The correct answer is: C. This method gives homogenized rates of return.
The portfolio method is a method of calculating the investment return of a life insurance policy. It is based on the assumption that the total investment return is shared between policyholders, regardless of when they made their investments. This means that policyholders who invested earlier will not receive a higher rate of return than policyholders who invested later.
The portfolio method is a simple and easy-to-understand method of calculating the investment return of a life insurance policy. However, it is not always the most accurate method. This is because it does not take into account the different investment risks that policyholders face. For example, policyholders who invested in stocks may have a higher rate of return than policyholders who invested in bonds.
The portfolio method is also not the most transparent method of calculating the investment return of a life insurance policy. This is because it does not provide information on the individual investments that make up the portfolio. This can make it difficult for policyholders to understand how their investment return is calculated.
Overall, the portfolio method is a simple and easy-to-understand method of calculating the investment return of a life insurance policy. However, it is not always the most accurate or transparent method.
Here is a brief explanation of each option:
- Option A: The total investment return is shared between policyholders. This is correct. The portfolio method is based on the assumption that the total investment return is shared between policyholders, regardless of when they made their investments.
- Option B: No attempt is made to distinguish between investments of previous years over current investments. This is correct. The portfolio method does not take into account the different investment risks that policyholders face. For example, policyholders who invested in stocks may have a higher rate of return than policyholders who invested in bonds.
- Option C: This method gives homogenized rates of return. This is incorrect. The portfolio method is not always the most accurate method of calculating the investment return of a life insurance policy. This is because it does not take into account the different investment risks that policyholders face.
- Option D: None of the above. This is incorrect. Option C is the only incorrect option.