ACTUARY Finance and Economics Flashcards
7 cards from real Actuary Certification practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 ACTUARY Finance and Economics flashcards as text
Which term describes the interest rate at which a central bank lends overnight funds to commercial banks?
Answer: Discount rate
The discount rate is the rate at which the Federal Reserve lends funds directly to depository institutions through its discount window.
Under the Gordon Growth Model, if a stock pays a dividend of $3, the required return is 10%, and dividends grow at 4%, what is the stock's intrinsic value?
Answer: $50.00
The Gordon Growth Model gives P = D1 / (r - g) = 3 / (0.10 - 0.04) = $50.
A bond with a 6% coupon rate is trading at a premium. Which statement must be true?
Answer: The yield to maturity is less than 6%
A bond trades at a premium when its coupon rate exceeds the market yield, so the YTM must be below the coupon rate.
Which economic indicator is considered a leading indicator of future economic activity?
Answer: Building permits
Building permits are a leading indicator because construction activity anticipates near-term economic expansion or contraction.
What is the primary purpose of the Efficient Market Hypothesis (EMH) in actuarial finance?
Answer: To assert that asset prices fully reflect all available information
EMH states that market prices incorporate all available information, making it impossible to consistently achieve above-market returns through stock selection.
In macroeconomics, what does the multiplier effect describe?
Answer: The amplification of an initial change in spending on total economic output
The multiplier effect shows how an initial change in spending (e.g., government expenditure) results in a larger total change in GDP.
Which measure of money supply includes currency in circulation plus demand deposits?
Answer: M1
M1 is the narrowest measure of money supply that includes physical currency, traveler's checks, and demand deposits.