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View Full Version : Help needed! (2003 Course 8V:Question#4)


fishfishqq
04-03-2009, 09:47 PM
This is about part (b) of the question. It asks using the Cost of Capital method to solve for the tax-adjusted liability vaule at issue. The question gave all needed information on LifeCo's new GIC product. However, does anyone know why the solution used the Required Return on Capital/Required Capital Factor for GICs/Asset Return numbers from the GIC Competitor not the new GIC product itself?

Size17
04-04-2009, 04:39 PM
This is about part (b) of the question. It asks using the Cost of Capital method to solve for the tax-adjusted liability vaule at issue. The question gave all needed information on LifeCo's new GIC product. However, does anyone know why the solution used the Required Return on Capital/Required Capital Factor for GICs/Asset Return numbers from the GIC Competitor not the new GIC product itself?
That threw me for bit at first as well. The SN that this paper comes from is the AAA Fair Value reading. The intro begins with differentiating between entity specific and fair value methodologies. They key here being that Fair Value requires using market/competitor values. They disclose that the examples throughout the paper are intended to be under a fair value framework.

So unless asked for the company specific value, use industry numbers for a problem like this.

fishfishqq
04-10-2009, 11:54 AM
You sound sooo right! Thank you!