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#1
12-27-2014, 09:54 PM
 kn005 Member Join Date: Jul 2010 Favorite beer: I don't drink beer!! Johnny Walker Black Label it is Posts: 346

I'm working on EOM 3 task 3 and currently struggling with what task 3 is asking us to do. We are given an expected fund rate of return of 6.5% and are told to estimate an effect if it increases or decreases by 2%. Not sure if i should just change the rate in the model to 8.5% or 4.5%. I've been looking at this for a good 1hr. Any explanations would be greatly appreciated. Thanks
#2
12-31-2014, 09:01 PM
 bigb Member Non-Actuary Join Date: Jul 2010 Posts: 9,175

Quote:
 Originally Posted by kn005 I'm working on EOM 3 task 3 and currently struggling with what task 3 is asking us to do. We are given an expected fund rate of return of 6.5% and are told to estimate an effect if it increases or decreases by 2%. Not sure if i should just change the rate in the model to 8.5% or 4.5%. I've been looking at this for a good 1hr. Any explanations would be greatly appreciated. Thanks
#3
12-31-2014, 11:18 PM
 GameOfLoans Member SOA Join Date: May 2013 Posts: 289

Quote:
 Originally Posted by bigb You pretty much answer your own question don't you?
I think his question was should it be that or should it be 7.8% and 6.37% (or 6.37254901960784313725%, 6.5%/1.02). I agree that the language is imprecise. Whenever I have to talk about things like this I say percentage points when I mean 6.5%+/- 2%.

My guess is that they make it vague on purpose to mimic the kinds of miscommunications in real life. I also guess that the "correct" answer with these things is to just pick something reasonable, justify your answer with some logic and evidence, and qualify it (or document your methods and assumptions).
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#4
01-01-2015, 12:03 AM
 bigb Member Non-Actuary Join Date: Jul 2010 Posts: 9,175

Quote:
 Originally Posted by GameOfLoans I think his question was should it be that or should it be 7.8% and 6.37% (or 6.37254901960784313725%, 6.5%/1.02). I agree that the language is imprecise. Whenever I have to talk about things like this I say percentage points when I mean 6.5%+/- 2%. My guess is that they make it vague on purpose to mimic the kinds of miscommunications in real life. I also guess that the "correct" answer with these things is to just pick something reasonable, justify your answer with some logic and evidence, and qualify it (or document your methods and assumptions).
The instructions say:

"Estimate the impact of a 2% per annum increase in the return and a 2% per annum decrease in the return."

To me it was implied to test using returns of 8.5% and 4.5%. I've never seen "per annum" used in a manner other than this. Plus I'm not sure it really makes sense in the context of the problem to assume the 2% per annum increase / decrease means 0.065(1.02) and 0.065(0.98). I think this is what you were implying above...

One way to confirm this however would be to test using both methods. I'm guessing you wouldn't get much model feedback by increasing or decreasing under this alternative approach - which may lead you to rethink your assumption...

I do agree that there is ambiguity and that it is likely done on purpose in many instances. Pick an approach, document your work, and stick with your line of reasoning.

Last edited by bigb; 01-01-2015 at 01:31 AM..
#5
09-04-2015, 08:59 AM
 actuariallydelicious Member SOA Join Date: Feb 2009 Studying for FA College: UC Berkeley Posts: 157

Quote:
 Originally Posted by bigb The instructions say: "Estimate the impact of a 2% per annum increase in the return and a 2% per annum decrease in the return." To me it was implied to test using returns of 8.5% and 4.5%. I've never seen "per annum" used in a manner other than this. Plus I'm not sure it really makes sense in the context of the problem to assume the 2% per annum increase / decrease means 0.065(1.02) and 0.065(0.98). I think this is what you were implying above... One way to confirm this however would be to test using both methods. I'm guessing you wouldn't get much model feedback by increasing or decreasing under this alternative approach - which may lead you to rethink your assumption... I do agree that there is ambiguity and that it is likely done on purpose in many instances. Pick an approach, document your work, and stick with your line of reasoning.

Has anybody check how changing the fund rate from 6.5% to either 4.5% & 8.5% is changing the annuity factor? In the "Annuity Factor" worksheet, while there're annuity factor data listed for 4.5%, 6.5%, and 8.5% fund rate, there's only annuity data listed for 3% inflation rate and lower. How do you explain away the fact the the annuity factor table is done with 3% inflation assumption while Task #3 is assuming a 3.5% inflation assumption?

The annuity factor worksheet issue is becoming a problem for me for task4. Because in task 4, you're assuming 2.5% inflation and 4.5% inflation. But the annuity factor sheet only has 3% inflation data available. Even if I adjust the Calc sheet column V input to look up the inflation in Annuiuty factor worksheet, I can't find 4.5% inflation data there....

Any thought on this?
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#6
11-15-2016, 06:16 PM
 Clem Koi Member CAS SOA Join Date: Sep 2013 Posts: 767

Am I supposed to be looking at the changes in the total contribution?

I don't understand how I am supposed to use the annuity sheet.
#7
10-17-2019, 07:57 PM
 ActuariallyDecentAtBest Member SOA Join Date: Dec 2016 Posts: 300

So we just see how changing the investment returns impacts the replacement ratios/pension benefits? That's it?

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