Preview Questions Actuary | Role Specific Skill

Question 1: What is the key difference between historical simulation and Monte Carlo simulation in risk modeling?

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Monte Carlo simulation does not allow for randomness in the model

Historical simulation uses actual historical data, while Monte Carlo simulation uses random sampling of possible outcomes

Historical simulation assumes no variability in market conditions

Monte Carlo simulation is faster than historical simulation

Question 2: Which of the following best describes the "stochastic discount factor" used in financial modeling for risk assessment?

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A measure of the average return of a portfolio

A constant used to adjust for inflation rates

A random variable used to account for the uncertainty in future cash flows

A factor that discounts future cash flows based on deterministic interest rates

Question 3: How does "Discount Rate" affect the calculation of pension liabilities, and what challenges arise in choosing an appropriate discount rate for long-term pension projections?

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Discount rates are not used in pension liability calculations

The discount rate affects the present value of future pension obligations, with challenges arising from market volatility and long-term interest rate trends

Discount rates are irrelevant as pension liabilities are based on the future benefits, not market conditions

Discount rates should always be based on current market rates and do not need adjustments

Question 4: When conducting a pension plan stress test, which factor would most likely be evaluated for its effect on funding levels?

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Impact of future salary growth assumptions

Changes in mortality assumptions

All of the above

Changes in inflation rates

Question 5: Which forecasting method is preferred for estimating the financial impact of claims volatility over a long horizon?

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Linear regression with time variables

Monte Carlo simulations

Exponential smoothing

Autoregressive Integrated Moving Average (ARIMA)

Question 6: Which actuarial tool is used to assess the financial impact of catastrophic events on an insurance portfolio?

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Principal Component Analysis

Linear Regression

Monte Carlo Simulation

Cluster Analysis