AFE Online Practice Questions and Answers

With the advent of adjustable rate mortgages, amortization schedules are adjusted periodically as dictated by the terms of the loan agreement. A _____________file is used to indicate when to adjust the rate. Most computer software systems can adjust amortization schedules by reminding the company of change dates, accept current rate adjustments, and to produce new schedules.

A. Automated software

B. Tickler or reminder

C. Emergency

D. Excel

What is the purpose of consolidated financial statements?

A. These statements are intended to reflect the financial position and results of operations of an economic entity rather than a legal entity.

B. These statements are intended to ignore the financial position and results of operations of an economic entity rather than an unofficial entity.

C. These statements are intended to reflect the financial position and results of operations of a credited entity rather than a supplemental entity.

D. None of the above

Duration is a measure of the first-order interest rate sensitivity of a financial instrument.

A. True

B. False

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?

A. Delta and gamma

B. Gamma and theta

C. Theta and rho

D. Alpha and Vega

An instrument that grants the holder the right but not the obligation to buy the underlying asset at a specified strike price is known as:

A. Sell Option

B. Call Option

C. Buy Option

D. None of the above

Which of the following is NOT the type of Merit rating?

A. Policy rating

B. Schedule rating

C. Experience rating

D. Retrospective Experience rating

In which account current, for individual policies, the agent collects the premiums directly from the insureds, subtracts his or her commissions and remits the net premiums due to entity?

A. Billing basis

B. Paying commission basis

C. Item basis

D. Bushiness costs

The market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability is known as:

A. Transfer market

B. Transport market

C. Principal market

D. Turn-around market

To avoid double counting or omitting the effects of risks factors what should reflect assumptions that are consistent with those inherent in the cash flows?

A. Economic flow

B. Nominal flows

C. Discount rates

D. Inflation effect

What technique uses a risk-adjusted discount rate and contractual, promised, or most likely cash flows?

A. Asset/Liability weighted

B. Fair value

C. Present value

D. Discount rate adjustment