Question 1

What is the second-order measure of the interest rate sensitivity of an instrument and the sensitivity of duration to changes in interest rates?

Accepted Answer

A)  Complexity 
B)  Convexity 
C)  Time compliance 
D)  Performance measure 
A)  Complexity 
B)  Convexity 
C)  Time compliance 
D)  Performance measure

Question 2

The establishment of loss reserves generally requires considerable judgment and knowledge of the entity's business is known as:

Accepted Answer

A)  integration assessment 
B)  procurement assessment 
C)  qualitative assessment 
D)  quantitative assessment 
A)  integration assessment 
B)  procurement assessment 
C)  qualitative assessment 
D)  quantitative assessment

Question 3

Claims adjusting involve:

Accepted Answer

A)  a field work 
B)  an appraisal of risk subject to appropriate supervision 
C)  approval by entity's claims department 
D)  All of the above 
A)  a field work 
B)  an appraisal of risk subject to appropriate supervision 
C)  approval by entity's claims department 
D)  All of the above

Question 4

When no tax deductions are allowed if risks are not transferred, whereas premiums paid to insurers are tax deducible, this leads to the formation of:

Accepted Answer

A)  Portfolio 
B)  Claims 
C)  Captives 
D)  Fronting 
A)  Portfolio 
B)  Claims 
C)  Captives 
D)  Fronting

Question 5

A logical first step toward understanding of a life and health insurance company and the related financial reporting considerations is to review the manner in which different interested parties view the end result of the accounting process for capital and surplus transactions, for example, the adequacy of the resulting balances. Key interested parties include: • Policyholders • Agents • Stockholders • Insurance regulators • Rating agencies • Management

Accepted Answer

A)  The capital and surplus accounts 
B)  Supplementary loan agreements 
C)  Mortgage loans 
D)  Risk-based capital investments 
A)  The capital and surplus accounts 
B)  Supplementary loan agreements 
C)  Mortgage loans 
D)  Risk-based capital investments

Question 6

A company that has its loans serviced, for whatever reason, is usually charged a servicer's fee. This fee is usually expressed:

Accepted Answer

A)  As an annual fraction of a percentage of each interest payment 
B)  As an annual fraction of a percent of the principal balance of the loans or based on a percentage of each interest payment 
C)  As a monthly fraction of a percent of the principal balance of the loans or based on a percentage of each interest payment 
D)  As a monthly fraction of a percentage of each interest payment 
A)  As an annual fraction of a percentage of each interest payment 
B)  As an annual fraction of a percent of the principal balance of the loans or based on a percentage of each interest payment 
C)  As a monthly fraction of a percent of the principal balance of the loans or based on a percentage of each interest payment 
D)  As a monthly fraction of a percentage of each interest payment

Question 7

Which of the following is NOT the primary consideration for defining the capital of a company for purposes of measuring capital adequacy?

Accepted Answer

A)  Permanence 
B)  Freedom from mandatory fixed charges 
C)  Debtors of the business 
D)  Creditors of the business 
A)  Permanence 
B)  Freedom from mandatory fixed charges 
C)  Debtors of the business 
D)  Creditors of the business

Question 8

Which counterparts of duration and convexity are the first- and second order sensitivities of an equity market instrument to changes in the price of the underlying?

Accepted Answer

A)  Delta and gamma 
B)  Gamma and theta 
C)  Theta and rho 
D)  Alpha and Vega 
A)  Delta and gamma 
B)  Gamma and theta 
C)  Theta and rho 
D)  Alpha and Vega

Question 9

When a retained asset account is established in the place of a cash settlement, an interest bearing account is created by the insurer for the beneficiary. The beneficiary receives a checkbook with which to draw upon funds in the new account. The account holder can make:

Accepted Answer

A)  Partial or total withdrawal of the account balance as needed and has total control over the account 
B)  Partial withdrawal of the account balance as needed and has total control over the account 
C)  Total withdrawal of the account balance as needed and has total control over the account 
D)  25% withdrawal of the account balance as needed and has total control over the account. 
A)  Partial or total withdrawal of the account balance as needed and has total control over the account 
B)  Partial withdrawal of the account balance as needed and has total control over the account 
C)  Total withdrawal of the account balance as needed and has total control over the account 
D)  25% withdrawal of the account balance as needed and has total control over the account.

Question 10

The process of analyzing and projecting the trends of a company's capital position given its current circumstances, its recent past, and its intended business plan under a variety of future scenarios is called:

Accepted Answer

A)  Permanence and Reliability Testing 
B)  Dynamic Capital Adequacy Testing 
C)  Capital Market Testing 
D)  None of the above 
A)  Permanence and Reliability Testing 
B)  Dynamic Capital Adequacy Testing 
C)  Capital Market Testing 
D)  None of the above

Question 11

The amount that currently would be required to replace the service capacity of an asset is called:

Accepted Answer

A)  Risk approach 
B)  Market approach 
C)  Income approach 
D)  Cost approach 
A)  Risk approach 
B)  Market approach 
C)  Income approach 
D)  Cost approach

Question 12

What is characterized by liabilities "shorter" than assets, which can lead to the liquidation of assets at depressed values in times of higher than expected interest rates?

Accepted Answer

A)  Reinvestment risk 
B)  Actual interest risk 
C)  Capital value risk 
D)  None of the above 
A)  Reinvestment risk 
B)  Actual interest risk 
C)  Capital value risk 
D)  None of the above

Question 13

Federal Housing Administration:

Accepted Answer

A)  Agency does not make loans; it only insures them. For this protection the borrower must pay an annual insurance premium to the FHA of 0.5 percent of the outstanding principal amount of the loan 
B)  Agency does not make loans; upon default, the lender has the option either of assigning the mortgage to the FHA and receiving cash and/or securities equal to the loan amount at the date of the default or of foreclosing on the mortgaged property 
C)  Establishes standards for property that can not be insured and maximum terms, interest rates, and amounts for the insured loans 
D)  All of these 
A)  Agency does not make loans; it only insures them. For this protection the borrower must pay an annual insurance premium to the FHA of 0.5 percent of the outstanding principal amount of the loan 
B)  Agency does not make loans; upon default, the lender has the option either of assigning the mortgage to the FHA and receiving cash and/or securities equal to the loan amount at the date of the default or of foreclosing on the mortgaged property 
C)  Establishes standards for property that can not be insured and maximum terms, interest rates, and amounts for the insured loans 
D)  All of these

Question 14

What provide for monetary compensation to third parties for failure by the insured to perform specifically covered acts with in a state period?

Accepted Answer

A)  Worker compensation pools 
B)  Multiple perils 
C)  Surety bonds 
D)  Inter-insurance act 
A)  Worker compensation pools 
B)  Multiple perils 
C)  Surety bonds 
D)  Inter-insurance act

Exam 1: Accredited Financial Examiner