When pricing its product, the Panda Health Plan assumes a 4% interest rate on its investments. Panda also assumes a crediting interest rate of 4%. The actual interest rate earned by Panda on the assets supporting its product is 6%. The following statements can correctly be made about the investment margin and interest margin for Panda's products.

Question

Quizplus · Accepted Answer

The investment margin is the difference between the actual interest earned on investments and the interest rate assumed in pricing the product. Therefore, Panda's investment margin is (6% - 4%) = 2%. Statement A is incorrect because the crediting interest rate is already factored into the product's pricing, and is not included in the investment margin. Statement B is incorrect because the investment margin does not relate to benefit costs.

When Pricing Its Product, the Panda Health Plan Assumes a 4