300.

A loan of 5,000,000 is to be repaid by installments of X at the end of each quarter over a period
of ten years. The annual nominal interest rate for the loan is 8% compounded quarterly.

The actual quarterly payment for the first five years is X rounded up to the next higher 1000.
After that, each quarterly payment is X rounded up to the next higher 100,000, until the loan is
paid off with a drop payment.

Calculate the total number of payments, including the drop payment, needed to repay the loan.

(A) 36
(B) 37
(C) 38
(D) 39
(E) 40

301.
A ten-year 100 face amount bond has an annual coupon rate of 8% payable semiannually. The
bond is callable at the end of the 5th, 7th, and 9th years at par, immediately after the coupon
payment.

Calculate the maximum price of the bond that ensures an annual effective yield of at least 6%.

(A) 108.92
(B) 111.83
(C) 114.41
(D) 115.59
(E) 116.74

302.
Susan receives annual payments from a 20-year annuity-immediate. The payment in year 1 is
100 and in each succeeding year the payment is 90% of the prior year’s payment.

Upon receipt of each payment, Susan invests the payment in a savings account earning interest at
a 3% annual effective rate.

Calculate the balance in the savings account immediately after Susan invests the last annuity
payment.

(A) 696
(B) 717
(C) 739
(D) 1296
(E) 1335

147
303.
Two deposits are made into a fund: 300 at time 0 and X at time 4. The force of interest for the
t
fund is δ t = , t ≥ 0 . The amount of interest earned from time 0 to time 10 is 4X .
50
Calculate X .

(A) 145
(B) 173
(C) 181
(D) 192
(E) 201

304.
An insurance company has a liability of 750,000 due four years from now. To protect against
interest rate risk, it decides to employ the technique of full immunization. Specifically, it decides
to hold three assets, each providing a single cash flow as follows:

i) Asset X provides a cash flow of AX , exactly two years from now.

ii) Asset Y provides a cash flow of 250,000, exactly four years from now.
iii) Asset Z provides a cash flow of AZ , exactly five years from now.

The annual discount factor is v = 0.95.

Calculate AX .

(A) 150,000
(B) 175,000
(C) 200,000
(D) 225,000
(E) 250,000

148
305.
A loan of 50,000 id based on an annual effective interest rate of 6%.

You are given:

i) The loan is to be repaid with quarterly payments of 2125 and a final drop payment.
ii) The first payment is due 1.5 years after the loan is taken out.

Calculate the number of payments of 2125 to be made.

(A) 28
(B) 29
(C) 30
(D) 31
(E) 32

306.
You are given the following information regarding Company J.

i) It has a single liability of 1.75 million to be paid 12 years from now.

ii) Its asset portfolio consists of a zero-coupon bond maturing in 5 years for 242,180 and a
zero-coupon bond maturing in 14 years for X.
iii) At an annual effective interest rate of 7%, Company J’s position is fully immunized.

Calculate the present value of the assets less the present value of the liabilities if the annual
effective interest rate immediately changes to 4%.

(A) 5,910
(B) 8,871
(C) 11,029
(D) 14,746
(E) 17,462

149
307.
A scholarship foundation is committed to make a payment of 20,000 exactly two years from
today. It plans to use two zero-coupon bonds to fully immunize the liability based on a flat curve
and an annual effective yield rate of 5.5%. One of the bonds will have a one-year maturity and
the other will have a three-year maturity.

Calculate the face value of the one-year zero-coupon bond.

(A) 9,479
(B) 9,779
(C) 10,079
(D) 10,379
(E) 10,679

308.
A construction firm is facing three liabilities of 1000, due at the end of each of the periods 1, 2,
and 3. There are three bonds available to match these liabilities, as follows:

Bond I A bond due at the end of period 1 with a coupon rate of 1% per period, valued
at a periodic effective yield rate of 14%
Bond II A bond due at the end of period 2 with a coupon rate of 2% per period, valued
at a periodic effective yield rate of 15%
Bond III A zero-coupon bond due at the end of period 3 valued at a periodic effective
yield rate of 18%

Calculate the total purchase price of the three bonds required to exactly match the liabilities.

(A) 2182
(B) 2202
(C) 2222
(D) 2242
(E) 2283

150
309.
An annuity-immediate provides annual payments of 10 for 20 years. Immediately following the
11th payment, the annuity is exchanged for a perpetuity-immediate of equal value with semi-
annual payments. The present values at the time of the exchange are based on an annual effective
interest rate of 6%.

The first payment of the perpetuity is K and each subsequent payment is 0.5% larger than the
previous payment.

Calculate K.

(A) 1.53
(B) 1.67
(C) 2.37
(D) 3.42
(E) 3.74

310.
An insurance company purchases a perpetuity-due at an annual effective yield rate of 12.5% for
9450. The perpetuity provides annual payments according to the repeating three-year pattern
100, X, 100, 100, X, 100, 100, X, 100, ... .

Calculate X.

(A) 2950
(B) 2963
(C) 3321
(D) 3344
(E) 3359

151
311.
A credit card company charges an annual effective interest rate of 16.8%. Interest accumulates
from the date of purchase.

A borrower's credit card balance was X at the beginning of month 1. Starting with month 1, the
borrower purchased satellite internet service, resulting in a 79.99 charge on the credit card at the
middle of each month.

The borrower paid 250 at the end of each month. Immediately after the payment in month 15,
the balance was 3000.

Determine which of the following is an equation of value that can be used to solve for X.

15 15
79.99 3000 250
(A) X +∑ = +∑
(1.014 ) (1.014 ) (1.014 )
n − 0.5 15 n
n =1 n =1

16 16
79.99 3000 250
(B) X +∑ n + 0.5
= 5
+∑ n
n =1
(1.168) 12 (1.168) 4 n =1
(1.168)12
16 16
79.99 3000 250
(C) X +∑ n − 0.5
= 4
+∑ n
n =1
(1.168) 12 (1.168) 3 n =1
(1.168)12
15 15
79.99 3000 250
(D) X +∑ n + 0.5
= 5
+∑ n
n =1
(1.168) 12 (1.168) 4 n =1
(1.168)12
15 15
79.99 3000 250
(E) X +∑ n − 0.5
= 5
+∑ n
n =1
(1.168) 12 (1.168) 4 n =1
(1.168)12

312.
Deposits of 100 are made to an account today and one year from today. The annual force of
interest at time t in years for this account is:

δt = 0.03 + 0.005t, 0 ≤ t ≤ 3

Calculate the account balance two years from today.

(A) 211.07
(B) 211.87
(C) 216.05
(D) 216.79
(E) 220.24

152
313.
A perpetuity-due with annual payments is priced at X based on an annual effective interest rate of
7%. The amount of the first payment is 350. Each payment, from the second through the
thirtieth, is 3% larger than the previous payment. Starting with the 31st payment, each payment
is equal to the 30th payment.

Calculate X.

(A) 7508
(B) 7855
(C) 7925
(D) 7971
(E) 8033

314.
A student takes out a loan for 30,000. The annual nominal interest rate is 9%, convertible
semiannually.

The student pays off the loan in five years with monthly payments beginning one month from
today. The first payment is 500, and each subsequent payment is X more than the previous
payment.

Determine which of the following is an equation of value that can be used to solve for X.

60
500 + nX
(A) 30, 000 = ∑ n
n =0
(1.015) 2
60
500 + nX
(B) 30, 000 = ∑ n
n =0
(1.045) 6
60
500 + nX
(C) 30, 000 = ∑ n
n =1
(1.045) 6
60
500 + (n − 1) X
(D) 30, 000 = ∑ n
n =1
(1.015) 2
60
500 + (n − 1) X
(E) 30, 000 = ∑ n
n =1
(1.045) 6

153
315.
Each of bonds A, B, and C sells for 10,000 and has the same annual effective yield rate and term.
The par values and coupon rates are shown below.

Bond A Bond B Bond C

Par Value 20,000.00 10,835.58 X
Annual Coupon Rate 0% 4% 3%

Each bond is redeemed at par, and all coupons are paid annually.

Calculate X.

(A) 12,240
(B) 12,630
(C) 13,130
(D) 13,540
(E) 14,450

316.
A perpetuity-immediate with annual payments consists of ten level payments of k, followed by a
series of increasing payments. Beginning with the eleventh payment, each payment is 200 larger
than the preceding payment.

Based on an annual effective interest rate of 5.2%, the present value of the perpetuity is 50,000.

Calculate k.

(A) 34
(B) 86
(C) 163
(D) 283
(E) 409

154
317.
A bank issues two 30-year bonds, A and B, each with annual coupons, an annual effective yield
rate of 7%, and a face amount of 1000. The total price of these two bonds is 3000.

Bond B's annual coupon rate is equal to Bond A's annual coupon rate plus 0.5%.

Calculate the annual coupon rate of Bond A.

(A) 10.06%
(B) 10.78%
(C) 10.90%
(D) 11.31%
(E) 11.84%

318.
A ten-year bond with a face amount of 1000, a redemption value of C, and an annual coupon rate
of 7% paid semiannually is purchased at a discount to yield an annual nominal rate of 7.5%,
convertible semiannually.

The accumulation of discount in the 12th coupon is 7.

Calculate C.

(A) 673
(B) 799
(C) 1193
(D) 1344
(E) 1540

155
319.
You are given the following information about Bond A and Bond B:

i) Bond A is a 20-year bond that has 10,000 face amount, an annual coupon rate of 7%
payable semiannually, and has a redemption value that is 10% higher than its price.
Bond A is bought to yield an annual nominal interest rate of 5% convertible
semiannually.

ii) Bond B is an n-year bond with semiannual coupons and the same face amount,
redemption value, coupon rate, and yield rate as Bond A. The price of Bond B is 158.33
less than the price of Bond A.

Calculate n.

(A) 12
(B) 17
(C) 24
(D) 36
(E) 48

320.
An investor purchases two bonds having the same positive annual effective yield rate.

With respect to the annual effective yield rate, their modified durations are a years and b years,
with 0 < a < b .

One of these two bonds has a Macaulay duration of d years, with a < d < b.

Determine which of the following is an expression for the Macaulay duration of the other bond,
in years.

(A) bd / a
(B) ad / b
(C) ab / d
(D) b+d–a
(E) a+d–b

156
321.
John deposits 1000 into a fund. The fund earns:

i) an annual nominal rate of interest of 4% convertible quarterly for the first three years;
ii) a constant annual force of interest of 5% for the next three years; and
iii) an annual nominal discount rate of 6% convertible semiannually thereafter.

Calculate the amount in the fund at the end of ten years.

(A) 1658
(B) 1667
(C) 1670
(D) 1674
(E) 1677

322.
A payment of 7 is deposited into an account at the end of each year for 45 years. The account
earns an annual effective interest rate of i.

Immediately after the 45th deposit of 7, the account has accumulated to X, which is used to
purchase a perpetuity-immediate. At an annual effective interest rate of 1.2i, the perpetuity will
make annual payments of 75.60.

Calculate X.

(A) 1050
(B) 1120
(C) 1200
(D) 1260
(E) 1340

323.
A loan of 20,000 is to be repaid with payments at the end of each year for ten years. The first
payment is X. Each subsequent payment is 6% greater than the preceding payment.

The loan payments are based on an annual effective interest rate of 10%.

Calculate the loan balance immediately after the eighth payment.

(A) 6685
(B) 6937
(C) 7353
(D) 7794
(E) 8088

157
324.
1
You are given that the force of interest at time t (in years) is .
t +8

Calculate the annual effective rate of interest in year 5.

(A) 6.2%
(B) 6.6%
(C) 7.4%
(D) 8.3%
(E) 9.5%

325.
An investor buys a one-year bond with a face amount of 100 and an annual coupon rate of 6%
paid semiannually. The bond is purchased at a discount of 1.50 to yield an annual nominal rate
of j convertible semiannually.

Calculate j.

(A) 0.022
(B) 0.038
(C) 0.068
(D) 0.076
(E) 0.136

326.
A 20-year bond with 8% annual coupons is purchased at a price of P. The face amount of the
bond is F. The price assumes an annual effective yield rate of 4%.

The change in book value of the bond during the 8th year is equal to 43.24.

Calculate P.

(A) 2315
(B) 2470
(C) 2625
(D) 2780
(E) 3085

158
327.
An n-year annuity, with a payment of 1 at the end of each year, has a present value of 5.5554 at
an annual nominal interest rate, convertible m times per year.

Also:

i) j is the effective rate of interest per interest conversion period, and

(1 + j ) = 1.0614.
m
ii)

Calculate n.

(A) 7
(B) 8
(C) 9
(D) 10
(E) There is insufficient information to calculate n.

328.
A customer has the option to either buy a car for cash for 15,000 or lease it with a down payment
of 1000 and monthly payments of X payable at the end of each month for three years.

Under the purchase option, the car has a value to the customer of 8000 at the end of three years.
At the end of the three-year lease, the car is returned and has no value to the customer.

The customer is indifferent to the options at an annual nominal interest rate of 12% convertible
monthly.

Calculate X.

(A) 259
(B) 269
(C) 279
(D) 289
(E) 299

159
329.
A loan of 20,000 is to be repaid with ten increasing installments payable at the end of each year.
Each installment will be 10% greater than the preceding installment. The annual effective
interest rate on the loan is 9%.

Calculate the amount of principal in the second installment.

(A) 292
(B) 527
(C) 975
(D) 1435
(E) 1774

330.
At time t = 0 , 3 is deposited into an investment fund earning interest at a force of interest
δ t = 1 ( t + 1) .

At the same time, X is as deposited into a bank account paying interest at an annual effective
interest rate of 5%.

In the third year, the interest earned on the first account and the interest credited on the second
account are exactly the same.

Calculate X.

(A) 5.5
(B) 8.2
(C) 13.0
(D) 25.7
(E) 54.4

160
331.
Current loan rates are based on the following term structure of interest rates:

Investment Spot
Length (years) Rate
1 5.00%
2 5.25%
3 5.75%
4 6.25%
5 7.25%

A loan of 6000 is to be repaid with a single payment of principal plus interest at the end of five
years. The borrower has two choices:

i) a 5-year loan.
ii) a 3-year loan to be repaid with a single payment of principal plus interest by
taking out a 2-year loan at the beginning of year 4.

Calculate the annual effective interest rate on the 2-year loan such that the borrower is indifferent
between the two choices.

(A) 6.25%
(B) 7.25%
(C) 8.26%
(D) 9.54%
(E) 11.00%

332.
An investor wants to accumulate 150,000 to purchase a business in ten years. The investor
deposits 14,000 into an account at the beginning of each of years one through five. The investor
deposits an additional amount X at the beginning of years four and five to meet this goal. The
account earns interest at an annual effective rate of 8%.

Calculate X.

(A) 2,113
(B) 2,592
(C) 5,958
(D) 9,595
(E) 11,574

161
333.
Determine which of the following statements about immunization strategies are true.

I. Redington immunization protects against any change in interest rates.

II. Full immunization occurs only when the duration of the assets is greater than
the duration of the liabilities.

III. Immunization techniques strive to arrange the asset portfolio such that the
convexity of the assets is equal to the convexity of the liabilities.

(A) None
(B) I and II only
(C) I and III only
(D) II and III only
(E) The correct answer is not given by (A), (B), (C), or (D).

334.
Today’s deposit of 9550 earns an annual effective interest rate of i for five years. At the end of
the fifth year, the entire accumulated balance is reinvested into a 20-year annuity-due. The
annuity-due has level annual payments of 756.97 at an annual effective interest rate of 4%.

Calculate i.

(A) 1.5%
(B) 2.3%
(C) 7.7%
(D) 12.0%
(E) 19.7%

335.
A zero-coupon bond with a face value of 1000 sells for a price of 600 and matures in n years,
where n is a whole number.

A second bond has the same price, same time until maturity, and same annual effective yield. It
pays annual coupons at an annual rate equal to 50% of the annual effective yield rate.

Calculate the face value of the second bond.

(A) 666.67
(B) 750.00
(C) 774.60
(D) 800.00
(E) 826.40

162
336.
An actuary invests 1000 at the end of each year for 30 years. The investments will earn interest
at a 4% annual effective interest rate and, at the end of each year, the interest will be reinvested
at a 3% annual effective interest rate.

Calculate the accumulated value of the investment at the end of the 30-year period.

(A) 51,625
(B) 53,434
(C) 55,260
(D) 58,437
(E) 58,938

337.
A purchase of 5020 is paid off with a loan at an annual effective interest rate of 6.25%.
Payments are made at the end of each year until the loan is paid off. Each payment is 360 except
for a final balloon payment, which is less than 720.

Calculate the amount of the balloon payment.

(A) 611
(B) 630
(C) 649
(D) 667
(E) 685

338.
A company is required to pay 50, 000(1.075) y in y years. The company invests 30,000 in a 28-
year zero-coupon bond and 20,000 in a 35-year zero-coupon bond to Redington immunize its
position against small changes in interest rates, based on an annual effective interest rate of
7.5%.

Calculate y.

(A) 30.80
(B) 31.32
(C) 31.50
(D) 31.68
(E) 32.20

163
339.
You are given the following information regarding Company J.

i) It has a single liability of 1,750,000 to be paid 12 years from now.

ii) Its asset portfolio consists of a zero-coupon bond maturing in 5 years for 242,180 and
a zero-coupon bond maturing in n years.
iii) At an annual effective interest rate of 7%, Company J’s position is fully immunized.

Calculate n.

(A) 13
(B) 14
(C) 15
(D) 16
(E) 17

340.
A 15-year bond with semiannual coupons is purchased for 2895.28. The bond is redeemable for
1000. The first coupon payment is equal to R and each subsequent coupon is 1% larger than the
previous coupon payment. The annual nominal yield rate on this bond is 6.2% convertible
semiannually.

Calculate R.

(A) 110
(B) 114
(C) 122
(D) 128
(E) 132

341.
An annuity writer sells an annual perpetuity-due, with a first payment of 3000. The payments
increase by 7% annually.

The purchase price, P, of the perpetuity is based on a 12% annual force of interest.

Calculate P.

(A) 41,096
(B) 52,177
(C) 58,829
(D) 60,000
(E) 67,200

164
342.
An investor opens a savings account with no initial deposit that pays a constant 4.5% annual
force of interest. The investor deposits 700 at the end of every six-month period for 20 years.

The account balance immediately after the last deposit is X.

Determine which of the following is an equation of value that can be used to solve for X.

39
(A) ∑ 700e
n =0
0.0225 n
= Xe −0.9
39
(B) ∑ 700e
n =0
−0.0225 n
= Xe0.9
39
(C) ∑ 700e
n =0
−0.0225 n
= Xe −0.9
39
(D) ∑ 700e
n =0
0.0225 n
= Xe0.9
40
(E) ∑ 700e
n =1
−0.0225 n
= Xe −0.9

343.
A five-year interest-only loan in the amount of 10,000 has annual payments, and an annual
effective interest rate i. At the end of year 5, the borrower pays off the principal along with the
last interest payment.

To finance the principal payment, the borrower buys the following two zero-coupon bonds that
both mature at the end of year 5.

Annual
Time of Purchase Par Value Effective Yield
Bond 1 End of year 3 2000 3.0%
Bond 2 End of year 4 8000 2.5%

It costs the borrower a total of 2260.19 at the end of year 3 to pay the interest due and to buy
Bond 1.

Calculate i.

(A) 2.60%
(B) 3.00%
(C) 3.18%
(D) 3.75%
(E) 4.30%

165
344.
A company faces the following liabilities at the end of the corresponding years:

Year 1 2 3 4
Liability 5,766 X 15,421 7,811

The company can invest in the following three annual coupon bonds redeemable at par:

Term (in years) Annual coupon rate

Bond A 1 1%
Bond B 3 5%
Bond C 4 7%

The company invests in each bond so that the asset and liability cash flows are exactly matched.

Calculate X.

(A) 1221
(B) 1245
(C) 1290
(D) 1318
(E) 1375

345.
An n-year bond with an annual coupon rate of r % has the following characteristics:

i) The face amount is 980.

ii) Coupons of 49 are paid semiannually.
iii) The annual nominal yield rate convertible semiannually is (r + 1.8)%.
iv) The purchase price is 915.70.
v) The redemption value is 1000.

Calculate n.

(A) 2
(B) 3
(C) 4
(D) 5
(E) 6

166
346.
A liability consists of a payment of 2000 to be paid six months from now and a payment of 1500
to be paid one year from now.

The only investments available are:

i) Six-month zero-coupon bonds with an annual nominal yield rate of 3.5%

convertible semiannually, and
ii) One-year par value bonds with an annual coupon rate of 6% payable semiannually
and an annual nominal yield rate of 4.2% convertible semiannually.

Calculate the total cost of a portfolio that exactly matches the liability cash flows.

(A) 3393
(B) 3404
(C) 3418
(D) 3447
(E) 3463

347.
A store purchased couch #1 for X two months ago and plans to sell it for 1500 six months from
today.

The same store purchases couch #2 for X today and plans to sell it for 1500 four months
from today.

The annual force of interest is a constant 10%.

The current value of the store’s cash flows from the purchase and sale of couch #2 is 260.

Calculate the current value of the store’s cash flows from the purchase and sale of
couch #1.

(A) 216
(B) 218
(C) 256
(D) 260
(E) 307

167
348.
You are given the following information regarding two annuities with annual payments:

i) Annuity X is a 20-payment annuity-immediate which provides an initial payment

of 2500 and each subsequent payment is 5% larger than the preceding payment.
ii) Annuity Y is a 30-payment annuity-due which provides an initial payment of k
and each subsequent payment is 4% larger than the preceding payment.

Using an annual effective interest rate of 4%, Annuity X and Annuity Y have the same present
value.

Calculate k.

(A) 1,758
(B) 1,828
(C) 1,901
(D) 2,078
(E) 2,262

349.
2
The annual force of interest is δ t = , for in which t is measured in years.
10 − t
Calculate the equivalent annual nominal discount rate compounded every two years for the
period

(A) 20%
(B) 23%
(C) 27%
(D) 29%
(E) 34%

350.
A portfolio consists of two bonds. Bond A is a three-year 1000 face amount bond with an annual
coupon rate of 6% paid annually. Bond B is a one-year zero-coupon bond. Both bonds yield an
annual effective rate of 4%.

Calculate the percentage of the portfolio to invest in Bond A to obtain a Macaulay duration of
two years.

(A) 44.5%
(B) 45.6%
(C) 50.0%
(D) 54.4%
(E) 55.5%

168