51.

Krishna buys an n-year 1000 bond at par. The Macaulay duration is 7.959 years using an annual
effective interest rate of 7.2%.

Calculate the estimated price of the bond, using the first-order modified approximation, if the
interest rate rises to 8.0%.

(A) 940.60
(B) 942.88
(C) 944.56
(D) 947.03
(E) 948.47

52.
The prices of zero-coupon bonds are:
Maturity Price
1 0.95420
2 0.90703
3 0.85892

Calculate the one-year forward rate, deferred two years.

(A) 0.048
(B) 0.050
(C) 0.052
(D) 0.054
(E) 0.056

27
53.
Sam buys an eight-year, 5000 par bond with an annual coupon rate of 5%, paid annually. The
bond sells for 5000. Let d1 be the Macaulay duration just before the first coupon is paid. Let d 2
be the Macaulay duration just after the first coupon is paid.

d1
Calculate .
d2

(A) 0.91
(B) 0.93
(C) 0.95
(D) 0.97
(E) 1.00

54.
An insurance company must pay liabilities of 99 at the end of one year, 102 at the end of two
years and 100 at the end of three years. The only investments available to the company are the
following three bonds. Bond A and Bond C are annual coupon bonds. Bond B is a zero-coupon
bond.

Bond Maturity (in years) Yield-to-Maturity (Annualized) Coupon Rate

A 1 6% 7%
B 2 7% 0%
C 3 9% 5%

All three bonds have a par value of 100 and will be redeemed at par.

Calculate the number of units of Bond A that must be purchased to match the liabilities exactly.

(A) 0.8807
(B) 0.8901
(C) 0.8975
(D) 0.9524
(E) 0.9724

28
55.
Determine which of the following statements is false with respect to Redington immunization.

(A) Modified duration may change at different rates for each of the assets and liabilities as
time goes by.
(B) Redington immunization requires infrequent rebalancing to keep modified duration of
assets equal to modified duration of liabilities.
(C) This technique is designed to work only for small changes in the interest rate.
(D) The yield curve is assumed to be flat.
(E) The yield curve shifts in parallel when the interest rate changes.

56.
Aakash has a liability of 6000 due in four years. This liability will be met with payments of A in
two years and B in six years. Aakash is employing a full immunization strategy using an annual
effective interest rate of 5%.

Calculate A − B .

(A) 0
(B) 146
(C) 293
(D) 586
(E) 881

29
57.
Jia Wen has a liability of 12,000 due in eight years. This liability will be met with payments of
5000 in five years and B in 8 + b years. Jia Wen is employing a full immunization strategy using
an annual effective interest rate of 3%.
B
Calculate .
b

(A) 2807
(B) 2873
(C) 2902
(D) 2976
(E) 3019

58.
Trevor has assets at time 2 of A and at time 9 of B. He has a liability of 95,000 at time 5. Trevor
has achieved Redington immunization in his portfolio using an annual effective interest rate of
4%.

A
Calculate .
B

(A) 0.7307
(B) 0.9670
(C) 1.0000
(D) 1.0132
(E) 1.3686

30
59.
You are given the following information about two bonds, Bond A and Bond B:
i) Each bond is a 10-year bond with semiannual coupons redeemable at its
par value of 10,000, and is bought to yield an annual nominal interest rate
of i, convertible semiannually.
ii) Bond A has an annual coupon rate of (i + 0.04), paid semiannually.
iii) Bond B has an annual coupon rate of (i – 0.04), paid semiannually.
iv) The price of Bond A is 5,341.12 greater than the price of Bond B.

Calculate i.

(A) 0.042
(B) 0.043
(C) 0.081
(D) 0.084
(E) 0.086

60.
A borrower takes out a 15-year loan for 400,000, with level end-of-month payments, at an annual
nominal interest rate of 9% convertible monthly.

Immediately after the 36th payment, the borrower decides to refinance the loan at an annual
nominal interest rate of j, convertible monthly. The remaining term of the loan is kept at twelve
years, and level payments continue to be made at the end of the month. However, each payment
is now 409.88 lower than each payment from the original loan.

Calculate j.

(A) 4.72%
(B) 5.75%
(C) 6.35 %
(D) 6.90%
(E) 9.14%

31
61.
Consider two 30-year bonds with the same purchase price. Each has an annual coupon rate of 5%
paid semiannually and a par value of 1000.

The first bond has an annual nominal yield rate of 5% compounded semiannually, and a
redemption value of 1200.

The second bond has an annual nominal yield rate of j compounded semiannually, and a
redemption value of 800.

Calculate j.

(A) 2.20%
(B) 2.34%
(C) 3.53%
(D) 4.40%
(E) 4.69%

62.
Lucas opens a bank account with 1000 and lets it accumulate at an annual nominal interest rate
of 6% convertible semiannually. Danielle also opens a bank account with 1000 at the same time
as Lucas, but it grows at an annual nominal interest rate of 3% convertible monthly.

For each account, interest is credited only at the end of each interest conversion period.

Calculate the number of months required for the amount in Lucas’s account to be at least double
the amount in Danielle’s account.

(A) 276
(B) 282
(C) 285
(D) 286
(E) 288

32
63.
Bill and Joe each put 10 into separate accounts at time t = 0, where t is measured in years.
Bill’s account earns interest at a constant annual effective interest rate of K/25, K > 0.
1
Joe’s account earns interest at a force of interest, δ t = .
K + 0.25t
At the end of four years, the amount in each account is X.

Calculate X.

(A) 20.7
(B) 21.7
(C) 22.7
(D) 23.7
(E) 24.7

64.
A borrower takes out a 50-year loan, to be repaid with payments at the end of each year. The
loan payment is 2500 for each of the first 26 years. Thereafter, the payments decrease by 100 per
year. Interest on the loan is charged at an annual effective rate of i (0% < i < 10%).
The principal repaid in year 26 is X.

Determine the amount of interest paid in the first year.

(A) Xv 25
(B) 2500v 25 − Xv 25
(C) 2500 – X
(D) 2500 − Xv 25
(E) 25Xi

33
65.
John made a deposit of 1000 into a fund at the beginning of each year for 20 years.

At the end of 20 years, he began making semiannual withdrawals of 3000 at the beginning of
each six months, with a smaller final withdrawal to exhaust the fund. The fund earned an annual
effective interest rate of 8.16%.

Calculate the amount of the final withdrawal.

(A) 561
(B) 1226
(C) 1430
(D) 1488
(E) 2240

66.
The present value of a perpetuity paying 1 every two years with first payment due immediately is
7.21 at an annual effective rate of i.

Another perpetuity paying R every three years with the first payment due at the beginning of year
two has the same present value at an annual effective rate of i + 0.01.

Calculate R.

(A) 1.23
(B) 1.56
(C) 1.60
(D) 1.74
(E) 1.94

34
67.
A loan of 10,000 is repaid with a payment made at the end of each year for 20 years.
The payments are 100, 200, 300, 400, and 500 in years 1 through 5, respectively. In the
subsequent 15 years, equal annual payments of X are made.
The annual effective interest rate is 5%.

Calculate X.

(A) 842
(B) 977
(C) 1017
(D) 1029
(E) 1075

68.
An investor wishes to accumulate 5000 in a fund at the end of 15 years. To accomplish this, she
plans to make equal deposits of X at the end of each year for the first ten years. The fund earns an
annual effective rate of 6% during the first ten years and 5% for the next five years.

Calculate X.

(A) 224
(B) 284
(C) 297
(D) 312
(E) 379

35
69.
A borrower takes out a 15-year loan for 65,000, with level end-of-month payments. The annual
nominal interest rate of the loan is 8%, convertible monthly.

Immediately after the 12th payment is made, the remaining loan balance is reamortized. The
maturity date of the loan remains unchanged, but the annual nominal interest rate of the loan is
changed to 6%, convertible monthly.

Calculate the new end-of-month payment.

(A) 528
(B) 534
(C) 540
(D) 546
(E) 552

70.
College tuition is 6000 for the current school year, payable in full at the beginning of the school
year. College tuition will grow at an annual rate of 5%. A parent sets up a college savings fund
earning interest at an annual effective rate of 7%. The parent deposits 750 at the beginning of
each school year for 18 years, with the first deposit made at the beginning of the current school
year. Immediately following the 18th deposit, the parent pays tuition for the 18th school year
from the fund.

The amount of money needed, in addition to the balance in the fund, to pay tuition at the
beginning of the 19th school year is X.

Calculate X.

(A) 1439
(B) 1545
(C) 1664
(D) 1785
(E) 1870

36
71.
A 1000 par value 20-year bond sells for P and yields a nominal interest rate of 10% convertible
semiannually. The bond has 9% coupons payable semiannually and a redemption value of 1200.

Calculate P.

(A) 914
(B) 943
(C) 1013
(D) 1034
(E) 1097

72.
An investor purchases a 10-year callable bond with face amount of 1000 for price P. The bond
has an annual nominal coupon rate of 10% paid semi-annually.

The bond may be called at par by the issuer on every other coupon payment date, beginning with
the second coupon payment date.

The investor earns at least an annual nominal yield of 12% compounded semi-annually
regardless of when the bond is redeemed.

Calculate the largest possible value of P.

(A) 885
(B) 892
(C) 926
(D) 965
(E) 982

37
73.
You are given the following term structure of interest rates:
Length of investment in years Spot rate
1 7.50%
2 8.00%
3 8.50%
4 9.00%
5 9.50%
6 10.00%

Calculate the one-year forward rate, deferred four years, implied by this term structure.

(A) 9.5%
(B) 10.0%
(C) 11.5%
(D) 12.0%
(E) 12.5%

74.
Seth has two retirement benefit options.

His first option is to receive a lump sum of 374,500 at retirement.

His second option is to receive monthly payments for 25 years starting one month after
retirement. For the first year, the amount of each monthly payment is 2000. For each subsequent
year, the monthly payments are 2% more than the monthly payments from the previous year.

Using an annual nominal interest rate of 6%, compounded monthly, the present value of the
second option is P.

Determine which of the following is true.

(A) P is 323,440 more than the lump sum option amount.

(B) P is 107,170 more than the lump sum option amount.
(C) The lump sum option amount is equal to P.
(D) The lump sum option amount is 60 more than P.
(E) The lump sum option amount is 64,090 more than P.

38
75.
A couple decides to save money for their child's first year college tuition.

The parents will deposit 1700 n months from today and another 3400 2n months from today.

All deposits earn interest at a nominal annual rate of 7.2%, compounded monthly.

Calculate the maximum integral value of n such that the parents will have accumulated at least
6500 five years from today.

(A) 11
(B) 12
(C) 18
(D) 24
(E) 25

76.
Let S be the accumulated value of 1000 invested for two years at a nominal annual rate of
discount d convertible semiannually, which is equivalent to an annual effective interest rate of i.

Let T be the accumulated value of 1000 invested for one year at a nominal annual rate of
discount d convertible quarterly.

S / T = (39 / 38) 4 .

Calculate i.

(A) 10.0%
(B) 10.3%
(C) 10.8%
(D) 10.9%
(E) 11.1%

39
77.
An investor’s retirement account pays an annual nominal interest rate of 4.2%, convertible
monthly.

On January 1 of year y, the investor’s account balance was X. The investor then deposited 100 at
the end of every quarter. On May 1 of year (y + 10), the account balance was 1.9X.

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

42
1.9 X 100
(A) 124
+∑ k −1
=X
k =1 (1.0105)
(1.0105) 3

42
100 1.9 X
(B) X +∑ 3( k −1)
=
k =1 (1.0035) (1.0035)124
41
100 1.9 X
(C) X +∑ 3k
=
k =1 (1.0035) (1.0035)124
41
100 1.9 X
(D) X +∑ k −1
= 124
k =1 (1.0105)
(1.0105) 3
42
100 1.9 X
(E) X +∑ k −1
= 124
k =1 (1.0105)
(1.0105) 3

78.
Five deposits of 100 are made into a fund at two-year intervals with the first deposit at the
beginning of the first year.

The fund earns interest at an annual effective rate of 4% during the first six years and at an
annual effective rate of 5% thereafter.

Calculate the annual effective yield rate earned over the investment period ending at the end of
the tenth year.

(A) 4.18%
(B) 4.40%
(C) 4.50%
(D) 4.58%
(E) 4.78%

40
79.
John finances his daughter’s college education by making deposits into a fund earning interest at
an annual effective rate of 8%. For 18 years he deposits X at the beginning of each month.

In the 16th through the 19th years, he makes a withdrawal of 25,000 at the beginning of each year.
The final withdrawal reduces the fund balance to zero.

Calculate X.

(A) 207
(B) 223
(C) 240
(D) 245
(E) 260

80.
Jack inherited a perpetuity-due, with annual payments of 15,000. He immediately exchanged the
perpetuity for a 25-year annuity-due having the same present value. The annuity-due has annual
payments of X.

All the present values are based on an annual effective interest rate of 10% for the first 10 years
and 8% thereafter.

Calculate X.

(A) 16,942
(B) 17,384
(C) 17,434
(D) 17,520
(E) 18,989

41
81.
An investor owns a bond that is redeemable for 300 in seven years. The investor has just
received a coupon of 22.50 and each subsequent semiannual coupon will be X more than the
preceding coupon. The present value of this bond immediately after the payment of the coupon is
1050.50 assuming an annual nominal yield rate of 6% convertible semiannually.

Calculate X.

(A) 7.54
(B) 10.04
(C) 22.37
(D) 34.49
(E) 43.98

82.
A 30-year annuity is arranged to pay off a loan taken out today at a 5% annual effective interest
rate. The first payment of the annuity is due in ten years in the amount of 1,000. The subsequent
payments increase by 500 each year.

Calculate the amount of the loan.

(A) 58,283
(B) 61,197
(C) 64,021
(D) 64,257
(E) 69,211

42
83.
A woman worked for 30 years before retiring. At the end of the first year of employment she
deposited 5000 into an account for her retirement. At the end of each subsequent year of
employment, she deposited 3% more than the prior year. The woman made a total of 30 deposits.

She will withdraw 50,000 at the beginning of the first year of retirement and will make annual
withdrawals at the beginning of each subsequent year for a total of 30 withdrawals. Each of these
subsequent withdrawals will be 3% more than the prior year. The final withdrawal depletes the
account.

The account earns a constant annual effective interest rate.

Calculate the account balance after the final deposit and before the first withdrawal.

(A) 760,694
(B) 783,948
(C) 797,837
(D) 805,541
(E) 821,379

84.
An insurance company purchases a perpetuity-due providing a geometric series of quarterly
payments for a price of 100,000 based on an annual effective interest rate of i. The first and
second quarterly payments are 2000 and 2010, respectively.

Calculate i.

(A) 10.0%
(B) 10.2%
(C) 10.4%
(D) 10.6%
(E) 10.8%

43
85.
A perpetuity provides for continuous payments. The annual rate of payment at time t is
1, for 0 ≤ t < 10,

(1.03) , for t ≥ 10.
t −10

Using an annual effective interest rate of 6%, the present value at time t = 0 of this perpetuity is
x.

Calculate x.

(A) 27.03
(B) 30.29
(C) 34.83
(D) 38.64
(E) 42.41

86.
A bank agrees to lend 10,000 now and X three years from now in exchange for a single
repayment of 75,000 at the end of 10 years. The bank charges interest at an annual effective rate
1
of 6% for the first 5 years and at a force of interest δ t = for t ≥ 5 .
t +1

Calculate X.

(A) 23,500
(B) 24,000
(C) 24,500
(D) 25,000
(E) 25,500

44
87.
A company takes out a loan of 15,000,000 at an annual effective discount rate of 5.5%. You are
given:
i) The loan is to be repaid with n annual payments of 1,200,000 plus a drop payment
one year after the nth payment.
ii) The first payment is due three years after the loan is taken out.

Calculate the amount of the drop payment.

(A) 79,100
(B) 176,000
(C) 321,300
(D) 959,500
(E) 1,180,300

88.
Tim takes out an n-year loan with equal annual payments at the end of each year.

The interest portion of the payment at time (n − 1) is equal to 0.5250 of the interest portion of the
payment at time (n − 3) and is also equal to 0.1427 of the interest portion of the first payment.

Calculate n.

(A) 18
(B) 20
(C) 22
(D) 24
(E) 26

45
89.
On January 1, 2003 Mike took out a 30-year mortgage loan in the amount of 200,000 at an
annual nominal interest rate of 6% compounded monthly. The loan was to be repaid by level
end-of-month payments with the first payment on January 31, 2003.

Mike repaid an extra 10,000 in addition to the regular monthly payment on each December 31 in
the years 2003 through 2007.

Determine the date on which Mike will make his last payment (which is a drop payment).

(A) July 31, 2013

(B) November 30, 2020
(C) December 31, 2020
(D) December 31, 2021
(E) January 31, 2022

90.
A 5-year loan of 500,000 with an annual effective discount rate of 8% is to be repaid by level
end-of-year payments.

If the first four payments had been rounded up to the next multiple of 1,000, the final payment
would be X.

Calculate X.

(A) 103,500
(B) 111,700
(C) 115,200
(D) 125,200
(E) 127,500

46
91.
A company plans to invest X at the beginning of each month in a zero-coupon bond in order to
accumulate 100,000 at the end of six months. The price of each bond as a percentage of
redemption value is given in the following chart:
Maturity (months) 1 2 3 4 5 6
Price 99% 98% 97% 96% 95% 94%

Calculate X given that the bond prices will not change during the six-month period.

(A) 15,667
(B) 16,078
(C) 16,245
(D) 16,667
(E) 17,271

92.
A loan of X is repaid with level annual payments at the end of each year for 10 years.
You are given:
i) The interest paid in the first year is 3600; and
ii) The principal repaid in the 6th year is 4871.

Calculate X.

(A) 44,000
(B) 45,250
(C) 46,500
(D) 48,000
(E) 50,000

47
93.
An investor purchased a 25-year bond with semiannual coupons, redeemable at par, for a price of
10,000. The annual effective yield rate is 7.05%, and the annual coupon rate is 7%.

Calculate the redemption value of the bond.

(A) 9,918
(B) 9,942
(C) 9,981
(D) 10,059
(E) 10,083

94.
Jeff has 8000 and would like to purchase a 10,000 bond. In doing so, Jeff takes out a 10 year
loan of 2000 from a bank and will make interest-only payments at the end of each month at a
nominal rate of 8.0% convertible monthly. He immediately pays 10,000 for a 10-year bond with
a par value of 10,000 and 9.0% coupons paid monthly.

Calculate the annual effective yield rate that Jeff will realize on his 8000 over the 10-year period.

(A) 9.30%
(B) 9.65%
(C) 10.00%
(D) 10.35%
(E) 10.70%

48
95.
A bank issues three annual coupon bonds redeemable at par, all with the same term, price, and
annual effective yield rate.

The first bond has face value 1000 and annual coupon rate 5.28%.

The second bond has face value 1100 and annual coupon rate 4.40%.

The third bond has face value 1320 and annual coupon rate r.

Calculate r.

(A) 2.46%
(B) 2.93%
(C) 3.52%
(D) 3.67%
(E) 4.00%

96.
An investor owns a bond that is redeemable for 250 in 6 years from now. The investor has just
received a coupon of c and each subsequent semiannual coupon will be 2% larger than the
preceding coupon. The present value of this bond immediately after the payment of the coupon is
582.53 assuming an annual effective yield rate of 4%.

Calculate c.

(A) 32.04
(B) 32.68
(C) 40.22
(D) 48.48
(E) 49.45

49
97.
An n-year bond with annual coupons has the following characteristics:
i) The redemption value at maturity is 1890;
ii) The annual effective yield rate is 6%;
iii) The book value immediately after the third coupon is 1254.87; and
iv) The book value immediately after the fourth coupon is 1277.38.

Calculate n.

(A) 16
(B) 17
(C) 18
(D) 19
(E) 20

98.
An n-year bond with semiannual coupons has the following characteristics:
i) The par value and redemption value are 2500;
ii) The annual coupon rate is 7% payable semi-annually;
iii) The annual nominal yield to maturity is 8% convertible semiannually; and
iv) The book value immediately after the fourth coupon is 8.44 greater than the book
value immediately after the third coupon.

Calculate n.

(A) 6.5
(B) 7.0
(C) 9.5
(D) 12.0
(E) 14.0

50
99.
The one-year forward rates, deferred t years, are estimated to be:
Year (t) 0 1 2 3 4
Forward Rate 4% 6% 8% 10% 12%

Calculate the spot rate for a zero-coupon bond maturing three years from now.

(A) 4%
(B) 5%
(C) 6%
(D) 7%
(E) 8%

100.
Annuity A pays 1 at the beginning of each year for three years. Annuity B pays 1 at the
beginning of each year for four years.

The Macaulay duration of Annuity A at the time of purchase is 0.93. Both annuities offer the
same yield rate.

Calculate the Macaulay duration of Annuity B at the time of purchase.

(A) 1.240
(B) 1.369
(C) 1.500
(D) 1.930
(E) 1.965

51