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 demand (AD) is the total demand for final goods and services in an economy, composed of consumption, investment, government spending, and net exports.

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

When liability duration exceeds asset duration, rising rates reduce liability PV less than asset PV, squeezing the surplus.

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

Own-price elasticity of demand = %ΔQd / %ΔP, measuring how responsive quantity demanded is to a change in the good's own price.

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

Implied volatility is backed out from observed option prices using the Black-Scholes formula and reflects the market's forward-looking volatility expectation.

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

Convexity captures the second-order (curvature) effect in the price-yield relationship, correcting for duration's linear approximation error when rates move significantly.

Actuary Certification Practice Test

Actuary Certification Practice Test

Actuary Certification ACTUARY Finance and Economics 5