National Insurance Academy

PGDM – 2018-20
Term 6
Actuarial Aspects, Valuation & Solvency of Life Insurance

Quiz 1
Attempt all questions. Questions 1 to 7 carry 1 mark each; question no.8 carries 3 marks.

Total marks: 10 Duration: 30 mins

1 Which of the following statement is most accurate about the impact of interest rates on value of
cash flows?
a. Increase in interest rates is likely to reduce the fair value of liabilities and assets
b. Increase in interest rates is likely to increase the fair value of liabilities and assets
c. Increase in interest rates is likely to increase fair value of liabilities but it is likely
to reduce the fair value of assets

ANS : C

2 The present value of an annuity due is Rs.1,00,000 calculated at a discount rate of 8%. Which
of the following is likely to be the present value of the annuity just before receipt of the first
annuity payment?
a. Rs.1,00,000
b. Rs.1,08,000
c. Information not adequate

ANS : B

3 An investment offers interest at nominal rate of 8% compounded on quarterly basis. Which of

the following is closest to effective annual rate of return?
a. 7.77%
b. 8.00%
c. 8.24%

ANS : C

4 Which of the following approaches to calculating mortality rate would most likely take into
consideration the risk of adverse selection?

a. Mortality rates calculated using random sample selected from the population
b. Mortality rates calculated using census data
c. Mortality rates calculated using mortality rate of previously insured lives

ANS : C

Answer question numbers 5 to 8 using the following information

Out of 10,000 people aged 25 on 01-Jan-2XX5, 9940 of them were alive as on 01-Jan-2XX6 and 9864
were alive as on 01-Jan-2XX7.
5 Which of the following is closest to the probability that an insured who takes insurance at the
age of 25 dies in the second year of policy?
a. 0.760%
b. 0.765%
c. 1.360%

ANS: C

6 Which of the following is closest to the probability that an insured person aged 26 dies within
one year?
a. 0.760%
b. 0.765%
c. Information inadequate

ANS : B

7 A person aged 25 has taken an insurance for Rs.1,00,000. Which of the following is closest to
the present value of expected claim payable over the first two policy years assuming a discount
rate of 10%?
a. Rs.545
b. Rs.600
c. Rs.10,000

ANS : B

8 The insurance premium for the policy has been set at Rs.1,000 p.a. Assuming discount rate of
10%, which of the following is closest to the expected present value of first two annual
premium?

a. 1,730.6
b. 1,903.6
c. 1,909.1

ANS : B

Submitted by

Akhand Tomar

182078