Actuarial Society of South Africa

EXAMINERS REPORTS

October 2023

Subject A211

A211 O2023 Examiners Report Page 1 of 12 ©Actuarial Society of South Africa

General comments

Please note that different answers may be obtained to those shown in these solutions depending on
whether intermediary figures were obtained from tables or from calculators, but candidates were
not penalised for this.

Also, note that there are often alternative ways to reach the same final solution so that the solutions
in this report should not be seen as the only solutions available.

Many candidates can also increase their probability of passing this exam by practising good exam
technique, which is often missing in its most basic form.

Question 1
• The researchers have defined a set of objectives “to provide a model to accurately predict
the growth of the for South Africa population. “
• For this to be met, they need to plan the modelling process by including all factors, for
example differentiating between sexes, or region, or migration etc.
• This requires data collection and analysis to make sure the model captures the real South
African population growth.
• Most developing countries like South Africa are affected by lack of accurate records of
birth , death and migration. This is because most births and deaths are not documented
because they happen outside hospital systems. Migration is also affected due to
undocumented foreigners who visit and leave without trace.
• Define the parameters for the model and consider appropriate values e.g., values for birth
rates and mortality rates.
• Capturing the essence of the real-world system, e.g., the interaction between emigration
and immigration.
• Involve experts on the real world system like experts in population growth, economists etc.
• Simulation package or a general-purpose e.g., buy a software package that can predict
population growth.?
• Write the computer program for your model e.g., use R-code to write your own program
for predicting population growth.
• Debug the program to make sure the program performs the intended operations.
• Test the reasonableness of the output. Does the population growth appear reasonable in the
short, medium and long term.
• Review and carefully consider the appropriateness in the light of small changes in input
parameters e.g. doe sensitivity analysis.
• Analyse the output from the model. How does output compare to previous models of
population growth?
• Ensure that any relevant professional guidance has been considered, for instance any
professional guidance from ASSA.
• Communicate and document the results and the model. Write a report or prepare a .pdf
presentation for a presentation at a conference.

[Total 9]

A211 O2023 Examiners Report Page 2 of 12 ©Actuarial Society of South Africa

 Question was done well.
The common error was to not give an example at each step.

Question 2
• Initial +’ve cashflow (loan from the bank): size/timing certain
• Initial -’ve cashflow (buying taxi): size/timing certain.
• When the taxi operates, the revenue (+’ve income):
Amount uncertain - not known with certainty since the number of passengers is uncertain.
Timing certain/uncertain (can be either one but needs to justify) – daily every time, every
time taxi operates.
• Operational cost (-ve cashflow) – upkeep of taxi/diesel/salaries/insurance – size/timing
uncertain
• Loan repayments (-ve cashflow) – depending on loan contract.
-timing certain
-amounts certain/uncertain - depending on interest rate of loan (interest rate can be fixed
or variable) (can be either one but needs to justify)
• Final cashflow - +ve (sale of taxi) size/timing
uncertain
[Total 4]

Common errors were:

• Not mentioning all the necessary cashflow.
• Leaving out either the timing or size of the cashflow, although the question clearly
asked for both.
The justification asked for in the model solution is one word justification, e.g., variable or
fixed interest rate.

A211 O2023 Examiners Report Page 3 of 12 ©Actuarial Society of South Africa

 Question 3

10 t
−0.05
PV = 200e + 100e −3×0.05 + e −5×0.05
∫ ( 50 − 6t ) exp[− ∫ (0.05 − 0.006s)ds]dt
5 5
10 t
= 190.246 + 86.0708 + e −5×0.05 ∫ (50 − 6t ) exp[− ∫ (0.05 − 0.006 s )ds ]dt
5 5

10
= 276.317 + e −0.25 ∫ (50 − 6t ) exp[−(0.05s − 0.003s 2 ) |t5 ]dt
5

10
= 276.317 + e( −0.25+ 0.25−0.075) ∫ (50 − 6t ) exp[−(0.05t − 0.003t 2 )]dt
5

0.2
= 276.317 + e −0.075 ∫ e − u 1, 000du
0.175

where we make the substitution u = 0.05t − 0.003t 2 , new limits of the integral
so that=
du (0.05 − 0.006t )dt and 1000du
= (50 − 6t )dt (** see Alternative A)
0.2
= 276.317 + e −0.075 ×1, 000 e − u 
0.175

PV = 276.317 - 1000 e −0.075 ( e −0.2 − e −0.175 )

= 276.317 + 19.2286 = 295.546 = R 295.55

(**) Alternative A
d
dt
(
0.05t − 0.003t 2 = )
0.05 − 0.006t

10 10

∫ (50 − 6t ) exp[−(0.05t − 0.003t= )]dt 1, 000 ∫ (0.05 − 0.006t ) exp[−(0.05t − 0.003t 2 )]dt
2

5 5
10
= 1, 000 exp[−(0.05t − 0.003t 2 ) 
5

∫f
'
Integral of the form (t )e f (t ) dt = e f (t )

[Total 11]

A211 O2023 Examiners Report Page 4 of 12 ©Actuarial Society of South Africa

 This type of question appears in each exam session and in general is always answered well.
It should be remembered that a numerical answer without showing exactly how the integration
was done will not get full credit even if the numerical answer is correct.
Common errors:
• Errors in the boundary conditions of the 2nd integral of the 3rd term.
• Not showing how the integration was done.

Question 4
i.
β ( β + 1)
Given that Pt =
( β + t )( β + t + 1)

1 1  β ( β + 1) 
We know that Yt = − ln( Pt ) = − ln  
t t  ( β + t )( β + t + 1) 
1
=− ( ln β ( β + 1) − ln( β + t ) − ln( β + t + 1) )
t
[2]
ii.
d 1 d
Instantaneous forward rate Ft = − ln Pt or Ft = − Pt .
dt Pt dt

 β ( β + 1) 
Now, from (i) ln P=
t ln  = ln ( β ( β + 1) ) − ln( β + t ) − ln( β + t + 1)
 ( β + t )( β + t + 1) 
d 1 1 2 β + 2t + 1
⇒− ln Pt = + =
dt β + t β + t + 1 ( β + t )( β + t + 1)

1 1 2 β + 11
Therefore F5 = + =
5 + β 6 + β ( β + 5)( β + 6)

[5]
[Total 7]

A211 O2023 Examiners Report Page 5 of 12 ©Actuarial Society of South Africa

 This question was not done well.
Common error is unfamiliarity with the underlying theory.

Question 5
i.
=PVL 300, 000v 20 + 150, 000a (2)
30 i
v15 @ i = 0.065
(2)
and a 30 0.065 = 13.2675 and v = 0.938967

PVL (0.065) =85,139.108676426 + 773,815.649782275 =858,954.7584587007 .

Let B be the nominal amount for Bond B at redemption in n years’ time. Then for assets we have
PVAs (i ) = 450,000v10 + Bv n

= 450,000v10 + Bv n and
858,954.75845870077564

10
With 450,000v = 239,726.715984238

Bv n = R619,228 is the amount of money invested in Bond B.

[7]
ii.
Given that at i = 6.5% the numerator of DMT for the liabilities equals 21,704,293.03, then

21, 704, 293.03 VolL DMTL × v = 23.7261

DMT L = = 25.2683 . Therefore =
858, 954.76
Numerator VolL Numerator DMTL × v
Thus =

=
For the assets, we have PVAs (i ) 450, 000v10 + Bv n so that
d
− 10 × 450, 000v11 + nBv n +1
PVAs (i ) =
di

d
− PVAs (i ) = 10 × v × 450, 000v10 + n × v × Bv n
di
d
⇒ − PVAs (0.065) 2, 250,955.0796642043 + 0.938967 × 619228n
=
di

A211 O2023 Examiners Report Page 6 of 12 ©Actuarial Society of South Africa

 20,379, 741.435636 − 2, 250,955.0796642043
⇒ = n ⇒ n = 31.1794 years
581, 435

[6]
[Total 13]

Part (i) was the best answered question in the paper.

Question 6
i.
If i (4) = 0.09 then i = 0.09308.

The equation of value is

100,000 =
( vY + (1.06)v Y + …+ (1.06)
2 14
)
v15Y + Y × (1.06)14 × (1.1) × v16 + … + Y (1.06)14 × (1.1)15 × v 30

100,000 = Y × v (1 + (1.06)v1 + …+ (1.06)14 v14 ) + Y × (1.06)14 × v15 ( (1.1)v1 + …+ (1.1)15 v15 )

−1
 1.06 
[0.969734 ] −1
−1
Let w1 
= = −1 = 0.031210678 and
1.09308 
 1.1 
w2 
= = − 1 1.00633
= − 1 0.00632768 .
1.09308 

Then 100,000 = Y ×v × a
15 w + Y × (1.06)14 × v15 × 
s15 w (** Alternative B)
1 2

15 w = 12.203413106 and s15 w = 15.78221906

a
1 2

100,000 = (11.164211270 + 9.38968414) × Y ⇒ Y =R 4,865.26

(**) Alternative B

 1.06   1.1 
m1 =   m2 =  
1.09308  1.09308 
 1 − m115  16  1 − m2
15

v Y ×v ×   + Y ×1.06 × (1.1) × v 
14

 1 − m1   1 − m2 

[10]

A211 O2023 Examiners Report Page 7 of 12 ©Actuarial Society of South Africa

ii.

The total amount paid in the 30 repayments.

( ) (
Y 1 + 1.06 +…+ 1.0614 + 1.0614 Y 1.1 +…+ 1.115 )

= Y s15 6% + Y ×1.0614 × 
s15 10% (** Alternative C)

s15 6% 23.275969885
= s15 10% 34.949729864


= 4,865.257801888 × ( 23.275969885 + 79.017982501)

= 4,865.257801888 ×102.293952386

= 497, 686.449932427

Total interest
= paid 497, 686.449932427=
− 100, 000 R397, 686.45

(**) Alternative C
 1 − 1.0615  14  1.1 − 1.1 
16
Y  + Y × 1.06   = 113,244 + 384,443 = 497,687
 1 − 1.06   1 − 1.1 

iii.
497, 687 − 100, 000
Flat rate = F = = 0.13256215= 13.2562150% per annum
30 × 100, 000
[2]
[Total 18]

A211 O2023 Examiners Report Page 8 of 12 ©Actuarial Society of South Africa

 Part (i) was one of the best answered questions in the paper. The common error in part(i) was
to start the growth of the payments one year to early. Examiners mark with error so a total of
1 mark would have been lost for this error if the student worked consistently with their
equation of value.
A hall mark of good exam technique is to always start with an equation of value.
An area of concern is when student’s do not start with an equation of value and only write
down the final equation from which the answer is then calculated. If the final equation is
incorrect there are very little credit available in this question.
In part (ii) the total payments on the loan had to be calculated. The common error in part (ii)
was to still discount the payments by using technique developed in part (i).

Question 7

There are 4 coupons payable after purchase and the redemption amount. The table below summarizes the
money and real cashflows:

Money amount
Date Cashflow Reason Money values
INDEX OCT 2020 133.6
1 − 01 − 2021 4 Coupon 4× =4 ×
INDEX JAN 2020 131.2
INDEX APRIL 2021 134.2
01 − 07 − 2021 4 Coupon 4× =4 ×
INDEX JAN 2020 131.2
INDEX OCT 2021 134.9
01 − 01 − 2022 4 Coupon 4× =4 ×
INDEX JAN 2020 131.2
INDEX APRIL 2022 136
01 − 07 − 2022 104 Coupon+ Redemption 104 × = 104 ×
INDEX JAN 2020 131.2

A211 O2023 Examiners Report Page 9 of 12 ©Actuarial Society of South Africa

Real cashflow
Date Cashflow Reason Real values
133.6 133.6 INDEX JULY 2020 133.6 133.1
1 − 01 − 2021 4× Coupon 4× × 4×
= ×
131.2 131.2 INDEX JAN 2021 131.2 133.9
134.2 134.2 INDEX JULY 2020 134.2 133.1
01 − 07 − 2021 4× Coupon 4× × 4×
= ×
131.2 131.2 INDEX JULY 2021 131.2 134.4
134.9 134.9 INDEX JULY 2020 134.9 133.1
01 − 01 − 2022 4× Coupon 4× × 4×
= ×
131.2 131.2 INDEX JAN 2022 131.2 135.2
134.9 134.9 INDEX JULY 2020 136 133.1
01 − 07 − 2022 104 × Coupon+Redemption 104 × × 104 ×
= ×
131.2 131.2 INDEX JULY 2022 131.2 136.1

Therefore, the real equation of value is

1 1
1
110 = 4.048835134v + 4.051888248v + 4.048922554v + 105.4285765v 2
2 2

1
where i is the real effective rate and v =
1+ i

Using interpolation, let P = 110 , i1 = 0.035 and i2 = 0.036 .

−0.5
(i ) 4.04884(1 + i)
Let PV= + 4.05189(1 + i)−1 + 4.04892(1 + i)−1.5 + 105.429(1 + i)−2 , then

PV (i1 ) 110.159 > P and =

= PV (i2 ) 109.958 < P

 PV (i1 ) − P 
Therefore i3 =i1 +   × (i2 − i1 ) = 0.0357907
 PV (i1 ) − PV (i2 ) 
PV (i3 ) = 110 . Thus the real yield is i = 3.57907% per annum.
[Total 14]

Question was answered reasonably well.

Many marks were available for showing all working.
The common error was the incorrect dates (and therefor incorrect indexes) used when
adding and removing inflation.
Like in question 6 examiner mark with error, so even if the incorrect indexes were used full
credit could be gained for the 2nd half of the question.

A211 O2023 Examiners Report Page 10 of 12 ©Actuarial Society of South Africa

 Question 8
i.
Present value of income :

i = 5% ⇒ i (2) = 4.9390153% δ = 4.87902%

(rent ) 500, 000a1(2) + ( 500, 000 + 12,500 ) × v × a1(2) + ( 500, 000 + 2 ×12,500 ) × v 2 × a1(2) + 
PV=
+ ( 500, 000 + 19 ×12,500 ) × v19 × a1(2)

= 500, 000a (2)

20 (
1(2) × v + 2v 2 +  + 19v19
+ 12, 500 × a )
(2)
= 500, 000a20 + 12,500 × a1(2) × ( Ia )19 (** Alternative D)
(2)
a20 12.927643221
= a1(2) 0.987950036
a19 − 19v19
( Ia )19 = 103.412834387
=
0.05
= 6, 463,821.610292730 + 1, 277.083.918802840 = 7,740,905.529095580
(**) Alternative D
(2)
487,500a20 + 12,500 × a1(2) × ( Ia)20

PV (income) 7, 740,905.529095580 + 21, 000, 000v 20

=
= 7, 740,905.529095580 + 7,914, 679.140333010 = 15, 655,584.669428600

PV (outgo) = 11, 000, 000 + 13, 000a20 + 2, 000 ( Ia )20 + 1,500, 000v15 (** Alternative E)

a20 = 12.77123223
a20 − 20v 20
( Ia )20 = 113.701835127
=
δ
= 11, 000, 000 + 166, 026.018984500 + 227, 403.670253793 + 721,525.647136455
= 12,114,955.3363747000
(**) Alternative E

13, 000a1 × a20 + 2, 000a1 × ( Ia)20

NPV = R3,540,629.33
[20]

A211 O2023 Examiners Report Page 11 of 12 ©Actuarial Society of South Africa

ii.

Note that 13,000 a19 + 1,500, 000v15 + 2, 000 ( Ia )19 + 11,000,000 = 11,907,300.60

and that 500, 000a19(2) + 12,500 × a1(2) × ( Ia )18 = 7,452,568.56 < 11,907,300.60

then balance at t = 19 < 0 ⇒ DPP > 19 .

Therefore, given the result in (i ) positive NPV at t = 20 , we have DPP = 20.

[4]
[Total 24]

Part (i) was answered well with many marks available for working consistently from the
equation of value written down, whether the initial equation of value was correct or not.
Common errors were:
• Not incorporating yearly increase and half-yearly payments correctly in the PV(rent)
• Calculating annuity values incorrectly.
Part (ii) was not done by many students as many students seem to have run out of time.

A211 O2023 Examiners Report Page 12 of 12 ©Actuarial Society of South Africa