questions:
Why would you want to use a different model for each purpose? What will be different in each case?
Why would you want to use a different basis for each purpose?
Think about different components of the model, and why they might ideally be different for each purpose, eg the time horizon, the choice of assets, the cashflows to be modelled, the level of prudence needed for the assumptions, the amount of data required etc.
I do agree that this is a hard question (and in fact the examiners said so as well). However, it is entirely possible that next week you are faced with other hard questions which you don't know how to answer too. Therefore it's good practice for you to persevere with this one.
Good luck!
Kind regards,
Katherine.
Last edited: Sep 17, 2012