Student Feature: Exam Technique
IAI Core Practice exam
execution guidelines: Part 2
The Core Practice exams require the extensive practice of improving exam
techniques and less time must be spent on bookwork studies. This 2nd article
of the series by Shreyash Naresh Maheshwari, outlines the exam techniques
that must be implemented after receiving the answer paper to maximize the
probability of passing.
CP2: Modelling practice
The performance in the CP2 exam depends on the type of model asked in the exam. If the student is
familiar with the situation present in the exam, then modelling is easy. Otherwise, a great deal of time is
lost in understanding the situation and logic of the model.
CP2 exam requires the extensive practice of past exam papers. Apart from solving mock exams under
exam conditions, students must analyse past exam papers to understand how Data checks &
Reasonableness checks are applied in exams.
What to do when the CP2A exam paper falls in your hands?
First create format of Audit Trail – Purpose, Data, Parameters,
1 Assumptions, Calculations, Results & Graphs.
The Data section must contain Reasonableness Checks, Data Checks
2 & Data Corrections.
3 After every major calculation step, write in Audit Trail immediately.
4 Spend maximum 3 minutes thinking of any calculation step.
5 If you are stuck on a step, make a reasonable assumption and move on.
6 If you are familiar with the calculations, do not spend extra time on them.
In any case, Audit Trail must be completed even if some aspects of
7 Model are incomplete.
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What to do when the CP2B exam paper falls in your hands?
First create Summary format – Overview, Data, Assumptions,
1 Methodology, Results, Comments on Results, Conclusions, Next Steps.
2 Go through the Excel calculations twice & then complete remaining Model
Overview, Data, Assumptions, Methodology & Results must be completed
3 at high speed.
4 Write all Comments on Results even if they are obvious.
5 Focus on numbers and why these numbers occur?
6 Then complete Conclusions & Next Steps.
CP2 exam - data checks examples
1 Total of the cells in one range = Total in another.
2 Range of cells does not contain any negative numbers.
3 Calculated result lies within 5% of an independent estimate.
Chi-square totals for actual and expected numbers must be
4 approximately equal.
5 Estimated probability lies between 0 and 1.
6 Set of percentages sums to 100%
In pension benefit calculation, average of current ages + average of time
7 till retirement = retirement age.
Annuity factors for pension benefits must decrease as time until
8 retirement decreases
9 Accumulation factors for Investment must decrease as time decreases.
10 Annuity factors for pension benefits must decrease as rates increases.
11 Employee joining date is greater than company commencement date.
Normal Distribution Checks: Fixed upper or lower bound may affect chance
of normal distribution, Mention outliers in data, Check symmetry around
12 mean value.
Simulated Random Data Checks: Theoretical & Sample Moments must
13 be approximately same & Chi-square Test.
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CP2 exam - reasonableness checks examples
Generally, check that why a result makes sense:
Area Statement
A quick check by eye suggests that there are no
Manually Written Raw data
data items missing or materially mis-stated.
Line Graph of historical data The line chart confirms that the data seems reasonably
by time complete and valid, with each of the lines being smooth.
1. The future projections are all reasonably smooth,
which helps to validate the underlying projections.
Graphs of projections
2. The charts therefore suggest at a high level that the
projection calculations have been performed correctly.
Final calculated answer Final calculated answer is consistent with graph.
Client Profiles / Model Points They are reasonable by age.
Different Parameters They are consistent with time / age / rates, etc.
Different scenarios give higher / lower result as
Final Answer of scenarios
expected.
Each scenario gives same result as base scenario
Different Scenarios with original parameter values.
Goalseek reasonableness If Goalseek is done, then original value must give
checks original answer.
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CP2 exam - other guidelines
1 Consider explicit as well as implicit assumptions in the model.
If the formula in 1st cell of a column is different & cannot be dragged,
give it blue BG & write: “Caution: The formula in the first cell of a column
is different in some columns and cannot be dragged. These are highlighted
2 in blue.”
Whenever manual intervention (e.g. Goalseek, sorted data) is required,
3 it must be highlighted + instructions must be given.
4 Summary statistics must be provided for clean data.
Audit Trail must have clear signposting – Name of Tab as well as column
5 number or column name.
About the author(s)
Shreyash Naresh Maheshwari
Quantitative Researcher
Emkay Global Financial Services Ltd.
Shreyash has completed his Investment Actuary Qualification from IAI in 3.87 years
at age of 21.88 with AIR 1 in CS2: Risk Modelling and Survival Analysis, SP6:
Financial Derivatives, SP5: Investment and Finance & CP2: Actuarial Modelling. He is
skilled in assessing Research Papers, Developing & Backtesting Trading Strategies
and assisting the Trading & Dealing Team. In his free time, he loves to read science
fiction & action thriller books, play guitar, explore new places & meet new people.
www.theactuaryindia.org 4 of 4
