A.

1 Solutions
Last updated November 26, 2013

a0 (t)
1. δt = a(t)

0.08
δt1 =
1 + 0.08t
1.05t · ln 1.05
δt2 = = ln 1.05
1.05t
Setting the two equal we have
0.08
= ln 1.05
1 + 0.08t
t= 8

2. a(t) = 1 + it

Find t using calculator

2nd [DATE]
DT1 = 7.0107
DT2 = 9.0107
Set to ACT
CPT DBD = 62
62 62
a( 360 ) = 1 + 0.2( 360 ) = 1.03444

So the amount of interest earned is 1000(1.03444) − 1000 = 34.44

3.

1000(1 − 0.09)−1 (1.04)2 (1 − X)−1 (1 − 0.03)−1 = 1330

X = 0.0787

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4. For simple interest
a(t) = 1 + it = 1 + 0.12t
a(3) = 1.36
a(4) = 1.48
Draw a picture

1.36 1.48
0 3 4

1.48 − 1.36
d4 = = 0.081
1.48

1 a0 (t)
5. δt = 1+t = a(t) =⇒ a(t) = 1 + t

a(N ) = 1 + N

6. We are given
i(3)
i(n) 1+ 3
1+ = i(4)
n 1+ 4

Rewriting in terms of i we have

1
1 (1 + i) 3
(1 + i) =
n
1
(1 + i) 4
1 1
(1 + i) n = (1 + i) 12
n = 12

2t a0 (t)
7. δt = 1+t2 = a(t) =⇒ a(t) = 1 + t2
a(3) = 1 + 32 = 10

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 a(4) = 1 + 42 = 17

Draw a picture

10 17
0 3 4

17 − 10
d4 = = 0.412
17

8. d(3) = 0.18

Pick up your calculator

(i) Key 0.18 - this is the nominal discount rate convertible 3 times per year
(ii) Divided by 3 = 0.06 - this is the effective rate of discount per 1/3 of a year
(iii) Subtract from 1 = 0.94 - this is the discount factor for 1/3 of a year
(iv) Hit 1/x = 1.063829787 - this is the accumulation factor for 1/3 of a year
(v) Raise to the 3rd power = 1.203972145 - this is the accumulation factor for 1
year
(vi) Raise to the 1/2 power = 1.097256645 - this is the accumulation factor for
1/2 a year
(vii) Subtract 1 = 0.097256645 - this is the effective rate of interest for 1/2 a year
(viii) Multiply by 2 = 0.19451329 - this is the nominal rate of interest convertible
2 times per year

Or you can solve this equation

2  −3
i(2) d(3)

1+ = 1−
2 3

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 " − 23 #
0.18
i(2) = 2 1− −1
3

i(2) = 0.1945

√ 1
9. a(t) = 1 + t = (1 + t) 2
a0 (t)
δt =
a(t)
1
1
2 (1 + t)− 2
= 1
(1 + t) 2
= 21 (1 + t)−1

δ1 = 21 (1 + 1)−1 = 1
4

10.  4×5
0.12
20,000 1 − = 10,875.89
4

11. We are given

• (1 + i)x = 3
14
• 3(1 + i)y = 14 =⇒ (1 + i)y = 3

• (1 + i)z = 21

z−x−y 5(1 + i)z 5(21) 15

5(1 + i) = = =
(1 + i)x (1 + i)y 3( 14
3)
2

12.
a(8) = 153

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 a(9) = 190
Draw a picture

153 190
0 8 9

190 − 153
i9 = = 0.24183
153

13.
1+i=1+i
9  −3
i(9) d(3)

1+ = 1−
9 3
− 13
i(9) d(3)

1+ = 1−
9 3
" − 31 #
d(3)
i(9) = 9 1− −1
3

14. We are given

Xi = 108
Xd = 100

Using the first equation

Xi = 108
d
Substitute i = 1−d

Xd
= 108
1−d
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 100
= 108
1−d
8
d=
108
Plugging back into second equation
 
108
X = 100 = 1350
8

15. Let x = amount in IRA #1 on 1/1/95

Then 12 x = amount in IRA #2 on 1/1/95
x(1.08)8 + 12 x(1.10)8 = 75,000
x = 25,660.98
1
2x = 12,830.49

16.
 6
0.15
1+i= 1+
6
δ = ln(1 + i) = 0.1482

17.
 −9
0.1
eδ = 1 −
9
δ = 0.10056

18. One approach to this type of problem is to just pick a value for i and compute
all the expressions. Let i = 0.05 then
d = 0.0476

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 v = 0.9524
δ = 0.04879
eδ = 1.05

Computing each expression

A. 0.000119
B. 0.00011424
C. skip because E is faster to calculate
D. skip because E is faster to calculate
E. 0.000119

Therefore, B is the exception.

19.

I. False. The denominator should be the actual number of days in the year (i.e.
365 or 366 for leap year).
II. True.
a(t)

compound

1+i simple

1
t

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 III. False.

a(t) = 1 + it
a0 (t) i t
δt = = 6 =
a(t) 1 + it 1 + it

20.  6×4
0.16
100,000 1 − = 37,541
4

21. For equivalent rates

d < d(2) < . . . < δ < i(12) < . . . < i

So d = 0.12 will yield the largest force of interest.

Alternatively you could just solve for the equivalent force of interest.

A. 0.1133
B. 0.1278
C. 0.1182
D. 0.1218
E. 0.1212

B is the largest

22.

7493 = 5000v 14 + 5000v x

x= 6

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23.

10,000v t = 5000 + 3000v + 2000v 5

t = 1.1056

24.

PV(option 1) = PV(option 2)
432v + 300v 2 = 82.56 + 250v + 400v 2
0 = 100v 2 − 182v + 82.56
p
182 ± 1822 − 4(100)(82.56)
v=
2(100)
v = 0.96 or 0.86
i = 0.042 or 0.163

Therefore the answer is either A or B. Check i = 0.10

PV(option 1) = 640.66
PV(option 2) = 640.61

Thus at i = 0.10 PV(option 1) > PV(option 2) and the answer is B .

25. Draw a picture

100 112 190

1/1/97 1/1/98 7/1/02
4.5 years

Using the calculator

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N = 4.5, PV = -112, PMT = 0, FV = 190, CPT I/Y = 12.46

26. Draw a picture

2500 2500
30 30 + t 35 + t

2500v t + 2500v 5+t = 2607

2500v t + 2500v 5 v t = 2607
t = 11

35 + 11 = 46

27.
a(t) = at2 + bt + 1

a(0.5) = 0.25a + 0.5b + 1 = 1.025

0.025 = 0.25a + 0.5b (1)

a(1) = a + b + 1 = 1.04
0.04 = a + b (2)
Now solve system of two equations using 4(1) - (2)
b = 0.06
a = −0.02

a(t) = −0.02t2 + 0.6b + 1

a0 (0.75)
δ0.75 =
a(0.75)
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 −0.04(0.75) + 0.06
=
−0.02(0.75)2 + 0.06(0.75) + 1
= 0.029

28.
1000 = 1000v 6 + 1366.87v 12
0 = 1366.87v 12 + 1000v 6 − 1000

Using the quadratic formula

p
−1000 ± 10002 − 4(1366.87)(−1000)
v6 =
2(1366.87)
Throw out negative solution

i = 0.10

1000 = 1000v 6 + Xv 9
X = 1027

29. skip

30.
 
d
I. d
dd = d(1 − d)−2 + (1 − d)−1
1−d
d 1−d
= +
(1 − d)2 (1 − d)2
1
=
(1 − d)2
= v −2 X

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    h 1
i
d (m) d
II. di i = di m (1 + i) − 1 m

1
= (1 + i) m −1
1−m
= (1 + i) m

= (1 + i)−1( )
m−1
m

m−1 m−1
=v m = 6 v− m
d


III. dδ eδ − 1 = eδ = 1 + i X

31. The PV of the first loan is

3000(1.05)−8 = 2030.52
The PV of the second loan is
4000(1.04)−10 = 2702.26
The amount of the consolidated loan is
2030.52 + 2702.26 = 4732.78
Draw a picture

X X
i(2) = 0.12
0 1
4732.78

Setup an equation of value at time 0

X + X(1.06)−2 = 4732.78
X = 2504

32. −1
1 1 
−
 
1 t
δt = = 15 t = − 15
=⇒ a(t) = 1 −
15 − t 1 − 15 1 − 15t 15

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Fund X  −1
4
1000a(4) = 1000 1 − = 1363.63
15
Fund Y
1000(1.04)6 (1 + i) = 1363.63
i = 0.0777

33.
2t
2t 8 t2
δt = 2 = t2
=⇒ a(t) = + 1
t +8 8 +1 8
 16
i a(4)
100 1 + = 100(1 − 0.2)−2 ·
4 a(2)
i = 0.295

34.
 10  12
j k
1000 1 + 1+ = 1990.76
2 4
 32
k
1000 1 + = 2203.76
4
k = 0.10

Plug back into the first equation and solve for j

j = 0.08

k
= 1.25
j

35. Fund X
ax (t) = 1 + 1.05jt

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Fund Y
ay (t) = (1 + j)t
We are given
Ax (2) = Ay (2)
100ax (2) = 100ay (2)
1 + 2.1j = (1 + j)2
1 + 2.1j = j 2 + 2j + 1
j 2 = 0.1j
j = 0.1

Ay (5) = 100ay (5) = 100 (1.10)5 = 161.05

36. Let X = amount in Fund X at time 0. Let Y = amount in Fund Y at time

0. (iv) gives us
0.08 20 0.06 10
X(1 + 4 ) = 2Y (1 + 2 )

2Y (1 + 0.06
2 )
10
X=
(1 + 0.08
4 )
20

(iii) gives us
0.08 40 0.06 20
1000 = X(1 + 4 ) + Y (1 + 2 )

Substituting the first equation we have

2Y (1 + 0.06 10 

2 ) 0.08 40 0.06 20
1000 = 0.08 20 (1 + 4 ) + Y (1 + 2 )
(1 + 4 )
Y = 172.411
X = 311.863
The total amount in the two funds at the end of 2 years is
0.08 8 0.06 4
311.863(1 + 4 ) + 172.411(1 + 2 ) = 559.45

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37. Solve for i

PV(i) = PV(iii)
10000v 6 = 5000
i = 0.122462

Solve for v t

PV(iii) = PV(ii)
5000 = 6000v t + 56,000v 2t
0 = 56v 2t + 6v t − 5
p
−6 ± 36 − 4(56)(−5)
vt =
2(56)
v t = 0.25

The PV of $8000 at the end of t + 3 is

 3
1
8000v t+3 = 8000v t v 3 = 8000(0.25) = 1414.21
1.122462

38. skip

39. At the end of 9 years the accumulated values are the same
Z 9 
100 · exp δt dt = 100(1 + i)9
0
Z 9 
exp 0.5(1 + t)−2 dt = (1 + i)9
0
 9
exp −0.5(1 + t)−1 0 = (1 + i)9

e0.45 = (1 + i)9

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 i = 0.0513

40.
 4  −4
K K
1000 1 + 1− = 1173.54
4 4
!4
K
1+ 4
K
= 1.17354
1− 4

1 + K4
= 1.0408
1 − K4
K
1+ = 1.0408 − 0.2602K
4
K = 0.08

1 a0 (t)
41. δt = t+1 = a(t) =⇒ a(t) = 1 + t

Draw a picture

10,000 X
0 3 5 10
75,000
6% a(t) = 1 + t

Setup equation of value at time 0

 
3 a(5) 5
10,000 + Xv0.06 = 75,000 v0.06
a(10)
X = 24,498.79

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42.

A: a(t) = 1 + 0.05t
B: a(t) = e0.05t

The amount function for C is

A(t) = 1000(1 + 0.05t) + 500e0.05t

And δt is
A0 (t) 50 + 25e0.05t
δt = =
A(t) 1000(1 + 0.05t) + 500e0.05t
Plugging in 2 we have

50 + 25e0.1 2 + e0.1
δ2 = =
1100 + 500e0.1 44 + 20e0.1

d(4)
43. 4 - effective rate of discount per quarter
(4)
1 − d4 - discount factor for 1 quarter
 −1
d(4)
1− 4 - accumulation factor for 1 quarter
 −16
d(4)
1− 4 - accumulation factor for 4 years (16 quarters)
 −16
d(4)
1− 4 − 1 - effective rate of interest per 4 years
"
(4)
−16 #
1 d
1− −1 - nominal rate of interest convertible once every 4 years
4 4

44.

10,000(1 + i)(1 + i − 0.05) = 12,093.75

10,000(1 + i)(0.95 + i) = 12,093.75

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 10,000(0.95 + 1.95i + i2 ) = 12,093.75
10,000i2 + 19,500i − 2,593.75 = 0

Use quadratic formula

p
−19,500 ± 195002 − 4(10,000)(−2,593.75)
i=
2(10,000)
i = 0.125

Now if the interest rate where i + 9% for each of the three years

i + 0.09 = 0.215
10,000(1.215)3 = 17,936

45.
−2
d(2)
 R n+1 2
dt
1− =e n t−1
2
n+1
= e 2 ln(t−1)|n
e2 ln n
=
e2 ln(n−1)
−2
d(2) n2

1− =
2 (n − 1)2
d(2) n−1
1− =
2 n
2
d(2) =
n

46.
r3
Rt
dt
a(t) = e 0 100

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 t

r4 
=e 400 
0

t4
= e 400
t4
a−1 (t) = e− 400
a−1 (3) = 0.82

47.

aA (t) = 1 + t
a0A (t) 1
δtA = =
aA (t) 1 + t

aB (t) = 1 + t2
a0B (t) 2t
δtB = =
aB (t) 1 + t2
Now find the time when they are equal

δtA = δtB
1 2t
=
1 + t 1 + t2
1 + t2 = 2t + 2t2
0 = t2 + 2t − 1
p
−2 ± 4 − 4(1)(−1)
t=
2
= 0.41

48. 2
| = 1069
R2 0.1 3
0.1(t−1)2 dt 3 (t−1) 0
1000e 0 = 1000e

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49. Let X be the initial amount in fund F and fund G (bullet point iv tells us
they are the same). The accumulation functions for F and G are

aF (t) = 1 + t
aG (t) = 1 + 2t2

We need to maximize H(t) = F (t) − G(t) so we take the derivate of that and set
it equal to 0.

H(t) = X(1 + t) − X(1 + 2t2 )

= X + Xt − X − 2Xt2
= −2Xt2 + Xt

H 0 (t) = −4Xt + X = 0
X = 4Xt
1
t=
4

50. First find δ

eδ(27.72) = 2
ln 2
δ= = 0.025
27.72
We are told that the nominal rate convertible once every 2 year is numerically
equal (this is not the same as an equivalent rate) to δ. Let j be the nominal rate
convertible once every 2 years. j = 0.025

(1 + 2j)n/2 = 7.04

(1.05)n/2 = 7.04
n/2 = 40
n = 80

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51. We can solve this problem by either solving this equation for m
m  −m
i(m) d(m)

1+ = 1−
m m
   −1
0.01 0.00998
1+ = 1−
m m
  
0.01 0.00998
1+ 1− =1
m m
  
m + 0.01 m − 0.00998
=1
m m
m2 + 0.01m − 0.00998m − 0.0000998 = m2
m= 5

Or we can just test each m and see if we get 0.00998 for d(m) .

52. Z 1 
3 + 2t 
1

 
2 1
1000 exp dt = 1000 exp 50 3t + t 0.5 = 1046
0.5 50

53. The accumulation function is

a(t) = 1 + 0.04t

The effective rate of interest earned in year t is

a(t) − a(t − 1) 1 + 0.04t − (1 + 0.04(t − 1)) 0.04
= =
a(t − 1) 1 + 0.04(t − 1) 0.96 + 0.04t
Now set this equal to the 2.5%
0.04
0.025 =
0.96 + 0.04t
t = 16

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54. Let j be the effective rate per quarter during the five-year period
Z 3 Z 5 
t t + 1
(1 + j)20 = exp dt + dt
0 75 3 100
2 3
  2 5 !
t  t t
= exp + +
150 0 200 100 3

(1 + j)20 = e0.16

j = e0.008 − 1

55. III is false.

v 1/3 - discount factor for 1/3 of a year

1 − v 1/3 - effective discount rate for 1/3 of a year

 
3 1 − v 1/3 - nominal discount rate for 1/3 of a year

56. !
Z 210
1 
1
210  1


exp dt = exp 10 ln t1 = exp ln 2 − 10 ln 1 = 2
1 10t

57. Find j
100,000(1 + 2j )8 = 214,358.88
j = 0.2
Find k
100,000(1 − k4 )−8 = 232,305.73
k = 0.4
Finally
100,000(1 + 0.2)(1 − 0.4)−1 = 200,000

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58.
2t
2
=⇒ a(t) = t2 + 1
δt =
t +1
We want to know when the 100,000 doubles to 200,000
a(t)
100,000 · = 200,000
a(2)
t2 + 1
100,000 · = 200,000
5
t2 + 1 = 10
t=3
So it doubles in 3 − 2 = 1 years.

59.
Fund X @ 8 years = 1.05 × Fund Y @ 8 years
 16
8(0.05) j
e = 1.05 1 +
2
j = 0.0444

60.
0.2t
δt = 2
=⇒ a(t) = 1 + 0.1t2
1 + 0.1t
Now we need i2

i2
0 1 2

a(2) − a(1)
i2 =
a(1)
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 a(1) = 1 + 0.1(1) = 1.1
a(2) = 1 + 0.1(22 ) = 1.4
1.4 − 1.1
i2 = = 0.27
1.1

61.
 2
1
4 1 0.05
(1 + i) = · 1/2
· 1+ · e0.05
1 − 0.06 (1 − 2(0.05)) 2

(1 + i)4 = 1.23855
i = 0.055

62.
Z 5 
100 exp kt dt = 250
0
!2 5
kt 
100 exp = 250
2 0

100 exp (12.5k) = 250

ln 2.5
k=
12.5
= 0.08 ln 2.5

63. Billy’s accumulation function is

a(t) = 1 + 0.06t
George’s accumulation function is
1
1
δt = = 6 =⇒ a(t) = 1 + 61 t
6 + t 1 + 16 t

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The balance of the accounts are the same at time n
Billy(n) = George(n)
a(n)
625a(n) = 400 ·
a(2)
400 1 + 16 n


625 (1 + 0.06n) =
1 + 16 (2)
625 + 37.5n = 300 + 50n
325 = 12.5n
n = 26

64. First find δ

e87.88δ = 3
δ = 0.0125
For the other investment the nominal rate convertible once every 4 years is nu-
merically equivalent (not an equivalent rate) to δ, thus

(1 + 4 · 0.0125)t/4 = 4
4 ln 4
t= = 113.65
ln 1.05

65.
1
1
δt = = 2 1 =⇒ a(t) = 1 + 21 t
2 + t 1 + 2t
The amount of interest earned during the first n years is
a(n) − 1 = 8
1 + 12 n − 1 = 8
n = 16

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66. For Lewis
1
1
δt = = 5 1 =⇒ a(t) = 1 + 51 t
5 + t 1 + 5t
At time 16 the amounts in each fund are equal
 32
i a(16)
1000 1 + = 1000 ·
2 a(2)
 32
i 4.2
1+ =
2 1.4
i = 0.07

67.

1 3.09 13.62
0 5 10 15 20
i 2i

1(1 + i)5 (1 + 2i)5 = 3.09

1(1 + i)5 (1 + 2i)15 = 13.62
13.62
(1 + 2i)10 =
3.09
i = .08
The value at the end of 7 years is
1(1.08)5 (1.16)2 = 1.98

68. You should be able to do this with just your calculator (no pen and paper)
 2
.075
eδ = 1 +
2
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 δ = .07363
−4  2
d(4)

.075
1− = 1+
4 2
d(4) = .07295

δ + d(4) = .14658

69.
1
1 k 1
δt = = ⇒ a(t) = 1 + t
k + t 1 + k1 t k
1
a(1) = 1 +
k
2
a(2) = 1 +
k

Deposit Deposit Bal

400 42 552

0 1 2
i(2) = .1 δt

 2
.1 a(2) a(2)
400 1 + · + 42 = 552
2 a(1) a(1)
k+2
k
483 k+1
= 552
k

k= 6

.1
70. The force of interest is given as δt = , which implies that
1 + .1t
a(t) = 1 + .1t

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We are given the present value of (a) is equal to the present value of (b)
X 2X Y
+ =
a(5) a(10) a(14)
X 2X Y
+ =
1.5 2 2.4
 
Y 1
= 2.4 +1 = 4
X 1.5

71.

0 5 7 10.5
semiannual quarterly
i 2i
 10
i
X = 1000 1 +
2
 14  14
i 2i
1980 = 1000 1 + 1+
2 4
 28
i
1980 = 1000 1 +
2
i
1+ = 1.0247
2
X = 1000(1.0247)10 = 1276

72. d is the nominal rate of discount compounded quarterly and

1
δt = ⇒ a(t) = t + 1, t ≥ 2
t+1

100 260
0 1 2 3 4 5
d δt

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We accumulate 100 to time 5 as follows
100 a(5)

·
d 8
= 260
1− a(2)
4

a(2) = 2 + 1 = 3
a(5) = 5 + 1 = 6
 −8
d
1− = 1.3
4
d = .129

73. Fund 1 after 10 years

X(1.06)10
Fund 2 after 10 years
X
(1 − d)−10
2
Amount of interest earned over 10 years is equal
X X
X(1.06)10 − X = (1 − d)−10 −
2 2
d = .09049

74. Kelly’s accumulation function is

aK (t) = 1 + .1t

Tara’s accumulation function is

2t
2t k t2
δt = 2 = t2
⇒ aT (t) = + 1
t +k k +1 k
↑
The amount of interest earned between the end of the 4th and 8th year are equal

aT (8) − aT (4) = aK (8) − aK (4)

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64 16
+1− +1 = 1.8 − 1.4
k k
64 16
− = .4
k k
48
= .4
k
k = 120

75.
Fund X @ 12 yrs = 2000
 12×12
.06
P 1+ = 2000
12
P = 975.25

Fund Y @ 12 yrs = Z
1
1 12
δt = = t
t + 12 12 +1
t
∴ a(t) = +1
12
P a(12) = Z
 
12
975.25 +1 =Z
12
1950.50 = Z

76. Let i = nominal semiannual rate for Jennifer, then 2i nominal semiannual
rate for Brian.
 −20  −20
i 2i
800 1 + = 1120 1 +
2 2
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 (2 + i)−20
−20
= 1.4 (1 + i)−20
2
(2 + i)−20 −20


= 1.4 2
(1 + i)−20
2+i 1
= 2 (1.4)− 20 = 1.9666
1+i
2 + i = 1.9666 + 1.9666i
i = .034554
 −20
2 (.034554)
X = 1120 1 + = 567.75
2

77.

Fund X @ 20 yrs = Fund Y @ 20 yrs

R 20
.01t+.1 dt
1·e 0 = 1 · (1 + i)20
20
.005t2 +.1t
= (1 + i)20

e 0

e4 = (1 + i)20

Fund Y @ 1.5 years = 1 · (1 + i)1.5

 1.5
= (1 + i)20 20


1.5
= e4 20

= e.3

78.
 
1
δt = 2
1+t

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 ∴ a(t) = (1 + t)2
300 600 200 X
+ = +
a(3) a(6) a(2) a(5)
X = 316

79.
A(1.03)20 + B(1.025)20 = 10000

A(1.03)31 = 2B(1.025)31
A(1.03)20 · (1.03)11 = 2B(1.025)31

(1.025)31
2B 11
+ B(1.025)20 = 10000
(1.03)
3.1064B + 1.6386B = 10000
4.745B = 10000
B = 2107.48
(1.025)31
A = 2B = 3624.76
(1.03)31
The amount in the two funds at the end of 10 years is
3624.76 (1.03)10 + 2107.48 (1.025)10 = 7569.13

80.

1000 400 800 x

0 1 5 10

i(4) 12%
= = 3%
4 4
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 4 20 40
1000 = 400v.03 + 800v.03 + Xv.03
X = 658

81.
 12T Z T 
.12 t
1+ = exp dt
12 0 6
T2
(1.01)12T = e 12
Take ln of both sides and solve for T
T2
 
12T


ln (1.01) = ln e 12

T2
12T ln (1.01) =
12
T = 144 ln(1.01)

82.
200 100
+ = 200
(1 + i)n (1 + i)2n

mult. by (1 + i)2n :
200(1 + i)n + 100 = 200(1 + i)2n
2(1 + i)2n − 2(1 + i)n − 1 = 0
p
±
4 − 4(2)(−1)
(1 + i)n =
4
√ √
2 ± 2 3 1 + ± 3
(1 + i)n = =
4 2
(1 + i)n can not be negative so
√
3+1
(1 + i)n =
2
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 √ ! n1
3+1
1+i=
2

√ ! n1
3+1
i= −1
2

83.
0.2
δt = =⇒ a(t) = 1 + .2t for t ≥ 4
1 + 0.2t

1000 400
0 2 4 7
Simple Interest 5% a(t) = 1 + .2t

400
CV4 = 1000(1.1) + a(4)
a(7)
400
= 1100 + (1.8) = 1400
2.4
X 1
1400 = a(4) ·
a(10) 1.2
X 1
= (1.8) ·
3 1.2
X = 2800

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84.

121 121
(i)
0 1

144 144
(ii)
0 2 3

PV (i) = PV (ii)
121 + 121v = 144v 2 + 144v 3

144v 3 − 121v + 144v 2 − 121 = 0

v(144v 2 − 121) + 1(144v 2 − 121) = 0
(1 + v)(144v 2 − 121) = 0

1 + v = 0 or 144v 2 − 121 = 0
v can not be -1. Throw out that solution
121
v2 =
144
11
v=
12
PV (i) = 121 + 121v
 
11
= 121 + 121 ≈ 232
12

85.

Let purchase price = $1

PV (credit card) = PV (cash)

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 0.95
1 =1−r
(1.12) 24
r = 0.0545

86.
 20×2  −20×12
.10 0.06
1000 1 + =P 1−
2 12
P = 2114
"  20×2 #
.10
(1000 + 2114)(1 + i)20 = 2 1000 1 +
2

i ≈ .0784

87.
δ
f (i) =
d
 
d 1 1 d
f 0 (i) = δ + · (δ)
did d di
 
d 1+i 1 d

=δ + · ln(1 + i)
di i d di
 
1+i 1 1 1
=δ − 2 + + ·
i i d 1+i
δ 1
=− +
i2 i
i−δ
=
i2

88.

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 1 2.7183
0 5 10
δt = kt δt = .04kt2

R5 R 10
kt dt .04kt2 dt
e 0 e 5 = 2.7183
i5 i10
kt2 .04 3
3 kt
e 2
0 e 5 = 2.7183
e12.5k e11.667k = 2.7183
k = .04137931

2010
c The Infinite Actuary, LLC A.1 Solutions