Basics of Actuarial Science MCQ Objectives with Answer

What does the “Time value of money” concept imply?

a) Money should be spent as soon as received

b) Money available today is worth more than the same amount in the future

c) Money has a fixed value over time

d) Money should always be invested in stocks

Answer: b) Money available today is worth more than the same amount in the future

 

Which factor influences the future value of an investment?

a) Time

b) Principal amount

c) Interest rate

d) All of the above

Answer: d) All of the above

 

What is the process of determining the present value of future cash flows called?

a) Compounding

b) Discounting

c) Amortization

d) Accumulation

Answer: b) Discounting

 

What is an ordinary annuity?

a) A series of regular cash flows occurring at the beginning of each period

b) A series of regular cash flows occurring at the end of each period

c) A one-time lump-sum payment

d) A series of irregular cash flows

Answer: b) A series of regular cash flows occurring at the end of each period

 

What is the formula for calculating the future value of an ordinary annuity?

a) Future Value = Payment Amount × (1 + Interest Rate)^Number of Periods

b) Future Value = Payment Amount × (1 – Interest Rate)^Number of Periods

c) Future Value = Payment Amount × (1 + Interest Rate)/Interest Rate

d) Future Value = Payment Amount × Number of Periods

Answer: a) Future Value = Payment Amount × (1 + Interest Rate)^Number of Periods

 

Which equation represents the concept of equating the present value of an investment to its future value?

a) FV = PV × (1 + r)^n

b) PV = FV × (1 + r)^n

c) FV = PV / (1 + r)^n

d) PV = FV / (1 + r)^n

Answer: b) PV = FV × (1 + r)^n

 

Which spreadsheet function is used to calculate the future value of an investment with compound interest?

a) PV

b) FV

c) RATE

d) NPER

Answer: b) FV

 

How can you calculate the present value of an investment in Excel?

a) Using the PV function

b) Using the FV function

c) Using the RATE function

d) Using the PMT function

Answer: a) Using the PV function

 

In the context of state transitions, what does “Active” represent?

a) The initial state of a system

b) A state where no changes occur

c) A state with dynamic changes or transitions

d) A state that cannot be reached

Answer: c) A state with dynamic changes or transitions

 

In a two-state model (Active/Dead), what does the “Dead” state signify?

a) A state where nothing happens

b) The final state of a system

c) A state that can be changed to “Active”

d) A state that does not exist

Answer: b) The final state of a system

 

How do you calculate the probability of transitioning from the “Active” state to the “Dead” state in a two-state model?

a) Probability (Active to Dead) = Number of Dead / Total Population

b) Probability (Active to Dead) = Number of Dead / Number of Active

c) Probability (Active to Dead) = Number of Active / Total Population

d) Probability (Active to Dead) = Number of Dead / Number of Dead + Number of Active

Answer: b) Probability (Active to Dead) = Number of Dead / Number of Active

 

In the two-state model, if the number of active individuals is 500 and the number of dead individuals is 100, what is the probability of transitioning from “Active” to “Dead”?

a) 0.5

b) 0.2

c) 2.0

d) 5.0

Answer: b) 0.2

 

What is the life table used for?

a) Valuing cash flows

b) Calculating probabilities of state transitions

c) Predicting the future value of an investment

d) Analyzing mortality and survival patterns

Answer: d) Analyzing mortality and survival patterns

 

In a life table, what does the “lx” column represent?

a) Number of individuals at age x

b) Probability of surviving to age x

c) Number of individuals who died at age x

d) Cumulative survival probability up to age x

Answer: a) Number of individuals at age x

 

If 1000 individuals start at age 0 in a life table, and 900 survive to age 1, what is the probability of surviving from age 0 to age 1 (l1)?

a) 0.1

b) 0.9

c) 0.9%

d) 10%

Answer: b) 0.9

 

What does the Expected Present Value (EPV) represent in the context of life insurance?

a) The average value of future premiums

b) The present value of future policyholder benefits

c) The present value of future claims

d) The average value of accumulated reserves

Answer: b) The present value of future policyholder benefits

 

How does uncertainty impact the accumulated value of an investment?

a) Uncertainty has no effect on the accumulated value

b) Uncertainty increases the accumulated value

c) Uncertainty decreases the accumulated value

d) Uncertainty depends on the investment type

Answer: c) Uncertainty decreases the accumulated value

 

What is the primary purpose of conducting simulations in the context of life insurance scenarios?

a) To estimate accumulated values with certainty

b) To analyze mortality and survival patterns

c) To model potential outcomes under uncertainty

d) To calculate the Expected Present Value (EPV)

Answer: c) To model potential outcomes under uncertainty

 

In single projection simulations, what is the primary limitation of considering only one set of assumptions?

a) It makes the simulation too complex to analyze

b) It leads to multiple outcomes with high variability

c) It may not capture the full range of potential scenarios

d) It ensures accurate predictions of future events

Answer: c) It may not capture the full range of potential scenarios

 

In analyzing the simulation output, what measure is commonly used to assess the central tendency of the results?

a) Range

b) Variance

c) Standard deviation

d) Mean

Answer: d) Mean

 

In life insurance, what are reserves used for?

a) To compensate policyholders for policy lapses

b) To pay commissions to insurance agents

c) To cover future policyholder benefits and claims

d) To invest in high-return assets

Answer: c) To cover future policyholder benefits and claims

 

Why is it important to consider additional scenarios in life insurance analysis?

a) To determine the single most likely outcome

b) To understand the range of possible outcomes under different conditions

c) To reduce the complexity of the analysis

d) To eliminate uncertainty entirely

Answer: b) To understand the range of possible outcomes under different conditions

 

What is the purpose of diagnostic checking in regression analysis?

a) To prove the accuracy of the regression model

b) To confirm that all predictor variables are significant

c) To identify potential issues and violations of model assumptions

d) To determine the appropriate model specification

Answer: c) To identify potential issues and violations of model assumptions

 

How is multicollinearity assessed in regression analysis?

a) By using the variance inflation factor (VIF)

b) By checking for outliers in the data

c) By comparing the R-squared values of different models

d) By conducting residual plots

Answer: a) By using the variance inflation factor (VIF)

 

What are influential points in regression analysis?

a) Points that have a large effect on the model’s intercept

b) Points that are far from the predicted values of the model

c) Points that have high leverage on the model’s coefficients

d) Points that have a significant impact on the dependent variable

Answer: c) Points that have high leverage on the model’s coefficients