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Exam CBAP topic 1 question 365 discussion

Actual exam question from IIBA's CBAP

Question #: 365
Topic #: 1

An insurance company wants to increase sales by 15% and customer retention by 10% within 1 calendar year. Various strategies to achieve this were considered and a restructure to the existing pricing model is selected to help achieve these goals.
A business analyst (BA) works with stakeholders such as actuaries, product specialists, sales staff, risk managers, and underwriters who agree to applying varying levels of discounts to customers based on:
"¢ Total annual premium the customer has with the company (Financial worth)
"¢ Time with the insurance company (Loyalty)
Various financial models are considered but the stakeholders agree that an initial applicable discount is determined based on the customer's overall premium:

The percentage of the maximum possible discount available to the customer is adjusted based on time with the company:

If within the first six months, customer retention increased by 5 % and sales increased by 6%, then when will the desired sales and retention goals be achieved assuming the trend continues at the same pace?

A. Sales "" 2 years; Retention "" 18 months
B. Sales "" 3 years; Retention "" 1 year
C. Sales "" 2.5 years; Retention "" 2 years
D. Sales "" 18 months; Retention "" 1 year

Show Suggested Answer

Suggested Answer: D 🗳️

by siliconvalleykam at Jan. 12, 2021, 2:03 a.m.

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siliconvalleykam

Highly Voted 4 years ago

D Sale 18 months and Retention 1 year

upvoted 11 times

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Rabbitsfoot

Most Recent 10 months, 2 weeks ago

Selected Answer: D

To solve this problem, we need to calculate the expected time it will take for sales to increase by 15% and retention to increase by 10% based on the given trend. If sales increased by 6% within the first six months, we can calculate the expected time it will take to achieve a 15% increase using simple proportion: 6% increase -> 6 months 15% increase -> X months Using the proportion 6/15 = 6/X, we find that X = 15/6 x 6 = 15 months.

upvoted 2 times

Rabbitsfoot

10 months, 2 weeks ago

Similarly, if retention increased by 5% within the first six months, we can calculate the expected time it will take to achieve a 10% increase: 5% increase ->6 months 10% increase -> Y months Using the proportion 5/10 = 6/Y, we find that Y = 10/5 * 6 = 12 So, according to the given trend, sales will reach the desired goal in 15 months and retention will reach the desired goal in 12 months, i.e.: Sales - 15 months; Retention - 12 months Therefore, the closest and correct answer is: D. Sales - 18 months; Retention - 1 year

upvoted 2 times

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Iron79Man

1 year, 1 month ago

sales increases 1% monthly and discounts increases on average 0.6% monthly this means that the overall sales increases .0.4% Monthly. This means that 15 sales increase will needs around 37 months (3 years)

upvoted 3 times

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SDab

1 year, 10 months ago

Let's assume 100 customers generating revenue of $x amount. Period Total number of customers new customers at the year end 6 months 106 12 months 112.36 112 18 months 119.1016 24 months 126.247696 14.247696 30 months 133.8225578 36 months 141.8519112 15.60421523 First Year discount rate is 73% and customers will be 112. The first 100 customers will get 73% discount whereas new 12 customers will get only 65% discount : (100*0.73)+(12*0.65)=73+7.8=80.8 of total revenue Second Year : (100*0.8)+(12*0.73)+(14*0.65)=97.86--with 6%growth the number of new customers acquired at the end of year 2 are additional 14 customers who will get only 65% discount Third year : (100*0.85)+(12*0.80)+(14*0.73)+(16*0.65)= 115.22*$x which will be 15% more of initial revenue.

upvoted 2 times

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sojomoojo

2 years, 5 months ago

The more i see questions like this being flunked, the more I question the other solutions. This is a straight forward calculation that should get you a D. But the authors chose B. I would have thought Author's answers should give a level of succour but now I am loosing confidence with these answers.

upvoted 2 times

fepecy

1 year, 5 months ago

I don't think this was answered by author. Must have been a random person and that's why we have the contributor access to query all answers and by doing so deepen ones knowledge.

upvoted 1 times

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OlivierPaudex

2 years, 10 months ago

Selected Answer: D

Most logic answer is D. Why 3 years as mentioned in answer B ? 3 years will increase total sales to 36%

upvoted 1 times

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786NB786

3 years, 1 month ago

D - Sales 18months and Retention 1 year. It's following simple logic and looking at the trend of when the desired sales and retention will be achieved.

upvoted 2 times

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Kajol_2021

3 years, 9 months ago

Target is Increase in Sale is 15 % and Customer retention is 10 %. In 6 moths sale increase is 6% , in 18 months it will be (6*3)= 18% In 6 months customer retention is 5%, in 12 months(1yr) it will be (5*2) = 10 %. Hence option is D as within this timeline , both are achieved.

upvoted 3 times

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RishabJaiswal

3 years, 10 months ago

Can someone please explain this?

upvoted 2 times

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