Faculty of Actuaries Institute of Actuaries
EXAMINATIONS
April 1998
Subject B — Economics and Finance
Paper Two
Time allowed: Three hours
INSTRUCTIONS TO THE CANDIDATE
1. Write your surname in full, the initials of your other names and your
Candidate’s Number on the front of the answer booklet.
2. Begin your answers to Parts One, Two and Three on a separate sheet.
3. Mark allocations are shown in brackets.
4. Attempt all 33 questions.
Graph paper is not required for this paper.
AT THE END OF THE EXAMINATION
Hand in BOTH your answer booklet and this question paper.
In addition to this paper you should have available
Actuarial Tables and an electronic calculator.
ã Faculty of Actuaries
B2—A98 ã Institute of Actuaries
B2(A)—2
PART ONE
For questions 1–14 indicate in your answer booklet which one of the answers A, B, C or
D is correct.
1 What is the meaning of a company’s “authorised capital”?
A The amount of share capital it has issued
B The amount of share capital for which payment has been received
C The total amount of share capital it is allowed to issue
D The total amount of loan capital it has issued 0
2 A company purchases an asset costing £125,000. It has an estimated useful life
of 5 years, after which its residual value will be £5,000. If the reducing balance
method of depreciation is used, at a rate of 40%, what is the profit and loss
charge for depreciation in year 2?
A £50,000
B £48,000
C £30,000
D £28,800 0
3 A company has £100,000 of ordinary shares at a nominal value of 10 pence
each, and 100,000 5% preference shares at a nominal value of 50 pence each.
The directors decide to declare a dividend of 5p per ordinary share. The total
amount to be paid out by way of dividends is:
A £5,000
B £7,500
C £52,500
D £55,000 [2]
4 In the previous twelve months, GHI Ltd has issued 50,000 new shares at £1
each. At the same time, it redeemed a long-term loan of £15,000. It paid out
£10,000 in dividends during the year. It also purchased the entire share
capital of another company, at a cost of £20,000.
In GHI Ltd’s cash flow statement for the year, what figure should appear
under the heading “financing”?
A £50,000
B £35,000
C £25,000
D £5,000 [2]
B2(A)—3 PLEASE TURN OVER

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