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Sample Questions
Question 1
Easy
An ETF's creation unit is typically:
Solution
A is correct.
A creation unit is a large, standardized block of ETF shares (typically 25,000 to 100,000 shares, though the exact size varies by ETF) that serves as the unit of exchange in the creation/redemption process. Only authorized participants (APs) — typically large broker-dealers or market makers — can create or redeem shares in creation unit increments by exchanging the underlying securities (or cash) with the ETF issuer.
A creation unit is a large, standardized block of ETF shares (typically 25,000 to 100,000 shares, though the exact size varies by ETF) that serves as the unit of exchange in the creation/redemption process. Only authorized participants (APs) — typically large broker-dealers or market makers — can create or redeem shares in creation unit increments by exchanging the underlying securities (or cash) with the ETF issuer.
Question 2
Medium
What is the ending PBO for Year 4?
Solution
C is correct.
The PBO reconciliation:
Beginning PBO: 120M
Add: Service cost: 8M
Add: Interest cost: 6M
Add: Actuarial loss: 4M (increases the PBO because a lower discount rate raises the present value of obligations)
Less: Benefits paid: M
Ending PBO = M
The PBO increases for service cost, interest, and actuarial losses, and decreases for benefits paid.
The PBO reconciliation:
Beginning PBO: 120M
Add: Service cost: 8M
Add: Interest cost: 6M
Add: Actuarial loss: 4M (increases the PBO because a lower discount rate raises the present value of obligations)
Less: Benefits paid: M
Ending PBO = M
The PBO increases for service cost, interest, and actuarial losses, and decreases for benefits paid.
Question 3
Hard
What is the ending loss reserve balance?
Solution
B is correct.
The loss reserve changes as follows:
Beginning reserve: 15,000M
Add: New claims incurred: 8,200M
Less: Claims paid: M
Less: Prior-year reserve reduction (favorable development): M
Ending reserve = M
The ending reserve equals the beginning reserve because new claims roughly offset payments, and the favorable prior-year development offsets the net addition.
The loss reserve changes as follows:
Beginning reserve: 15,000M
Add: New claims incurred: 8,200M
Less: Claims paid: M
Less: Prior-year reserve reduction (favorable development): M
Ending reserve = M
The ending reserve equals the beginning reserve because new claims roughly offset payments, and the favorable prior-year development offsets the net addition.
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