1.

Bruce deposits 100 into a bank account. His account is credited interest at an annual nominal rate
of interest of 4% convertible semiannually.

At the same time, Peter deposits 100 into a separate account. Peter’s account is credited interest
at an annual force of interest of δ .

After 7.25 years, the value of each account is the same.

Calculate δ .

(A) 0.0388
(B) 0.0392
(C) 0.0396
(D) 0.0404
(E) 0.0414

2.
Kathryn deposits 100 into an account at the beginning of each 4-year period for 40 years. The
account credits interest at an annual effective interest rate of i.

The accumulated amount in the account at the end of 40 years is X, which is 5 times the
accumulated amount in the account at the end of 20 years.

Calculate X.

(A) 4695
(B) 5070
(C) 5445
(D) 5820
(E) 6195

2
3.
Eric deposits 100 into a savings account at time 0, which pays interest at an annual nominal rate
of i, compounded semiannually.

Mike deposits 200 into a different savings account at time 0, which pays simple interest at an
annual rate of i.

Eric and Mike earn the same amount of interest during the last 6 months of the 8th year.

Calculate i.

(A) 9.06%
(B) 9.26%
(C) 9.46%
(D) 9.66%
(E) 9.86%

4.
A perpetuity costs 77.1 and makes end-of-year payments. The perpetuity pays 1 at the end of
year 2, 2 at the end of year 3, …., n at the end of year (n+1). After year (n+1), the payments
remain constant at n. The annual effective interest rate is 10.5%.

Calculate n.

(A) 17
(B) 18
(C) 19
(D) 20
(E) 21

3
5.
1000 is deposited into Fund X, which earns an annual effective rate of 6%. At the end of each
year, the interest earned plus an additional 100 is withdrawn from the fund. At the end of the
tenth year, the fund is depleted.

The annual withdrawals of interest and principal are deposited into Fund Y, which earns an
annual effective rate of 9%.

Calculate the accumulated value of Fund Y at the end of year 10.

(A) 1519
(B) 1819
(C) 2085
(D) 2273
(E) 2431

6.
A 20-year loan of 1000 is repaid with payments at the end of each year.

Each of the first ten payments equals 150% of the amount of interest due. Each of the last ten
payments is X.

The lender charges interest at an annual effective rate of 10%.

Calculate X.

(A) 32
(B) 57
(C) 70
(D) 97
(E) 117

4
7.
A 10,000 par value 10-year bond with 8% annual coupons is bought at a premium to yield an
annual effective rate of 6%.

Calculate the interest portion of the 7th coupon.

(A) 632
(B) 642
(C) 651
(D) 660
(E) 667

8.
A perpetuity-immediate pays 100 per year. Immediately after the fifth payment, the perpetuity is
exchanged for a 25-year annuity-immediate that will pay X at the end of the first year. Each
subsequent annual payment will be 8% greater than the preceding payment.
The annual effective rate of interest is 8%.

Calculate X.

(A) 54
(B) 64
(C) 74
(D) 84
(E) 94

5
9.
Jeff deposits 10 into a fund today and 20 fifteen years later. Interest for the first 10 years is
credited at a nominal discount rate of d compounded quarterly, and thereafter at a nominal
interest rate of 6% compounded semiannually. The accumulated balance in the fund at the end of
30 years is 100.

Calculate d.

(A) 4.33%
(B) 4.43%
(C) 4.53%
(D) 4.63%
(E) 4.73%

10.
Ernie makes deposits of 100 at time 0, and X at time 3. The fund grows at a force of interest
t2
δt = , t > 0.
100
The amount of interest earned from time 3 to time 6 is also X.

Calculate X.

(A) 385
(B) 485
(C) 585
(D) 685
(E) 785

6
11.
Mike buys a perpetuity-immediate with varying annual payments. During the first 5 years, the
payment is constant and equal to 10. Beginning in year 6, the payments start to increase. For year
6 and all future years, the payment in that year is K% larger than the payment in the year
immediately preceding that year, where K < 9.2.

At an annual effective interest rate of 9.2%, the perpetuity has a present value of 167.50.

Calculate K.

(A) 4.0
(B) 4.2
(C) 4.4
(D) 4.6
(E) 4.8

12.
A 10-year loan of 2000 is to be repaid with payments at the end of each year. It can be repaid
under the following two options:
(i) Equal annual payments at an annual effective interest rate of 8.07%.
(ii) Installments of 200 each year plus interest on the unpaid balance at an annual
effective interest rate of i.

The sum of the payments under option (i) equals the sum of the payments under option (ii).

Calculate i.

(A) 8.75%
(B) 9.00%
(C) 9.25%
(D) 9.50%
(E) 9.75%

7
13.
A loan is amortized over five years with monthly payments at an annual nominal interest rate of
9% compounded monthly. The first payment is 1000 and is to be paid one month from the date
of the loan. Each succeeding monthly payment will be 2% lower than the prior payment.

Calculate the outstanding loan balance immediately after the 40th payment is made.

(A) 6750
(B) 6890
(C) 6940
(D) 7030
(E) 7340

14.
To accumulate 8000 at the end of 3n years, deposits of 98 are made at the end of each of the first
n years and 196 at the end of each of the next 2n years.

The annual effective rate of interest is i. You are given (1 + i ) = 2.0 .

n

Calculate i.

(A) 11.25%
(B) 11.75%
(C) 12.25%
(D) 12.75%
(E) 13.25%

8
15.
Olga buys a 5-year increasing annuity for X.

Olga will receive 2 at the end of the first month, 4 at the end of the second month, and for each
month thereafter the payment increases by 2.

The annual nominal interest rate is 9% convertible quarterly.

Calculate X.

(A) 2680
(B) 2730
(C) 2780
(D) 2830
(E) 2880

16.
David can receive one of the following two payment streams:
(i) 100 at time 0, 200 at time n years, and 300 at time 2n years
(ii) 600 at time 10 years

At an annual effective interest rate of i, the present values of the two streams are equal.

Given v n = 0.76 , calculate i.

(A) 3.5%
(B) 4.0%
(C) 4.5%
(D) 5.0%
(E) 5.5%

9
17.
Payments are made to an account at a continuous rate of (8k + tk), where 0 ≤ t ≤ 10 .
1
Interest is credited at a force of interest δ t = .
8+t
After time 10, the account is worth 20,000.

Calculate k.

(A) 111
(B) 116
(C) 121
(D) 126
(E) 131

18.
You have decided to invest in Bond X, an n-year bond with semi-annual coupons and the
following characteristics:
(i) Par value is 1000.
(ii) The ratio of the semi-annual coupon rate, r, to the desired semi-annual yield rate, i, is
1.03125.
(iii) The present value of the redemption value is 381.50.

−n
Given (1 + i ) = 0.5889 , calculate the price of bond X.

(A) 1019
(B) 1029
(C) 1050
(D) 1055
(E) 1072

10
19.
Project P requires an investment of 4000 today. The investment pays 2000 one year from today
and 4000 two years from today.

Project Q requires an investment of X two years from today. The investment pays 2000 today
and 4000 one year from today.

The net present values of the two projects are equal at an annual effective interest rate of 10%.

Calculate X.

(A) 5400
(B) 5420
(C) 5440
(D) 5460
(E) 5480

20.
A perpetuity-immediate pays X per year. Brian receives the first n payments, Colleen receives
the next n payments, and a charity receives the remaining payments. Brian's share of the present
value of the original perpetuity is 40%, and the charity’s share is K.

Calculate K.

(A) 24%
(B) 28%
(C) 32%
(D) 36%
(E) 40%

11
21.
Seth, Janice, and Lori each borrow 5000 for five years at an annual nominal interest rate of 12%,
compounded semi-annually.

Seth has interest accumulated over the five years and pays all the interest and principal in a lump
sum at the end of five years.

Janice pays interest at the end of every six-month period as it accrues and the principal at the end
of five years.

Lori repays her loan with 10 level payments at the end of every six-month period.

Calculate the total amount of interest paid on all three loans.

(A) 8718
(B) 8728
(C) 8738
(D) 8748
(E) 8758

22.
Bruce and Robbie each open up new bank accounts at time 0. Bruce deposits 100 into his bank
account, and Robbie deposits 50 into his. Each account earns the same annual effective interest
rate.

The amount of interest earned in Bruce's account during the 11th year is equal to X. The amount
of interest earned in Robbie's account during the 17th year is also equal to X.

Calculate X.

(A) 28.00
(B) 31.30
(C) 34.60
(D) 36.70
(E) 38.90

12
23.
Ron is repaying a loan with payments of 1 at the end of each year for n years. The annual
effective interest rate on the loan is i. The amount of interest paid in year t plus the amount of
principal repaid in year t + 1 equals X.

Determine which of the following is equal to X.

v n −t
(A) 1+
i
n −t
v
(B) 1+
d
(C) 1 + v n −t i
(D) 1 + v n −t d
(E) 1 + v n −t

24.
At an annual effective interest rate of i, i > 0%, the present value of a perpetuity paying 10 at the
end of each 3-year period, with the first payment at the end of year 3, is 32.

At the same annual effective rate of i, the present value of a perpetuity paying 1 at the end of
each 4-month period, with first payment at the end of 4 months, is X.

Calculate X.

(A) 31.6
(B) 32.6
(C) 33.6
(D) 34.6
(E) 35.6

13
25.
As of 12/31/2013, an insurance company has a known obligation to pay 1,000,000 on
12/31/2017. To fund this liability, the company immediately purchases 4-year 5% annual coupon
bonds totaling 822,703 of par value. The company anticipates reinvestment interest rates to
remain constant at 5% through 12/31/2017. The maturity value of the bond equals the par value.

Consider two reinvestment interest rate movement scenarios effective 1/1/2014. Scenario A has
interest rates drop by 0.5%. Scenario B has interest rates increase by 0.5%.

Determine which of the following best describes the insurance company’s profit or (loss) as of
12/31/2017 after the liability is paid.

(A) Scenario A – 6,610, Scenario B – 11,150

(B) Scenario A – (14,760), Scenario B – 14,420
(C) Scenario A – (18,910), Scenario B – 19,190
(D) Scenario A – (1,310), Scenario B – 1,320
(E) Scenario A – 0, Scenario B – 0

26.
An insurance company has an obligation to pay the medical costs for a claimant. Annual claim
costs today are 5000, and medical inflation is expected to be 7% per year. The claimant will
receive 20 payments.

Claim payments are made at yearly intervals, with the first claim payment to be made one year
from today.

Calculate the present value of the obligation using an annual effective interest rate of 5%.

(A) 87,900
(B) 102,500
(C) 114,600
(D) 122,600
(E) Cannot be determined

14
27.
An investor pays 100,000 today for a 4-year investment that returns cash flows of 60,000 at the
end of each of years 3 and 4. The cash flows can be reinvested at 4.0% per annum effective.

Using an annual effective interest rate of 5.0%, calculate the net present value of this investment
today.

(A) –1,398
(B) –699
(C) 699
(D) 1,398
(E) 2,629

28.
You are given the following information with respect to a bond:
(i) par value: 1000
(ii) term to maturity: 3 years
(iii) annual coupon rate: 6% payable annually

You are also given that the one, two, and three year annual spot interest rates are 7%, 8%, and
9% respectively.

Calculate the value of the bond.

(A) 906
(B) 926
(C) 930
(D) 950
(E) 1000

15
29.
You are given the following information with respect to a bond:
(i) par value: 1000
(ii) term to maturity: 3 years
(iii) annual coupon rate: 6% payable annually

You are also given that the one, two, and three year annual spot interest rates are 7%, 8%, and
9% respectively.

The bond is sold at a price equal to its value.

Calculate the annual effective yield rate for the bond i.

(A) 8.1%
(B) 8.3%
(C) 8.5%
(D) 8.7%
(E) 8.9%

30.
The current price of an annual coupon bond is 100. The yield to maturity is an annual effective
rate of 8%. The derivative of the price of the bond with respect to the yield to maturity is -700.

Using the bond’s yield rate, calculate the Macaulay duration of the bond in years.

(A) 7.00
(B) 7.49
(C) 7.56
(D) 7.69
(E) 8.00

16
31.
A common stock pays a constant dividend at the end of each year into perpetuity.

Using an annual effective interest rate of 10%, calculate the Macaulay duration of the stock.

(A) 7 years
(B) 9 years
(C) 11 years
(D) 19 years
(E) 27 years

32.
A common stock pays dividends at the end of each year into perpetuity. Assume that the
dividend increases by 2% each year.

Using an annual effective interest rate of 5%, calculate the Macaulay duration of the stock in
years.

(A) 27
(B) 35
(C) 44
(D) 52
(E) 58

17
33.
Seth borrows X for four years at an annual effective interest rate of 8%, to be repaid with equal
payments at the end of each year. The outstanding loan balance at the end of the third year is
559.12.

Calculate the principal repaid in the first payment.

(A) 444
(B) 454
(C) 464
(D) 474
(E) 484

34.
Bill buys a 10-year 1000 par value bond with semi-annual coupons paid at an annual rate of 6%.
The price assumes an annual nominal yield of 6%, compounded semi-annually.

As Bill receives each coupon payment, he immediately puts the money into an account earning
interest at an annual effective rate of i.

At the end of 10 years, immediately after Bill receives the final coupon payment and the
redemption value of the bond, Bill has earned an annual effective yield of 7% on his investment
in the bond.

Calculate i.

(A) 9.50%
(B) 9.75%
(C) 10.00%
(D) 10.25%
(E) 10.50%

18
35.
A man turns 40 today and wishes to provide supplemental retirement income of 3000 at the
beginning of each month starting on his 65th birthday. Starting today, he makes monthly
contributions of X to a fund for 25 years. The fund earns an annual nominal interest rate of 8%
compounded monthly.

On his 65th birthday, each 1000 of the fund will provide 9.65 of income at the beginning of each
month starting immediately and continuing as long as he survives.

Calculate X.

(A) 324.70
(B) 326.90
(C) 328.10
(D) 355.50
(E) 450.70

36.
Happy and financially astute parents decide at the birth of their daughter that they will need to
provide 50,000 at each of their daughter’s 18th, 19th, 20th and 21st birthdays to fund her college
education. They plan to contribute X at each of their daughter’s 1st through 17th birthdays to fund
the four 50,000 withdrawals. They anticipate earning a constant 5% annual effective interest rate
on their contributions.
Let v = 1/1.05 .

Determine which of the following equations of value can be used to calculate X.

17
(A) X ∑ v k = 50, 000[v + v 2 + v 3 + v 4 ]
k =1
16
(B) X ∑1.05k = 50, 000[1 + v + v 2 + v 3 ]
k =1
17
(C) X ∑1.05k = 50, 000[1 + v + v 2 + v 3 ]
k =0
17
(D) X ∑1.05k = 50, 000[1 + v + v 2 + v 3 ]
k =1
17
(E) X ∑ v k = 50, 000[v18 + v19 + v 20 + v 21 + v 22 ]
k =0

19
37.
Joe must pay liabilities of 1,000 due 6 months from now and another 1,000 due one year from
now. There are two available investments:

Bond I: A 6-month bond with face amount of 1,000, an 8% nominal annual coupon rate
convertible semiannually, and a 6% nominal annual yield rate convertible semiannually;
Bond II: A one-year bond with face amount of 1,000, a 5% nominal annual coupon rate
convertible semiannually, and a 7% nominal annual yield rate convertible semiannually.

Calculate the amount of each bond that Joe should purchase to exactly match the liabilities.

(A) Bond I – 1, Bond II – 0.97561

(B) Bond I – 0.93809, Bond II – 1
(C) Bond I – 0.97561, Bond II – 0.94293
(D) Bond I – 0.93809, Bond II – 0.97561
(E) Bond I – 0.98345, Bond II – 0.97561

38.
Joe must pay liabilities of 2000 due one year from now and another 1000 due two years from
now. He exactly matches his liabilities with the following two investments:

Mortgage I: A one year mortgage in which X is lent. It is repaid with a single payment at time
one. The annual effective interest rate is 6%.

Mortgage II: A two-year mortgage in which Y is lent. It is repaid with two equal annual
payments. The annual effective interest rate is 7%.

Calculate X + Y.

(A) 2600
(B) 2682
(C) 2751
(D) 2825
(E) 3000

20
39.
Joe must pay liabilities of 1,000 due one year from now and another 2,000 due three years from
now. There are two available investments:

Bond I: A one-year zero-coupon bond that matures for 1000. The yield rate is 6% per year
Bond II: A two-year zero-coupon bond with face amount of 1,000. The yield rate is 7% per year.

At the present time the one-year forward rate for an investment made two years from now is
6.5%

Joe plans to buy amounts of each bond. He plans to reinvest the proceeds from Bond II in a one-
year zero-coupon bond. Assuming the reinvestment earns the forward rate, calculate the total
purchase price of Bond I and Bond II where the amounts are selected to exactly match the
liabilities.

(A) 2584
(B) 2697
(C) 2801
(D) 2907
(E) 3000

40.
Matt purchased a 20-year par value bond with an annual nominal coupon rate of 8% payable
semiannually at a price of 1722.25. The bond can be called at par value X on any coupon date
starting at the end of year 15 after the coupon is paid. The lowest yield rate that Matt can
possibly receive is a nominal annual interest rate of 6% convertible semiannually.

Calculate X.

(A) 1400
(B) 1420
(C) 1440
(D) 1460
(E) 1480

21
41.
Toby purchased a 20-year par value bond with semiannual coupons of 40 and a redemption value
of 1100. The bond can be called at 1200 on any coupon date prior to maturity, starting at the end
of year 15.

Calculate the maximum price of the bond to guarantee that Toby will earn an annual nominal
interest rate of at least 6% convertible semiannually.

(A) 1251
(B) 1262
(C) 1278
(D) 1286
(E) 1295

42.
Sue purchased a 10-year par value bond with an annual nominal coupon rate of 4% payable
semiannually at a price of 1021.50. The bond can be called at par value X on any coupon date
starting at the end of year 5. The lowest yield rate that Sue can possibly receive is an annual
nominal rate of 6% convertible semiannually.

Calculate X.

(A) 1120
(B) 1140
(C) 1160
(D) 1180
(E) 1200

22
43.
Mary purchased a 10-year par value bond with an annual nominal coupon rate of 4% payable
semiannually at a price of 1021.50. The bond can be called at 100 over the par value of 1100 on
any coupon date starting at the end of year 5 and ending six months prior to maturity.

Calculate the minimum yield that Mary could receive, expressed as an annual nominal rate of
interest convertible semiannually.

(A) 4.7%
(B) 4.9%
(C) 5.1%
(D) 5.3%
(E) 5.5%

44.
A liability consists of a series of 15 annual payments of 35,000 with the first payment to be made
one year from now.

The assets available to immunize this liability are five-year and ten-year zero-coupon bonds.

The annual effective interest rate used to value the assets and the liability is 6.2%. The liability
has the same present value and duration as the asset portfolio.

Calculate the amount invested in the five-year zero-coupon bonds.

(A) 127,000
(B) 167,800
(C) 208,600
(D) 247,900
(E) 292,800

23
45.
You are given the following information about a loan of L that is to be repaid with a series of 16
annual payments:
(i) The first payment of 2000 is due one year from now.
(ii) The next seven payments are each 3% larger than the preceding payment.
(iii) From the 9th to the 16th payment, each payment will be 3% less than the preceding
payment.
(iv) The loan has an annual effective interest rate of 7%.

Calculate L.

(A) 20,689
(B) 20,716
(C) 20,775
(D) 21,147
(E) 22,137

46.
The annual force of interest credited to a savings account is defined by
t2
δ t = 1003
t
3+
150
with t in years. Austin deposits 500 into this account at time 0.

Calculate the time in years it will take for the fund to be worth 2000.

(A) 6.7
(B) 8.8
(C) 14.2
(D) 16.5
(E) 18.9

24
47.
A 40-year bond is purchased at a discount. The bond pays annual coupons. The amount for
accumulation of discount in the 15th coupon is 194.82. The amount for accumulation of discount
in the 20th coupon is 306.69.

Calculate the amount of discount in the purchase price of this bond.

(A) 13,635
(B) 13,834
(C) 16,098
(D) 19,301
(E) 21,135

48.
Tanner takes out a loan today and repays the loan with eight level annual payments, with the first
payment one year from today. The payments are calculated based on an annual effective interest
rate of 4.75%. The principal portion of the fifth payment is 699.68.

Calculate the total amount of interest paid on this loan.

(A) 1239
(B) 1647
(C) 1820
(D) 2319
(E) 2924

25
49.
Turner buys a new car and finances it with a loan of 22,000. He will make n monthly payments
of 450.30 starting in one month. He will make one larger payment in n+1 months to pay off the
loan. Payments are calculated using an annual nominal interest rate of 8.4%, convertible
monthly. Immediately after the 18th payment he refinances the loan to pay off the remaining
balance with 24 monthly payments starting one month later. This refinanced loan uses an annual
nominal interest rate of 4.8%, convertible monthly.

Calculate the amount of the new monthly payment.

(A) 668
(B) 693
(C) 702
(D) 715
(E) 742

50.
Kylie bought a 7-year, 5000 par value bond with an annual coupon rate of 7.6% paid
semiannually. She bought the bond with no premium or discount.

Calculate the Macaulay duration of this bond with respect to the yield rate on the bond.

(A) 5.16
(B) 5.35
(C) 5.56
(D) 5.77
(E) 5.99

26