ST5: CMP Upgrade 2013/14 Page 1

Subject ST5
CMP Upgrade 2013/14

CMP Upgrade

ActEd often produces a free CMP Upgrade, which provides details of changes to the
syllabus, Core Reading and ActEd materials. This year, however, due to the large
number of changes to the Core Reading, Course Notes, Q&A Bank and X Assignments,
it is not practical to produce a full upgrade.

We offer a full replacement set of up-to-date Course Notes/CMP at a discounted price if

you have previously bought the full-price Course Notes/CMP respectively in this
subject. The prices are given in Section 0 below.

Sections 1 to 4 of this document provide a summary of the changes so that you are
aware of the main themes of these changes and the chapters that have been subject to
the greatest change.

0 Retaker discounts

When ordering retaker-price material, please use the designated place on the order
form or tick the relevant box when using the e-store.

Students have the choice of purchasing the full CMP (printed or eBook) or just the
Course Notes (printed).

Retaker price
2014 printed CMP for those having previously purchased the 60
full-price Subject ST5 CMP
2014 CMP eBook for those having previously purchased the 20 (+VAT in EU)
full-price Subject ST5 CMP

2014 printed Course Notes for those having previously 45

purchased the full-price Subject ST5 Course Notes or CMP

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1 Changes to the Syllabus objectives and Core Reading

1.1 Syllabus objectives

Objective (k)

This objective has been shortened as cointegration is no longer part of the ST5 Course.
It now reads:

(k) Show how actuarial techniques may be used to develop an appropriate

investment strategy.

asset pricing models

asset liability modelling

asset liability mismatch reserving

liability hedging

dynamic liability benchmarks.

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 ST5: CMP Upgrade 2013/14 Page 3

1.2 Core Reading

Chapter 1

p13

An extra paragraph of Core Reading has been added after the first paragraph. This
section now reads:

As well as being traded on exchanges many financial derivatives are traded over-
the-counter (OTC) by investment banks. The swaps market and the market in
forward currency contracts are two very important OTC markets. The banks will
tailor a wide variety of derivatives to suit the needs of their corporate clients.
OTC markets are much less liquid and transparent than the markets in exchange-
traded derivatives and credit risk is a major factor.

Hence, regulators are seeking ways to reduce counterparty risk, such as by

encouraging the use of a central clearing system and by requiring banks to hold
additional capital in respect of derivative transactions.

Chapter 3

p6

The Core Reading on repos has been rewritten.

p12

The Core Reading on credit derivatives has been reordered and rewritten in places.

p22

The Core Reading on swaps has been reordered and rewritten in places.

Chapter 4

p16

The Core Reading on hedge funds has been rewritten.

p41

A new Core Reading section on insurance linked securities has been added. This is
now Section 7.

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Chapter 6

p2

An extra sentence of Core Reading has been added after the existing Core Reading
paragraph. This now reads:

Students will be expected to be familiar with the relevant material from Subject
CT2, in particular, the various relationships within an organisation, agency
theory and maximising shareholder wealth.

Behavioural finance is covered in Subject CT8 and is also included in this

chapter.

Chapter 8

p16

The first Core Reading paragraph on this page has been modified slightly. It now reads:

Looking at pension fund investment in particular, fund managers are

increasingly employed on a specialist mandate basis to invest in a single asset
class, rather than on a traditional balanced or multi-asset mandate.
However, this still requires them to make operational decisions in relation to
stock selection (unless a passive index-tracking approach is to be adopted).
Managers will therefore need to be given instructions regarding any restrictions
to be applied.

Chapter 14

p24

The Core Reading in Section 5.1 has been trimmed down somewhat.

Chapter 18

p4

The Core Reading in Section 1 has been trimmed significantly.

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ST5: CMP Upgrade 2013/14 Page 5

Chapter 19

p8

The Core Reading in Section 2 on LDI has been updated significantly.

p16

The Core Reading that was in Section 3 on Cointegration has been deleted so that
Section 3 is now on Dynamic Liability Benchmarks.

Chapter 20

p24

A new Core Reading section (Section 3.8) on the use of bond repos has been added
here.

Chapter 22

Throughout this chapter, there have been numerous minor changes of wording. For
example, A fund has been changed to An investor and An investment manager
has been changed to An investor.

Chapter 24

p3

The Core Reading definition of arbitrage has been changed to:

Arbitrage

The simultaneous buying and selling of two economically equivalent but

differently priced portfolios so as to make a risk-free profit.

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2 Changes to the ActEd Course Notes

Chapter 3

The ActEd text surrounding the Core Reading changes and the ActEd text in the
summary have both been adjusted accordingly.

Chapter 4

The ActEd text surrounding the Core Reading changes and the ActEd text in the
summary have both been adjusted accordingly.

Chapter 14

p24

The ActEd text surrounding the Core Reading trimmed from Section 5.1 has been
adjusted accordingly.

p35

The summary on equity indices has been enhanced to make it clearer which country
each equity index is from.

Chapter 18

p4

The ActEd text surrounding the Core Reading trimmed from Section 1 has been
adjusted accordingly.

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Chapter 19

p1

The syllabus objective has been reworded as cointegration is no longer part of the ST5
Course. It now reads:

(k) Show how actuarial techniques may be used to develop an appropriate

investment strategy.

liability hedging

dynamic liability benchmarks.

p8

The ActEd text surrounding the updated Core Reading in Section 2 on LDI has been
adjusted accordingly.

p16

Section 3 on Cointegration has been deleted so that Section 3 is now on Dynamic

Liability Benchmarks.

Chapter 20

p24

Two new self-assessment questions have been added to complement the new Core
Reading section (Section 3.8) on the use of bond repos.

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3 Changes to the Q&A Bank

Question Details of any changes

Part (iii) of this question has been deleted as it is no longer part of
Question 1.1
the ST5 course.
Question 1.6 This question has been reworded.

Question 3.10 This question has been reworded.

This question is new here. It has been moved over from the X3
Question 3.13
Assignment where it was Question X3.6.
Question 5.3 This question has been deleted.

Question 5.4 The solution to this question has been enhanced to include liquidity
(now 5.3) risk.

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4 Changes to the X assignments

Question X1.2 This question has been reworded.

Question X1.4 This question has been enhanced to include quantitative easing.
This question has been reworded slightly to make it clearer what is
Question X1.7
required.
Question X1.8 This question is a new question on infrastructure.
The solution to this question has been reworded and the number of
Question X2.1
marks has been adjusted down.
This question has been reworded so that it doesnt sound like the
Question X2.4
country starts from having no listing regulations.
Question X2.6 The number of marks has been adjusted down slightly.

Question X2.7 This question is a new question on behavioural finance.

This question has been replaced with a new question. The old
Question X3.6
question has moved to the Q&A Bank.
Question X4.4 This question has been moved to the Q&A Bank. X4.5 is now X4.4.

Question X4.5
The number of marks has been adjusted down.
(now X4.4)
This question has been trimmed down. Part (i) is effectively to be
Question X4.6 asked in one of the new questions and part (iv) is no longer in the
ST5 Course.
Question X4.8 This question has been moved to the Q&A Bank.

New Question
This question is a new bookwork question on equity indices.
X4.7

New Question
This question is a new question on attribution analysis.
X4.8

Question X5.5 This question has been deleted.

Question X5.10 This question has been deleted.

This question has been deleted as we felt that there were too many
Question X5.11 policy switching questions in the X5 Assignment and in the Q&A
Bank.

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New Question
This question is a new bookwork question on financial risk.
X5.9

New Question This question is a new bookwork question on asset liability

X5.10 mismatch reserving.

New Question This question is a new question on liability hedging and

X5.11 operational risk.

Question X6.2 Part (ii) has been deleted.

Question X6.8 The number of marks has been adjusted down.

New Question
This question is a new question on tax.
X6.10

We only accept the current version of assignments for marking, ie those published for
the sessions leading to the 2014 exams. If you wish to submit your script for marking
but have only an old version, then you can order the current assignments free of charge
if you have purchased the same assignments in the same subject the previous year (ie
sessions leading to the 2013 exams), and have purchased marking for the 2014 session.

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 ST5: CMP Upgrade 2013/14 Page 11

5 Other tuition services

In addition to this CMP Upgrade you might find the following services helpful with
your study.

5.1 Study material

We offer the following study material in Subject ST5:

Mock Exam
Additional Mock Pack
ASET (ActEd Solutions with Exam Technique) and Mini-ASET
Sound Revision
Revision Notes
Flashcards.

For further details on ActEds study materials, please refer to the 2014 Student
Brochure, which is available from the ActEd website at www.ActEd.co.uk.

5.2 Tutorials

We offer the following tutorials in Subject ST5:

a set of Regular Tutorials (usually lasting two or three full days)
a Block Tutorial (lasting two or three full days)
a Revision Day (lasting one full day).

For further details on ActEds tutorials, please refer to our latest Tuition Bulletin, which
is available from the ActEd website at www.ActEd.co.uk.

5.3 Marking

You can have your attempts at any of our assignments or mock exams marked by
ActEd. When marking your scripts, we aim to provide specific advice to improve your
chances of success in the exam and to return your scripts as quickly as possible.

For further details on ActEds marking services, please refer to the 2014 Student
Brochure, which is available from the ActEd website at www.ActEd.co.uk.

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6 Feedback on the study material

ActEd is always pleased to get feedback from students about any aspect of our study
programmes. Please let us know if you have any specific comments (eg about certain
sections of the notes or particular questions) or general suggestions about how we can
improve the study material. We will incorporate as many of your suggestions as we can
when we update the course material each year.

If you have any comments on this course please send them by email to ST5@bpp.com
or by fax to 01235 550085.

IFE: 2014 Examinations The Actuarial Education Company