A.

2 Problems

Solutions to selected problems can be found at:

http://www.theinfiniteactuary.com/?page=exams&id=140

1. Mr. Smith wants to give his son an annuity of $5,000 per year starting on his 21st birthday, which will
be increased to $10,000 per year on his 25th birthday with the final payment on his 30th birthday. What
is the present value of that annuity on his sons 10th birthday if the effective annual rate of interest is
5%?

A. Less than $35,500

B. At least $35,500, but less than $36,000
C. At least $36,000, but less than $36,500
D. At least $36,500, but less than $37,000
E. At least $37,000

2. An annuity-immediate has annual payments of amount P for 10 years. At a nominal rate of interest
of 10% compounded quarterly, the present value of the annuity is $10,000. What is the amount of the
annual payment P?

A. Less than $1,620

B. At least $1,620, but less than $1,630
C. At least $1,630, but less than $1,640
D. At least $1,640, but less than $1,650
E. At least $1,650

3. Perpetuity A pays $100 at the end of each year. Perpetuity B pays $25 at the end of each quarter.

The present value of perpetuity A at the annual effective rate of interest i is $2,000.

What is the present value of perpetuity B at the same annual effective rate of interest i?

A. Less than $2,020

B. At least $2,020, but less than $2,025
C. At least $2,025, but less than $2,030
D. At least $2,030, but less than $2,035
E. At least $2,035

TIA 2/FM Seminar A.2 Problems

4. You currently have $1000 in an account that pays a nominal rate of interest of 8% compounded quarterly.
You plan to deposit $200 every two months with the first deposit one month from now. What will be
the value of the account one month after the eighteenth deposit?

A. Less than $5,280

B. At least $5,280, but less than $5,300
C. At least $5,300, but less than $5,320
D. At least $5,320, but less than $5,340
E. At least $5,340

5. Jones purchased a perpetuity today for $7,000. He will receive the first annual payment of $200 five
years from now. The second annual payment will be $200 plus an amount C. Each subsequent payment
will be the prior payment plus an additional constant amount C. If the effective annual interest rate is
4%, find C.

A. Less than $6
B. At least $6, but less than $7
C. At least $7, but less than $8
D. At least $8, but less than $9
E. At least $9

6. Which of the following statements are true

d än
1. = −v −2
dv an
n
X
2. aj = (Da)n
j=1

dδ
3. =1+i
dv
A. 1 B. 2 C. 3 D. 1, 2 E. 1, 2, 3

7. A perpetuity pays $100 at the middle of the year and $200 at the end of the year. The first payment
of $100 was made three months ago. At an annual effective rate of interest of 6%, what is the present
value of the perpetuity, including the payment that has already been made?

A. Less than 5100

B. At least 5100, but less than 5150
C. At least 5150, but less than 5200
D. At least 5200, but less than 5250
E. At least 5250

TIA 2/FM Seminar A.2 Problems

8. Given the following, find s̄1 ?
än+3 = 13.9870
s̈n+1 = 23.6914

A. Less than 1.0145

B. At least 1.0145, but less than 1.0155
C. At least 1.0155, but less than 1.0165
D. At least 1.0165, but less than 1.0175
E. At least 1.0175

9. Smith receives annual dividends which began one year after an investment of $10,000 fifteen years ago.
Dividends have increased 2% every year. The dividend Smith received today was $659.74. What is the
accumulated value today of Smiths dividends assuming an effective annual interest rate of 5.06%?

A. Less than $12,240

B. At least $12,240, but less than $12,300
C. At least $12,300, but less than $12,360
D. At least $12,360, but less than $12,420
E. At least $12,420

10. A fund is built with annual payments increasing by $1 from $1 to $10 and then decreasing by $1 to $0.
The first payment of $1 is made today.

If the fund is used to purchase a 10 year level annuity with the first payment at 20 years from today,
what is the amount of the level payment?

Assume an annual effective rate of interest of 4%.

A. Less than $16

B. At least $16, but less than $17
C. At least $17, but less than $18
D. At least $18, but less than $19
E. At least $19

11. Which of the following statements are true

1. (Is)n + (Ds)n = (n + 1)sn

2. s̈n < an (1 + i)n+1

n
X
3. (ät − at ) = n − an
t=1

A. 1 B. 2 C. 3 D. 1, 3 E. 1, 2, 3

TIA 2/FM Seminar A.2 Problems

12. A perpetuity pays $200 at the beginning of the year and $100 two-thirds of the way through the year.
The first payment of $200 was made six months ago.

At an annual effective rate of interest of 6.5%, what is the present value of the perpetuity, including the
payment that has already been made?

A. Less than $4,900

B. At least $4,900, but less than $5,100
C. At least $5,100, but less than $5,300
D. At least $5,300, but less than $5,500
E. At least $5,500

13. Jones invests $5 per day for 20 years beginning on 1/1/1989 at a nominal rate of interest of 8% com-
pounded daily. (Assume 365 days in one year.)

What is the accumulated value of Jones’ investment on 1/1/2009?

A. Less than $90,100

B. At least $90,100, but less than $90,300
C. At least $90,300, but less than $90,600
D. At least $90,600, but less than $90,900
E. At least $90,900

14. If (Is)3 = 6.5, find an exact expression for the rate of interest per period for i.
√
3 2−5
A.
7
√
53 − 7
B.
4
√
23 − 3
C.
2
√
3 2−4
D.
2
E. Cannot be determined from the given information.

TIA 2/FM Seminar A.2 Problems

15. A loan of $10,000 is to be repaid in 48 equal monthly installments with the first paid one month after
the loan is made. The interest rate is 12% compounded monthly.

What is the monthly payment?

A. Less than $268

B. At least $268, but less than $271
C. At least $271, but less than $274
D. At least $274, but less than $277
E. At least $277

16. John wins $1,000,000 in a lottery and will be paid 20 equal annual installments of $50,000 with the first
payment due today. A bank offers to exchange Johns winnings for a perpetuity of $X per month with
the first payment due today. Find the value closest to $X assuming a 10% effective rate of interest.

A. $3300 B. $3360 C. $3550 D. $3700 E. $3730

17. An annuity provides for 10 annual payments. The first of these payments is $100 and each subsequent
payment is 10% higher than the one preceding it. Find the present value to the nearest $50 of this
annuity at the time 1 year prior to the first payment if i = 10%.

A. $800 B. $850 C. $900 D. $950 E. $1000

18. A renter with $1,104 has a one-year lease. The landlord is willing to accept two payment options:

1. $1,104 now; or

2. $100 paid at the beginning of each month for 12 months

What monthly interest rate would be required for the two options to be equivalent?

A. Less than 0.012

B. At least 0.012, but less than 0.013
C. At least 0.013, but less than 0.014
D. At least 0.014, but less than 0.015
E. At least 0.015

TIA 2/FM Seminar A.2 Problems

19. Tom has served in the Navy for 21 years and plans to retire sometime in the future. Every three years
he has received a re-enlistment bonus and deposited a certain dollar amount, X, in an account for when
he retires. After making his current deposit, the value of his account is $180,176. Assuming an annual
effective interest rate of 9%, what were his tri-annual deposits?

A. Less than $10,400

B. At least $10,400, but less than $10,425
C. At least $10,425, but less than $10,450
D. At least $10,450, but less than $10,475
E. At least $10,475

20. John has a 30-year $100,000 mortgage with monthly payments based on a 12% interest rate convertible
monthly. The first payment is due in one month. Find X such that if John decided to add X to each
monthly payment (starting with the first payment) the term of the mortgage would be reduced to 25
years.

A. Less than $20

B. At least $20, but less than $30
C. At least $30, but less than $40
D. At least $40, but less than $50
E. At least $50

21. Mary is hired by ABC Company on 1/1/85. She is eligible to qualify for the company’s new hire
bonus program. If an employee qualifies at year-end, she will receive a cash bonus payable in two equal
installments, half on January 1 and half on July 1.

The first-year bonus is $2,000 and increases by $2,000 each year. Assuming Mary qualified each year
(i.e., she received her first payments on 1/1/86) and deposited her bonus in an account that pays an 8%
annual effective rate of interest, what is the accumulated value of her bonus payments through 7/1/90?

A. Less than $33,500

B. At least $33,500, but less than $33,750
C. At least $33,750, but less than $34,000
D. At least $34,000, but less than $34,250
E. At least $34,250

TIA 2/FM Seminar A.2 Problems

22. A triennial perpetuity pays $1 at the end of the first year; $4 at the end of the fourth year; $7 at the
end of the seventh year; $10 at the end of the tenth year; and so on (3n+1 dollars at the end of the
3n+1 st year). The effective annual interest rate is 8%.

Determine the present value of this perpetuity.

A. Less than $54

B. At least $54, but less than $56
C. At least $56, but less than $58
D. At least $58, but less than $60
E. At least $60

23. Mary is to receive an annuity with 30 annual payments. The first payment of $1,000 is due immediately
and each successive payment is 5% less than the payment for the preceding year. Interest is 12%
compounded annually. Determine the present value of the annuity.

A. Less than $6,400

B. At least $6,400, but less than $6,500
C. At least $6,500, but less than $6,600
D. At least $6,600, but less than $6,700
E. At least $6,700

24. Fast Freddie offers financing on furniture in the following way:

“We don’t do any of the complicated interest stuff. We just add a simple 14% carrying
charge to the purchase price before we divide by 12 to get your monthly payment.”

The first payment is due one month after the purchase date. Determine the effective annual interest
rate for this loan.

A. Less than 14%

B. At least 14%, but less than 18%
C. At least 18%, but less than 22%
D. At least 22%, but less than 26%
E. At least 26%

TIA 2/FM Seminar A.2 Problems

25. Janet buys a $20,000 car. Prevailing market rates are nominal 8% annual interest, convertible monthly.
The dealership offers her the choice of a rebate upon purchase of the car for cash, or alternatively
Janet can make no down payment and 60 monthly payments based on a nominal 2.5% annual interest,
convertible monthly.

The first payment would be due one month after the purchase of the car. The amount of the rebate is
set so that the dealership is indifferent as to whether Janet takes the rebate or finances the car at the
offered below market interest rate.

Determine the amount of the rebate.

A. Less than $2450

B. At least $2450, but less than $2550
C. At least $2550, but less than $2650
D. At least $2650, but less than $2750
E. At least $2750

26. Kendall borrows $100,000 on January 1, 1993 to be repaid in 12 annual installments at an effective
annual rate of interest of 8%. The first payment is due on January 1, 1994. Instead of annual payments
she decides to make monthly payments equal to one-twelfth the annual payment beginning on February
1, 1993.

Determine how many months will be needed to pay off the loan.

A. 136 B. 137 C. 138 D. 139 E. 140

27. Jim and Sue are planning to retire on January 1, 1995. Their goal is to have enough money in savings
to be able to withdraw $3,000 per month beginning one month after retirement and continuing for 25
years after retirement. They earn an annual effective rate of interest of 10% on their account.

Determine the minimum amount needed in their savings account on January 1, 1995 to accomplish their
goal.

A. Less than $325,000

B. At least $325,000, but less than $335,000
C. At least $335,000, but less than $345,000
D. At least $345,000, but less than $355,000
E. At least $355,000

TIA 2/FM Seminar A.2 Problems

28. John’s estate is to be divided into three equal parts and invested to be paid out as follows:

(i) John’s two children will each receive their share in 20 level annual payments, beginning one year
after John’s death.

(ii) Charity Q will receive its share as equal annual payments in perpetuity beginning 21 years after
John’s death.

Q’s annual payment is twice the annual payment for one child.

Determine the effective interest rate at which the estate is invested.

A. Less than 5.00%

B. At least 5.00%, but less than 5.25%
C. At least 5.25%, but less than 5.50%
D. At least 5.50%, but less than 5.75%
E. At least 5.75%

29. The University of the State of Turmoil wishes to invest $100,000 in an interest bearing account. Begin-
ning 6 years after the deposit, scholarship payments of $10,000 per year are to be made in perpetuity.

Determine the minimum effective annual rate of interest that the University must earn on its investments
in order to fund this perpetuity as planned.

A. Less than 7.04%

B. At least 7.04%, but less than 7.08%
C. At least 7.08%, but less than 7.12%
D. At least 7.12%, but less than 7.16%
E. At least 7.16%

30. Louise receives a series of annual payments that start at $1000 and decrease by $100 each year down
to $100, then increase again each year back up to $1000 and then the payments stop. Assume that
payments begin immediately and that the annual effective interest rate is i = 9%.

Determine the present value of this series of payments.

A. Less than $5500

B. At least $5500, but less than $5650
C. At least $5650, but less than $5800
D. At least $5800, but less than $5950
E. At least $5950

TIA 2/FM Seminar A.2 Problems

31. A loan of $8000 is to be repaid in 36 equal monthly installments with the first one paid six months after
the loan is made. The nominal annual interest rate is 10% compounded quarterly.

Determine the amount of the monthly payment.

A. Less than $258

B. At least $258, but less than $262
C. At least $262, but less than $266
D. At least $266, but less than $270
E. At least $270

32. Shondra wishes to accumulate a college fund for her daughter by making 17 equal annual deposits
beginning on the daughter’s first birthday. The fund will be used to make four annual tuition payments
beginning on the daughter’s 18th birthday. The first tuition payment will be $15,000, with the subsequent
payments increasing by 8% each year. Shondra earns interest on her investment at a 5% annual effective
rate.

Determine the minimum amount of her annual deposit.

A. Less than $2,200

B. At least $2,200, but less than $2,400
C. At least $2,400, but less than $2,600
D. At least $2,600, but less than $2,800
E. At least $2,800

33. Suzy wishes to accumulate a retirement fund. She will make 10 annual payments of $10,000 each,
beginning today. Beginning 1 year after the date of the final payment, she expects to make annual
withdrawals. Suzy earns interest at a 5% nominal annual interest rate compounded quarterly as long
as her balance is less than $50,000 and at a 7% nominal annual interest rate compounded quarterly on
the entire fund whenever her balance exceeds $50,000.

Determine the amount in Suzy’s account immediately prior to her making her first annual withdrawal.

A. Less than $130,000

B. At least $130,000, but less than $135,000
C. At least $135,000, but less than $140,000
D. At least $140,000, but less than $145,000
E. At least $145,000

TIA 2/FM Seminar A.2 Problems

34. Sally buys a house. She has limited initial funds, so she agrees to make 360 monthly payments as follows:

(i) The first payment is to be $500, with each subsequent payment increasing by $10.

(ii) The first payment is due one month after the date of the loan.

(iii) The nominal annual interest rate is 6% compounded monthly.

Determine how much Sally borrowed.

A. Less than $200,000

B. At least $200,000, but less than $230,000
C. At least $230,000, but less than $260,000
D. At least $260,000, but less than $290,000
E. At least $290,000

35. The present value of a 5-year annuity immediate, with payments of $1,000 each 6 times per year, is
$20,930. Determine the force of interest.

A. Less than 14.65%

B. At least 14.65%, but less than 14.75%
C. At least 14.75%, but less than 14.85%
D. At least 14.85%, but less than 14.95%
E. At least 14.95%

36. Trish had reimbursable health care expenses of $100 per week for the first 50 weeks of the year. Trish
sent in claim forms for all of her reimbursable expenses in bulk at the end of the 50th week and received
payment at the end of the 51st week, which she deposited in her account on the same day that she
received it. Assume the annual effective rate of interest is 10.95%.

Determine the difference between the amount actually accumulated in her savings account at year end
and the amount that could have been accumulated if she had sent in her claim forms at the end of each
week and received payment at the end of the following week.

A. Less than $230

B. At least $230, but less than $240
C. At least $240, but less than $250
D. At least $250, but less than $260
E. At least $260

TIA 2/FM Seminar A.2 Problems

37. Harriet wishes to accumulate $60,000 in a fund at the end of 25 years. She plans to deposit $80 into the
fund at the end of each of the first 120 months. She then plans to deposit $80 + x into the fund at the
end of each of the last 180 months. Assume the fund earns interest at an annual effective rate of 3.66%.
Determine x.

A. Less than $86

B. At least $86, but less than $88
C. At least $88, but less than $90
D. At least $90, but less than $92
E. At least $92

38. A worker is injured on 1/1/95, resulting in a workers compensation claim. The insurer establishes a
reserve, on that date, of $274,000.

You may assume the following information:

(i) Medical and indemnity payments will be made for 15 years.

(ii) The medical payments will be $10,000 in 1995, increasing by 10% per year thereafter.

(iii) The medical and indemnity payments are discounted at an interest rate of 5% per year to determine
the reserve.

(iv) All payments will be made at year end.

(v) There is no escalation in the indemnity payments during the 15 years.

Determine the annual indemnity payment.

A. Less than $5,250

B. At least $5,250, but less than $5,750
C. At least $5,750, but less than $6,250
D. At least $6,250, but less than $6,750
E. At least $6,750

39. You are given an effective annual rate of interest i = 5%. Which of the following values are greater than
or equal to $20.

1. The present value of an annuity of $1 per year payable continuously for 50 years.

2. The accumulated value in 5 years of annual payments starting at $5 and decreasing by $1 per year.
(Payments start one year from now.)

3. The present value of a perpetuity paying $1 every 5 years and increasing by $1 each payment.
(Payments start five years from now.)

A. 1 B. 2 C. 3 D. 1, 2 E. None of 1, 2, 3

TIA 2/FM Seminar A.2 Problems

40. John will make five deposits, of X each, at the beginning of each of the next five years, into a fund
that earns a nominal rate of discount of 8% convertible semiannually. The fund must provide for a
perpetuity of annual payments of $100 beginning at the end of the 6th year and increasing by $50 each
year. Determine the smallest amount X can be.

A. Less than $1250

B. At least $1250, but less than $1300
C. At least $1300, but less than $1350
D. At least $1350, but less than $1400
E. At least $1400

41. Harry borrows $3,500 from Mary. He agrees to repay the loan with annual payments, made at the end
of each year, of $500, $1,000, $1,500, etc. with a smaller final payment one year after the last regular
payment. Mary charges Harry a rate of discount of 10% convertible 4 times per year. Determine the
amount of the final payment.

A. Less than $1,610

B. At least $1,610, but less than $1,640
C. At least $1,640, but less than $1,670
D. At least $1,670, but less than $1,700
E. At least $1,700

42. Mrs. McNamara just turned 44 and is beginning to plan for her retirement. She would like to make
annual contributions to a retirement fund beginning with X on her 45th birthday and increasing by
$500 each year until her last contribution on her 64th birthday.

These contributions should fund annual retirement checks beginning with $50,000 on her 65th birthday
and increasing by 5% each year until her last retirement check issued on her 84th birthday. The fund
will earn interest at the nominal rate of 10% convertible semiannually.

Determine which of the following is closest to the minimum X needed to ensure that Mrs. McNamaras
retirement goals are met.

A. Less than $6,300

B. At least $6,300, but less than $6,700
C. At least $6,700, but less than $7,100
D. At least $7,100, but less than $7,500
E. At least $7,500

TIA 2/FM Seminar A.2 Problems

43. A perpetuity immediate has annual payments of $1, $3, $5, $7, $9, . . . The present value of the 6th
payment equals the present value of the 7th payment.

Determine the present value of the perpetuity.

A. Less than $40

B. At least $40, but less than $50
C. At least $50, but less than $60
D. At least $60, but less than $70
E. At least $70

44. Two annuities have equal present values. The first is an annuity-immediate with quarterly payments of
$X for 10 years. The second is an increasing annuity-immediate with 10 annual payments. The first
payment is $500 and subsequent payments increase by $50 per year. You may assume an annual effective
interest rate of 5%. Determine X.

A. Less than $170

B. At least $170, but less than $175
C. At least $175, but less than $180
D. At least $180, but less than $185
E. At least $185

45. A perpetuity has payments of $1, $2, $1, $3, $1, $4, $1, $5, . . . Payments are made at the end of each
year. You may assume an annual effective interest rate of 5%.

Determine the present value of this perpetuity.

A. Less than $150

B. At least $150, but less than $250
C. At least $250, but less than $350
D. At least $350, but less than $450
E. At least $450

TIA 2/FM Seminar A.2 Problems

46. Bill is due to retire in 20 years, at which time he will start collecting pension benefits. His employer is
scheduled to begin funding Bill’s pension benefits with the first annual payment due at the end of year 1
and the last annual payment due at the end of year 20. The initial employer’s contribution is $2,000 and
will increase by 3% each year. Employer contributions will earn interest at an annual effective interest
rate of 7%.

Bill’s employer can elect alternative funding: annual contributions beginning at the end of year 6 with
the last contribution at the end of year 20. These annual contributions begin at $1,000 and increase by
$Q per year. Under this alternative funding, the employer’s contribution will earn an annual effective
interest rate of 8%.

Determine Q so that both funding options have the same accumulated value at the end of year 20.

A. Less than $440

B. At least $440, but less than $480
C. At least $480, but less than $520
D. At least $520, but less than $560
E. At least $560

47. The present value of a perpetuity is $9.25. The perpetuity pays $1 at the end of every 2 years (that is
to say, one payment every other year), with the first payment due immediately.

Cheryl will make 3 payments of $300 each. The first payment is due one year from now, with successive
payments due every third year thereafter.

Determine the present value of Cheryl’s payments at the same annual effective interest rate used to
determine the present value of the perpetuity described above.

A. Less than $725

B. At least $725, but less than $740
C. At least $740, but less than $755
D. At least $755, but less than $770
E. At least $770

48. Leo will make an initial deposit into an account of $1,000 at time t = 0, followed by five annual deposits
of $200 at times t = 1, 2, 3, 4, 5. Leo will receive payments from the account at times t = 7, 8, 9,
starting at $1,500 and decreasing by $Q per year. The balance in the account after the last payment is
$0.

You may assume this account earns an effective annual interest rate of 7%. Determine $Q.

A. Less than $450

B. At least $450, but less than $490
C. At least $490, but less than $530
D. At least $530, but less than $570
E. At least $570

TIA 2/FM Seminar A.2 Problems

49. Consider an annuity that pays 1 at the beginning of each year for k + m years.

Which of the following expressions does NOT give the value of this annuity at the end of year k?

A. ak+m (1 + i)k+1
B. sk+m v m
C. sk+1 + am−1
D. s̈k + äm
E. 1 + s̈k + am−1

50. Bea wants to accumulate $75,000 in a fund at the end of 15 years (t = 15). She plans to deposit
$1200 + tX at the end of each of the first 10 years (for t = 1, 2, 3, . . . , 10) and $1,000 at the end of each
of the last 5 years. Bea’s fund will earn interest at an effective annual rate of 7%.

Determine X.

A. Less than $500

B. At least $500, but less than $550
C. At least $550, but less than $600
D. At least $600, but less than $650
E. At least $650

51. John wishes to accumulate $15,000 in a trust fund at the end of 10 years. He will make 10 annual
deposits of $1,000 with each annual deposit made at the beginning of the year. In order to accumulate
$15,000 in the trust fund, John needs to increase each of the last 2 payments by $X. The deposits earn
interest at an effective annual rate of 5%.

Determine $X.

A. Less than $850

B. At least $850, but less than $950
C. At least $950, but less than $1,050
D. At least $1,050, but less than $1,150
E. At least $1,150

TIA 2/FM Seminar A.2 Problems

52. Lisa invests an amount B on January 1, 1999, to open her stock portfolio. The portfolio earns a return
of 5% per quarter. Lisa also will invest an amount B on April 1st and July 1st and an amount 2B on
October 1st.

Lisa’s portfolio will be worth $20,000 on January 1, 2000.

Determine B.

A. Less than $3,550

B. At least $3,550, but less than $3,600
C. At least $3,600, but less than $3,650
D. At least $3,650, but less than $3,700
E. At least $3,700

53. An annuity has the following series of payments:

(i) $1,000 per year for the first 4 years payable continuously

(ii) $1,000 starting a the end of the 5th year, increasing by X per year at the end of years 6 through
11

(iii) $3,000 per year at the beginning of years 13 through 15.

The nominal rate of interest is 10% compounded twice per year. The accumulated value of the payments
at the end of the 15th year is $50,000.

Determine X.

A. Less than $295

B. At least $295, but less than $305
C. At least $305, but less than $315
D. At least $315, but less than $325
E. At least $325

TIA 2/FM Seminar A.2 Problems

54. Sally takes out a mortgage with the following repayment schedule:

• $100 at the beginning of each month in year 1

• $200 at the beginning of each month in year 2

• ...

• $100 × n at the beginning of each month in year n

• ...

• $1,500 at the beginning of each month in year 15

Sally will pay interest at an effective annual rate of 7%.

Determine the present value of Sally’s loan payments at the beginning of year 1, just before she makes
her first $100 payment.

A. Less than $75,500

B. At least $75,500, but less than $76,500
C. At least $76,500, but less than $77,500
D. At least $77,500, but less than $78,500
E. At least $78,500

55. An annuity provides for 12 annual payments. The first payment is $100, paid at the end of the first
year, and each subsequent payment is 5.0% more than the once preceding it.

Calculate the present value of this annuity if i = 7.0%.

A. Less than $990

B. At least $990, but less than $1,000
C. At least $1,000, but less than $1,010
D. At least $1,010, but less than $1,020
E. At least $1,020

TIA 2/FM Seminar A.2 Problems

56. A scholarship fund is to be established by making annual deposits as follows:

Time Deposit
1 $1,000
2 $1, 000 + 500
3 $1, 000 + 500(2)
... ...
t $1, 000 + 500(t − 1)
... ...
10 $1, 000 + 500(9)

Beginning at time t = 11, the fund will pay one scholarship of amount X annually into perpetuity.
Assuming i = 0.12, what is the largest value of X that the fund can provide?

A. Less than $5,500

B. At least $5,500, but less than $6,000
C. At least $6,000, but less than $6,500
D. At least $6,500, but less than $7,000
E. At least $7,000

57. Mr. Smith has two grandchildren, Adam and Evelyn. Adam will be enrolling in college on September
1, 2003, and Evelyn will be enrolling on September 1, 2005. Mr. Smith wishes to give both Adam and
Evelyn $1,000 at the beginning of each of their four years in college.

Mr. Smith will fund these payments by making five level annual deposits of P into an account earning
an annual effective interest rate of 7%, with the first deposit on September 1, 1998.

Determine the value of P .

A. Less than $1,050

B. At least $1,050, but less than $1,150
C. At least $1,150, but less than $1,250
D. At least $1,250, but less than $1,350
E. At least $1,350

TIA 2/FM Seminar A.2 Problems

58. You are given the following data on the three series of payments:

Payment at the Accumulated Value

End of Year at the End of
6 12 18 Year 18
Series A 240 200 300 X
Series B 0 360 700 X + 100
Series C Y 600 0 X

Assume interest is compounded annually. Calculate Y .

A. 93 B. 99 C. 102 D. 107 E. 111

59. You are given:

(i) The force of interest at time t is kt3 .

(ii) R is the present value of a four year continuously increasing annuity which has a rate of payment
of mt3 at time t.

Calculate R.

k − me−4k
A.
k
k − me−64k
B.
k
1 − me−4k
C.
k
1 − me−64k
D.
k
m(1 − e−64k )
E.
k

60. An annuity provides for 30 annual payments. The first payment of 100 is made immediately and the
remaining payments increase by 8% per annum. Interest is calculated at 13.4% per annum.

Calculate the present value of this annuity.

A. 1423 B. 1614 C. 1753 D. 1866 E. 1944

61. An annuity-immediate pays an initial benefit of one per year, increasing by 10.25% every four years.
The annuity is payable for 40 years.

Using an annual effective interest rate of 5%, determine an expression for the present value of this
annuity.
a20 a40
A. (1 + v 2 ) ä20 B. (1 + v 2 ) a20 C. 2a20 D. E.
s2 s2

TIA 2/FM Seminar A.2 Problems

62. Gloria borrows 100,000 to be repaid over 30 years. You are given:

(i) Her first payment is X at the end of year 1.

(ii) Her payments increase at the rate of 100 per year for the next 19 years and remain level for the
following 10 years.

(iii) The effective rate of interest is 5% per annum.

Calculate X.

A. 5505 B. 5555 C. 5605 D. 5655 E. 5705

63. The present value of a series of payments of 2 at the end of every eight years, forever, is equal to 5.
Calculate the effective rate of interest.

A. 0.023 B. 0.033 C. 0.040 D. 0.043 E. 0.052

64. The proceeds of a 10,000 death benefit are left on deposit with an insurance company for seven years
at an annual effective rate of 5%.

The balance at the end of seven years is paid to the beneficiary in 120 equal monthly payments of X,
with the first payment made immediately. During the payout period, interest is credited at an annual
effective interest rate of 3%.

Calculate X.

A. 117 B. 118 C. 129 D. 135 E. 158

1
65. You are given δt = for 0 ≤ t ≤ 5. Calculate s5 .
1+t
A. 7.5 B. 8.7 C. 10.5 D. 13.7 E. 16.0

66. At an effective annual interest rate i, you are given:

(i) the present value of an annuity-immediate with annual payments of 1 for n years is 40; and

(ii) the present value of an annuity-immediate with annual payments of 1 for 3n years is 70.

Calculate the accumulated value of an annuity-immediate with annual payments of 1 for 2n years.

A. 240 B. 243 C. 260 D. 268 E. 280

67. A 20-year annuity pays 100 every other year beginning at the end of the second year, with additional
payments of 300 each at the ends of year 3, 9 and 15. The effective annual interest rate is 4%.

Calculate the present value of the annuity.

A. 1310 B. 1340 C. 1370 D. 1400 E. 1430

TIA 2/FM Seminar A.2 Problems

68. An annuity-immediate pays 10 at the ends of year 1 and 2, 9 at the ends of years 3 and 4, etc., with
payments decreasing by 1 every second year, until nothing is paid. The effective annual rate of interest
is 5%.

Calculate the present value of this annuity-immediate.

A. 71 B. 78 C. 84 D. 88 E. 94

69. A perpetuity with annual payments is payable beginning 10 years from now. The first payment is
50. Each annual payment thereafter is increased by 10 until a payment of 150 is reached. Subsequent
payments remain level at 150.

The perpetuity is purchased by means of 10 annual premiums, with the first premium of P due imme-
diately. Each premium after the first is 105% of the preceding one.

The annual effective interest rates are 5% during the first 9 years and 3% thereafter.

Calculate P .

A. 281 B. 286 C. 291 D. 296 E. 301

70. You are given (Ia)n−1 = K/d, where d is the annual effective discount rate. Calculate K.

A. än−1 − (n − 1)v n−1

B. an−1 − nv n
C. än−1 − (n − 1)v n
D. an − (n − 1)v n−1
E. an − nv n

71. You are given:

(i) the present value of an annuity-due that pays 300 every 6 months during the first 15 years and
200 every 6 months during the second 15 years is 6000;

(ii) the present value of a 15-year deferred annuity-due that pays 350 every 6 months for 15 years is
4000; and

(iii) the present value of an annuity-due that pays 100 every 6 months during the first 15 years and
200 every 6 months during the next 15 years is X.

The same interest rate is used in all calculations. Determine X.

Note: this problem is defective. If you solve for the interest rate and then use that to find X, then you
will not get any of the answer choices.

A. 3220 B. 3320 C. 3420 D. 3520 E. 3620

TIA 2/FM Seminar A.2 Problems

72. At a nominal rate of interest i, convertible semiannually, the present value of a series of payments of 1
at the end of every 2 years, forever, is 5.89. Calculate i.

A. 6% B. 7% C. 8% D. 9% E. 10%

10
X
73. Calculate st 10% .
t=1

A. 69 B. 72 C. 75 D. 78 E. 81

74. A perpetuity consists of yearly increasing payments of (1 + k), (1 + k)2 , (1 + k)3 , etc., commencing at
the end of the first year.

At an annual effective interest rate of 4%, the present value of the perpetuity at time t = 0 is 51.

Determine k.

A. 0.035 B. 0.030 C. 0.025 D. 0.020 E. 0.015

75. The death benefit on a life insurance policy can be paid in any of the following ways, each of which has
the same present value as the death benefit:

(i) a perpetuity of 120 at the end of each month;

(ii) 365.47 at the end of each month for n years; and

(iii) a payment of 17866.32 at the end of n years.

Calculate the amount of the death benefit.

A. 8000 B. 9000 C. 10000 D. 12000 E. 15000

76. The following three series of payments have the same present value of P :

(i) a perpetuity-immediate of 2 per year at an annual effective interest rate of i;

(ii) a 20-year annuity-immediate of x per year at an annual effective interest rate of 2i; and

(iii) a 20-year annuity-due of 0.96154x per year at an annual effective rate of 2i.

Calculate P .

A. 80 B. 85 C. 90 D. 95 E. 100

77. At time t = 0, Paul deposits P into a fund crediting interest at an effective annual interest rate of
8%. At the end of each year in years 6 through 20, Paul withdraws an amount sufficient to purchase
an annuity-due of 100 per month for 10 years at a nominal interest rate of 12% compounded monthly.
Immediately after the withdrawal at the end of year 20, the fund value is zero.

Calculate P .

A. 41,000 B. 42,000 C. 43,000 D. 44,000 E. 45,000

TIA 2/FM Seminar A.2 Problems

78. Hilary receives payments of X at the end of each year for n years. The present value of her annuity is
493.

Ned receives payments of 3X at the end of each year for 2n years. The present value of his annuity is
2748.

Both present values are calculated at the same annual effective interest rate.

Determine v n .

A. 0.86 B. 0.87 C. 0.88 D. 0.89 E. 0.90

79. Jeff deposits 100 at the end of each year for 13 years into Fund X. Rachel deposits 100 at the end of
each year for 13 years into Fund Y.

Fund X earns an annual effective rate of 15% for the first 5 years and an annual rate of 6% thereafter.
Fund Y earns an annual effective rate of i.

At the end of 13 years, the accumulated value of Fund X equals the accumulated value of Fund Y.

Calculate i.

A. 6.4% B. 6.7% C. 7.0% D. 7.4% E. 7.8%

80. Francois purchases a 10-year annuity-immediate with annual payments of 10X.

Jacques purchases a 10-year decreasing annuity-immediate which also make annual payments. The
payment at the end of year 1 is equal to 50. At the end of year 2, and at the end of each year through
year 10, each subsequent payment is reduced over what was paid in the previous year by an amount
equal to X.

At an annual effective interest rate of 7.072%, both annuities have the same present value.

Calculate X, where X < 5.

A. 3.29 B. 3.39 C. 3.49 D. 3.59 E. 3.69

81. Eloise plans to accumulate 100,000 at the end of 42 years. She makes the following deposits:

(i) X at the beginning of years 1 - 14;

(ii) No deposits at the beginning of years 15 - 32; and

(iii) Y at the beginning of years 33 - 42.

The annual effective interest rate is 7%. X − Y = 100. Calculate Y .

A. 479 B. 499 C. 519 D. 539 E. 559

TIA 2/FM Seminar A.2 Problems

82. Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5 each
year until the payment reaches 100. The payments remain at 100 thereafter. The annual effective
interest rate is 7.5%. Determine the present value of this perpetuity.

A. 700 B. 735 C. 760 D. 785 E. 810

83. Raj deposits 100 into a fund at the end of each 2-year period for 20 years. The fund pays interest at an
annual effective rate of i.

The total amount of interest earned by the fund during the 19th and 20th years is 250.

Calculate the accumulated amount in Raj’s account at the end of year 20.

A. 1925 B. 1950 C. 1975 D. 2000 E. 2025

84. Carl puts 10,000 into a bank account that pays an annual effective interest rate of 4% for ten years. If
a withdrawal is made during the first five and one-half years, a penalty of 5% of the withdrawal amount
is made.

Carl withdraws K at the end of each of years 4, 5, 6, and 7. The balance in the account at the end of
year 10 is 10,000.

Calculate K.

A. 929 B. 958 C. 980 D. 1005 E. 1031

85. Jake inherits a perpetuity that will pay him $10,000 at the end of the first year, increasing by $10,000
per year until a payment of $150,000 is made at the end of the fifteenth year. Payments remain level
after the fifteenth year at $150,000 per year.

Determine the present value of this perpetuity, assuming a 7.5% annual interest rate.

A. Less than $1.10 million

B. At least $1.10 million, but less than $1.15 million
C. At least $1.15 million, but less than $1.20 million
D. At least $1.20 million, but less than $1.25 million
E. At least $1.25 million

86. A loan is to repaid by annual payments continuing forever, the first one due one year after the loan is
made. Find the amount of the loan if the payments are 1, 2, 3, 1, 2, 3, . . . assuming an annual interest
rate of 10%.

A. Less than 19
B. At least 19, but less than 20
C. At least 20, but less than 21
D. At least 21, but less than 22
E. At least 22

TIA 2/FM Seminar A.2 Problems

 a5
87. Determine an expression for .
a6

a2 + a3
A.
2a3
a2 + s3
B.
1 + a3 + s2
a2 + s3
C.
a3 + s3
1 + a2 + s2
D.
a3 + s3
1 + a2 + s2
E.
1 + a3 + s2

88. You are given an annuity-immediate paying 10 for 10 years, then decreasing by one per year for nine
years and paying one per year thereafter, forever. The annual effective rate of interest is 4%.

Calculate the present value of this annuity.

A. 119 B. 121 C. 123 D. 125 E. 127

Z n
89. You are given āt dt = 100 .
0

Calculate ān .

A. 100nδ B. nδ C. n − 100δ D. 100 − nδ E. n − δ/100

90. A perpetuity pays 1 at the end of the 1st year, 2 at the end of the 2nd year, 3 at the end of the 3rd
year, etc.

Which of the following expressions give the present value of this perpetuity?

1
1.
i2
1−d
2.
d2
3. eδ + e−δ

A. 1 and 2 only B. 1 and 3 only C. 2 and 3 only D. 1, 2 and 3

E. The correct answer not given by (A), (B), (C) or (D)

TIA 2/FM Seminar A.2 Problems

91. You are given two series of payments:

Series A is a perpetuity with payments of 1 at the end of each of the first 2 years, 2 at the end of each
of the next 2 years, 3 at the end of each of the next 2 years, etc.

Series B is a perpetuity with payments of K at the end of each of the first 3 years, 2K at the end of
each of the next 3 years, 3K at the end of each of the next 3 years, etc.

The present value of the two series of payments are equal.

Calculate K.
3i 3d a3 a3 s̈3
A. B. C. D. E.
2 2 a2 ä2 s̈2

92. Determine the present value of 1 payable at the end of years 7, 11, 15, 19, 23, and 27.
a28 − a4
A.
a4
a28 − a4
B.
s4
a28 − a4
C.
s3 + d
a28 − a4
D.
s3 − a1
a28 − a4
E.
s3 + a1

93. Which of the following are equal to 1?

a10 (1 + is10 )
1.
1 + s̈9

2. v 10 s̈10 − a9

3. (1 + i)10 a10 − s̈9

A. 1 and 2 only B. 1 and 3 only C. 2 and 3 only D. 1, 2 and 3

E. The correct answer not given by (A), (B), (C) or (D)

94. A perpetuity has payments at the end of each four-year period. The first payment at the end of four
years is 1. Each subsequent payment is 5 more that the previous payment.

You are given v 4 = 0.75.

Calculate the present value of this perpetuity.

A. 45 B. 48 C. 52 D. 60 E. 80

TIA 2/FM Seminar A.2 Problems

95. A perpetuity pays 1 at the end of every year plus an additional 1 at the end of every second year.

The present value of the perpetuity is K for i > 0.

Determine K.
i+3 i+2 i+1 3 i+1
A. B. C. D. E.
i(i + 2) i(i + 1) i2 2i i(i + 2)

96. An annuity pays 250 at the end of each 4 year period for 40 years.

You are given a8 = 4.6986.

Determine the present value of this annuity.

A. 333 B. 343 C. 353 D. 363 E. 373

97. On January 1, 1985, Marc has the following two options for repaying a loan:

(i) Sixty monthly payments of 100 commencing February 1, 1985.

(ii) A single payment of 6000 at the end of K months.

Interest is at a nominal annual rate of 12% compounded monthly. The two options have the same
present value.

Determine K.

A. 29.0 B. 29.5 C. 30.0 D. 30.5 E. 31.0

98. A 10-year loan of $10,000 is made at i = .04, and is to be repaid by $1,000 at the end of each year plus
a final interest payment of $K at the end of the tenth year. Find K.

A. 2796 B. 2806 C. 2816 D. 2826 E. 2836

99. The first annual payment of a perpetuity is 10 and is payable one year from now.

If each payment increases by 3%, and if i = .05, find the present value of the perpetuity.

A. 200 B. 250 C. 350 D. 400 E. 500

100. One annuity pays $4.00 at the end of each year for 36 years. Another annuity pays $5.00 at the end of
each year for 18 years. The present values of both annuities are equal at some effective rate of interest
i.

If an amount of money invested at the same rate i will double in n years, find n.
√
A. 6 B. 7 C. 8 D. 9 E. 18

TIA 2/FM Seminar A.2 Problems

101. An annuity pays $1 now, $2 a year from now, $3 two years from now, etc., until a maximum payment of
$5 is made, after which time the payments decrease by $1 per year until there are no further payments.

Find the present value.

2
2
A. ä5 B. 5ä5 C. a5 D. 5a5 E. ä5 a5

102. A man aged 40 wished to accumulate a fund for retirement at age 65 by depositing $K at the end of
each year into a fund earning i = 0.04. Upon attaining age 65, he will purchase an immediate annuity
paying $10,000 per year for 15 years at i = 0.05.

Find K to the nearest $50.

A. 2500 B. 2600 C. 2700 D. 2850 E. 2950

103. X is the present value of an annuity paid continuously at the annual rate of t at time t for 0 ≤ t ≤ 2.

Y is the present value of a level annuity paid continuously for 2 years at the rate of $2 per annum.

1
If δt = , 0 ≤ t ≤ 2, find X + Y .
t+2

A. 3 B. 4 C. 4 − 2 ln(4) D. 2 ln(2) E. 2 ln(4)

104. A loan is repaid by a perpetuity immediate with annual payments of 1, 2, 3, 4, . . . If the present value
of the 10th payment is equal to the present value of the 11th payment, find the amount of the loan.

A. $20 B. $50 C. $80 D. $110 E. $140

105. Using an annual effective interest rate j > 0, you are given:

(i) The present value of 2 at the end of each year for 2n years, plus an additional 1 at the end of each
of the first n years, is 36.

(ii) The present value of an n-year deferred annuity-immediate paying 2 per year for n years is 6.

Calculate j.

A. 0.03 B. 0.04 C. 0.05 D. 0.06 E. 0.07

106. An 11-year annuity has a series of payments 1, 2, 3, 4, 5, 6, 5, 4, 3, 2, 1, with the first payment made
at the end of the second year. The present value of this annuity is 25 at interest rate i.

A 12-year annuity has a series of payments 1, 2, 3, 4, 5, 6, 6, 5, 4, 3, 2, 1, with the first payment made
at the end of the first year.

Calculate the present value of the 12-year annuity at interest rate i.

A. 29.5 B. 30.0 C. 30.5 D. 31.0 E. 31.5

TIA 2/FM Seminar A.2 Problems

107. Deposits of 1000 are placed into a fund at the beginning of each year for 30 years. At the end of the
40th year, annual payments commence and continue forever. Interest is at an effective rate of 5%.

Calculate the annual payment.

A. 5440 B. 5430 C. 5420 D. 5410 E. 5400

108. You are given a perpetuity, with annual payments as follows:

(i) Payments of 1 at the end of the first year and every three years thereafter.

(ii) Payments of 2 at the end of the second year and every three years thereafter.

(iii) Payments of 3 at the end of the third year and every three years thereafter.

The interest rate is 5% convertible semiannually.

Calculate the present value of this annuity.

A. 24 B. 29 C. 34 D. 39 E. 47

109. You are given a perpetual annuity-immediate with annual payments increasing in geometric progression,
with a common ratio of 1.07. The annual effective interest rate is 12%. The first payment is 1.

Calculate the present value of this annuity.

A. 18 B. 19 C. 20 D. 21 E. 22

110. Jim buys a perpetuity of 100 per year, with the first payment 1 year from now. The price for the
perpetuity is 975.61, based on a nominal yield of i compounded semiannually.

Immediately after the second payment is received, the perpetuity is sold for 1642.04, to earn for the
buyer a nominal yield of j, compounded semiannually.

Calculate i − j.

A. 0.020 B. 0.030 C. 0.035 D. 0.040 E. 0.042

111. You are given:

(i) the present value of a 6n-year annuity immediate of 1 at the end of every year is 9.996;

(ii) the present value of a 6n-year annuity-immediate of 1 at the end of every second year is 4.760; and

(iii) the present value of a 6n-year annuity-immediate of 1 at the end of every third year is X.

Calculate X.

A. 2.87 B. 3.02 C. 3.17 D. 3.32 E. 4.17

TIA 2/FM Seminar A.2 Problems

112. You are given:

(i) an = 10.00; and

(ii) a3n = 24.40

Determine a4n .

A. 28.74 B. 29.00 C. 29.26 D. 29.52 E. 29.78

113. Barbara purchases an increasing perpetuity with payments occurring at the end of every 2 years. The
first payment is 1, the second one is 2, the third one is 3, etc. The price of the perpetuity is 110.

Calculate the annual effective interest rate.

A. 4.50% B. 4.62% C. 4.75% D. 4.88% E. 5.00%

114. Eric receives 12,000 from a life insurance policy. He uses the fund to purchase two different annuities,
each costing 6,000.

The first annuity is a 24-year annuity-immediate paying K per year to himself. The second annuity is
an 8-year annuity-immediate paying 2K per year to his son. Both annuities are based on an annual
effective interest rate of i, i > 0.

Determine i.

A. 6.0% B. 6.2% C. 6.4% D. 6.6% E. 6.8%

115. Victor wants to purchase a perpetuity paying 100 per year with the first payment due at the end of year
11. He can purchase it by either:

(i) paying 90 per year at the end of each year for 10 years; or

(ii) paying K per year at the end of each year for the first 5 years and nothing for the next 5 years.

Calculate K.

A. 150 B. 160 C. 170 D. 175 E. 180

116. At an annual effective annual interest rate of 6.3%, an annuity-immediate with 4N level annual payments
of 1,000 has a present value of 14,113.

Determine the fraction of the total present value represented by the first set of N payments and the
third set of N payments combined.

A. 57% B. 60% C. 63% D. 66% E. 69%

TIA 2/FM Seminar A.2 Problems

117. John deposits 100 at the end of each year for 20 years into a fund earning an annual effective interest
rate of 7%.

Mary makes 20 deposits into a fund at the end of each year for 20 years. The first 10 deposits are 100
each, while the last 10 deposits are 100 + X each. The fund earns an annual effective interest rate of
8% during the first 10 years and 6% annual effective interest thereafter.

At the end of 20 years, the amount in John’s fund equals the amount in Mary’s fund.

Calculate X.

A. 8 B. 10 C. 12 D. 14 E. 16

118. You are given:

(i) The present value of a perpetuity of 100 per year, the first payment at the end of n years, is 169.

(ii) The present value of an increasing perpetuity of 100, 200, 300, etc., the first payment at the end
of n years, is 2,112.50.

(iii) The annual effective interest rate is i.

Calculate i.

A. 8.1% B. 8.3% C. 8.5% D. 8.7% E. 8.9%

119. The present value of a perpetuity of 6,500 paid at the end of each year plus the present value of a
perpetuity of 8,500 paid at the end of every 5 years is equal to the present value of an annuity of k paid
at the end of each year for 25 years.

Interest is 6% convertible quarterly.

Calculate k.

A. 10,340 B. 11,340 C. 12,340 D. 19,370 E. 19,560

120. Ralph buys a perpetuity due paying 500 annually. He deposits the payments into a savings account
earning interest at an effective annual rate of 10%.

Ten years later, before receiving the eleventh payment, Ralph sells the perpetuity based on an effective
annual interest rate of 10%.

Using the proceeds from the sale plus the money in the savings account, Ralph purchases an annuity
due paying X per year for 20 years at an effective annual rate of 10%.

Calculate X.

A. 1145 B. 1260 C. 1385 D. 1525 E. 1675

TIA 2/FM Seminar A.2 Problems

121. An annuity pays 2 at the end of each year for 18 years. Another annuity pays 2.5 at the end of each
year for 9 years. At an effective annual interest rate of i, 0 < i < 1 the present values of both annuities
are equal. Calculate i.

A. 14% B. 17% C. 20% D. 23% E. 26%

122. Jane receives a 10-year increasing annuity-immediate paying 100 the first year and increasing by 100
each year thereafter.

Mary receives a 10-year decreasing annuity-immediate paying X the first year and decreasing by X/10
each year thereafter.

At an effective annual interest rate of 5%, both annuities have the same present value.

Calculate X.

A. 860 B. 864 C. 868 D. 872 E. 876

123. Stan elects to receive his retirement benefit over 20 years at the rate of 2,000 per month beginning one
month from now. The monthly benefit increases by 5% each year.

At a nominal rate of 6% convertible monthly, calculate the present value of the retirement benefit.

A. 244,800 B. 294,850 C. 394,000 D. 419,250 E. 444,300

124. An investment requires an initial payment of 10,000 and annual payments of 1,000 at the end of each
of the first 10 years. Starting at the end of the eleventh year, the investment returns five equal annual
payments of X.

Determine X to yield an annual effective rate of 10% over the 15-year period.

A. 10,750 B. 10,900 C. 11,050 D. 11,200 E. 11,350

125. Mark receives 500,000 at his retirement. He invests 500,000 − X in an annual payment 10 year annuity-
immediate and X in an annual payment perpetuity-immediate.

His total annual payments received during the first 10 years are twice as large as those received thereafter.

The annual effective rate of interest is 6%.

Calculate X.

A. 345,835 B. 346,335 C. 346,835 D. 347,335 E. 347,835

TIA 2/FM Seminar A.2 Problems

126. Mary purchases an increasing annuity-immediate for 50,000 that makes twenty annual payments as
follows:

(i) P, 2P, . . . , 10P in years 1 through 10; and

(ii) 10P (1.05), 10P (1.05)2 , . . . , 10P (1.05)10 in years 11 through 20.

The annual effective interest rate is 7% for the first 10 years and 5% thereafter.

Calculate P .

A. 564 B. 574 C. 584 D. 594 E. 604

127. Perpetuity X has annual payments of 1, 2, 3, . . . at the end of each year.

Perpetuity Y has annual payments of q, q, 2q, 2q, 3q, 3q, . . . at the end of each year.

The present value of X is equal to the present value of Y at an annual effective interest rate of 10%.

Calculate q.

A. 1.1 B. 1.3 C. 1.5 D. 1.7 E. 1.9

128. Mary deposits 1000 into a fund at the beginning of each year for 10 years. At the end of 15 years, she
makes an additional deposit of X.

At the end of 20 years, Mary uses the accumulated balance in the fund to buy a perpetuity-immediate
with annual payments of 2000 per year for 10 years, and 1000 per year thereafter.

Interest is credited at an annual effective rate of 5%.

Calculate X.

A. 4865 B. 5065 C. 5265 D. 5465 E. 5665

129. 10,000 can be invested under two options:

Option 1: Deposit the 10,000 into a fund earning an annual effective rate of i; or

Option 2: Purchase an annuity-immediate with 24 level annual payments at an annual effective rate of
10%. The payments are deposited into a fund earning an annual effective rate of 5%.

Both options produce the same accumulated value at the end of 24 years.

Calculate i.

A. 6.6% B. 6.9% C. 7.2% D. 7.5% E. 7.8%

TIA 2/FM Seminar A.2 Problems

130. Brian buys a 10-year decreasing annuity-immediate with annual payments of 10, 9, 8, . . . , 1.

On the same date, Jenny buys a perpetuity-immediate with annual payments. For the first 11 years,
payments are 1, 2, 3, . . . , 11. After year 11, payments remain constant at 11.

At an annual effective interest rate of i, both annuities have a present value of X.

Calculate X.

A. 26.6 B. 27.6 C. 28.6 D. 29.6 E. 30.6

131. The first payment of a perpetuity-immediate is 60. Subsequent payments decrease by 1 per year until
they reach a level of k. Payments remain constant at k thereafter.

The present value of the perpetuity is equal to the present value of a perpetuity-immediate paying 44
each year.

The annual effective interest rate is 5%.

Calculate k.

A. 27 B. 30 C. 33 D. 36 E. 39

132. Jeff and John shared equally in an inheritance.

Using his inheritance, John immediately bought a 10-year annuity-due with annual payments of 2500
each.

Jeff put his inheritance in an investment fund earning an annual effective interest rate of 9%. Two years
later, Jeff bought a 15-year annuity-immediate with annual payment of Z.

The present value of both annuities were determined using an annual effective interest rate of 8%.

Calculate Z.

A. 2330 B. 2470 C. 2515 D. 2565 E. 2715

133. Sam deposits 1000 every year on his birthday into a retirement fund earning an annual effective rate of
15%. The first deposit is made on his 39th birthday and the last deposit is made on his 60th birthday.

Immediately after the last deposit, the accumulated value of the fund is transferred to a fund earning
an annual effective rate of j.

Five years later, a 35-year monthly annuity-due paying 1000 each month is purchased with the funds.

The purchase price of the annuity was determined using a nominal rate of interest convertible monthly
at 6%. Calculate j.

A. 4.6% B. 5.1% C. 5.6% D. 6.1% E. 6.6%

TIA 2/FM Seminar A.2 Problems

134. Jeff and Jason spend X dollars to purchase an annuity.

Jeff buys a perpetuity-immediate, which makes annual payments of 30.

Jason buys a 10-year annuity-immediate, also with annual payments. The first payment is 53, with each
subsequent payment k% larger than the previous year’s payment.

Both annuities use an annual effective interest rate of k%.

Calculate k.

A. 5.00 B. 5.33 C. 5.50 D. 5.67 E. 6.00

135. Bill deposits money into a bank account at the end of each year. Bill’s deposit in year t is equal to 100t,
t = 1, 2, 3, . . . The bank credits interest at an annual effective rate of i.

The amount of interest earned in Bill’s account during the 11th year is equal to 500.

Calculate i.

A. 7.25% B. 7.75% C. 8.00% D. 8.25% E. 8.75%

136. John receives a perpetuity paying 2 at the end of the 4th year, 4 at the end of the 6th year, 6 at the
end of the 8th year, etc. The present value of this perpetuity at an annual effective interest rate of 10%
equals X.

Calculate X.

A. 35 B. 37 C. 40 D. 42 E. 45

TIA 2/FM Seminar A.2 Problems