Actuary Certification ACTUARY Finance and Economics 5

Question 1

Which macroeconomic concept describes the total spending on a country's goods and services in a given period?

Accepted Answer

Aggregate demand

Answer

Aggregate supply

Answer

Consumer surplus

Answer

Marginal propensity to consume

Question 2

An actuary is analyzing a pension fund's liabilities. The surplus is most at risk from parallel upward shifts in interest rates when:

Accepted Answer

Liability duration exceeds asset duration

Answer

Asset duration exceeds liability duration

Answer

Asset and liability durations are matched

Answer

The portfolio consists entirely of equities

Question 3

Price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in:

Accepted Answer

Price

Answer

Income

Answer

Substitute good prices

Answer

Consumer preferences

Question 4

In the Black-Scholes model, which input directly measures the market's expectation of future price fluctuations of the underlying asset?

Accepted Answer

Implied volatility

Answer

Risk-free rate

Answer

Time to expiration

Answer

Strike price

Question 5

What does the convexity of a bond measure?

Accepted Answer

The curvature in the price-yield relationship, improving duration estimates for large rate changes

Answer

The rate of change of the bond's yield to maturity

Answer

The sensitivity of bond price to credit spread changes

Answer

The bond's exposure to reinvestment risk

Question 6

Purchasing Power Parity (PPP) theory suggests that exchange rates should adjust so that:

Accepted Answer

Identical goods have the same price across countries when expressed in a common currency

Answer

Interest rate differentials between countries are eliminated

Answer

Trade balances between countries reach equilibrium

Answer

Capital flows offset current account deficits

Question 7

Which risk is best described as the uncertainty in the timing and amount of cash flows from reinvesting coupon payments?

Accepted Answer

Reinvestment risk

Answer

Credit risk

Answer

Liquidity risk

Answer

Duration risk