Firms incur agency costs to prevent or minimise agency problems. It is unclear whether they
are effective in practice. The four categories of agency cost are monitoring
expenditures incurred by the owners for audit and control procedures, bonding
expendit

ACST152 Introduction to Actuarial Studies
Week 6 2016 MANAGING INVESTMENT RISK
Risk and Return for Portfolios
RECAP OF PREVIOUS LECTURE
At present we are looking at investments where the rate of return is variable.
Last week we looked at different ways of

Class Test 2016 Solutions Version 1
Question 1. Superannuation Policy [12 marks]
(a)
Slice of Income
Marginal Tax Rate on this
income
0 $18,200
Nil
$18,201
$37,000
19c for each $1 over
$18,200
$37,001
$80,000
32.5c for each $1 over
$37,000
$80,001
$180

ACST152 Introduction to Actuarial Studies
2016 Tutorial Questions for week 5
Perpetuity Questions
Q1. We have already developed formulae to calculate the present value of payments of $C per
annum payable in arrears for n years. This is given by
n
[1 ( 1+i

ACST152 Introduction to Actuarial Studies
General Insurance Pricing and Reserving
KEY CONCEPTS
What are the different classes of insurance (e.g.
what is CTP? What is product liability
insurance?)
What is insurable interest?
What is the principle of ind

ACST152 Introduction to Actuarial Studies
Lecture Week 13 2016:
Risk Classification & Underwriting
Overview:
1. Why is it necessary to classify risks?
2. Are there some circumstances where it is not necessary to classify risks?
3. How do we choose risk cl

ACST152 Introduction
to Actuarial Studies
Lecture 2A 2016
Superannuation Savings Model
Adjusting for Salary Growth and Inflation
Simplest Model (no
tax/fees)
Gross Contribution C p.a. in arrears
Gross Interest Rate i p.a.
Accumulation at the end of n year

ACST152 Introduction to Actuarial Studies
Quiz Contingent Payments
The following information applies to questions 1 to 10.
Angela has set up a spreadsheet to calculate the present value of expected payments for an annuity. The annuity
pays $10,000 per ann

ACST152 Introduction to Actuarial Studies
Tutorial Questions for week 2 with Solutions
Simple Accumulation formulae
(a) Use the method of mathematical induction to show that the accumulated value of $C per
annum, payable in arrears for n years, at interes

ACST152 Introduction to Actuarial Studies
Tutorial Exercises and Solutions for General Insurance Topic
Question 1.
If the number of claims N is a Poisson random variable with parameter = 0.1, and the
claim size distribution given below, find the probabili

ACST152 INTRODUCTION TO ACTUARIAL STUDIES
Tutorial Exercises on Pricing and Risk Management Solutions
Q1. Utility Theory.
In previous weeks we looked at insurance from the customers viewpoint. We decided that a risk
averse customer will be willing to pay

This is a link to the article about The Formula That Killed Wall Street
http:/www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
It suggests that the people who were modelling risk underestimated the correlations between home
mortgages and t

ACST152 Introduction to Actuarial Studies
Utility Theory Quiz Questions with solutions
Question 1
David owns a house which is worth $500 (working in units of thousands). He also has $200 (again in
thousands) in cash. He can buy home insurance with a sum i

ACST152 Introduction to Actuarial Studies
REVISION QUIZ 2016 with solutions
Q1. It is now time t = 0. Sam owes the bank $10,000 and interest is charged at 4% per annum. He
intends to repay the debt by making no payments for the next 8 years, followed by p

ACST152 Introduction to Actuarial Studies
Introduction
Many people suffered financial disaster as a result of following Storm Financials double-geared stepup investment strategy. After the failure of Storm Financial, a Parliamentary Joint Committee (PJC)

Solutions for Quiz 7 2016
Building Portfolios, with Diversification and
Correlation
Question 1
Suppose that there are 100 people in a class (all the same age and
gender). The probability that any individual will survive for 20 years is
0.60.
The number o

ACST152 Introduction to Actuarial Studies
Tutorial Questions 2016
Utility Theory - SOLUTIONS
Question 1.
A casino offers gamblers the opportunity to play a game where the gambler tosses three dice. If all
three dice show the same value, then the gambler r

ACST152 Introduction to Actuarial Studies
Tutorial Questions 2016 Diversification, Correlated Assets, Leverage
WITH SOLUTIONS
Question 1 Leverage.
Sometimes people want to increase their risk (in the hope of earning higher returns). Suppose that a
person

ACST152 Introduction to Actuarial Studies
Modelling Assignment 2016: Margin Loans
Introduction:
After doing this assignment, we hope that:
You will have a better understanding of investment risk and leverage;
You will understand a common financial product

ACST152 Introduction
to Actuarial Studies
Lecture 1A 2016
Introductions : Me
Shauna Ferris
Graduate of Macquarie Uni (ACST & COMPUTING)
Worked in life insurance, banking, superannuation
Fellow of the Institute of Actuaries of Australia (FIAA)
Lecture

ACST152 Introduction
to Actuarial Studies
Lecture 2B, 2016 Superannuation Risks
Reminder: Risk
Management
1. Identify the risks
2. Assess the risks
- how likely that it will happen?
- how severe are the consequences if it does?
3. Identify alternatives

ACST152 Introduction
to Actuarial Studies
Actuarial Problem #1:
Who should feed old people?
Defining the Problem
Think back: how many people have you met in the last few days who are over 50?
Bus driver?
Woman who sells coffee at your local caf?
Your p

ACST152
Introduction to Actuarial
Studies
Managing Risk and Return in Life Insurance
1
The Risk Premium
You
already know how to calculate the present
value of expected future payments for a life
insurer. This is called the RISK PREMIUM.
In general:
Where

ACST152 Introduction
to Actuarial Studies
Lecture 4A 2016
Contingent Payments
Lifetime Annuities /
Pensions
Lifetime Annuity
Customer pays a large lump sum at retirement to a
life insurer.
The life insurer promises to pay a specified amount of
money eac

ACST152 Introduction to Actuarial Studies
2016 Assignment : Margin Loan Model
There is a separate spreadsheet for each scenario
This sheet has Scenario 4 - Leverage Investment Using Home Loan and margin loan, with margin calls
Savings Available to invest

ACST152 Introduction to
Actuarial Studies
Risks in Life Insurance
The Australian Insurance Industry
Life Insurance Profitability (Risk
Business) From APRA Insights
What is going wrong?
Need
to look at each product
separately each has different
risks
1. I

ACST152 Introduction to Actuarial Studies
2016 Assignment : Margin Loan Model
There is a separate tab for each scenario
This sheet has Scenario 1 - Investment in Shares with no borrowing
Amount to invest =
$
200,000.00
Share Market Assumptions
Normal Dist