A.

1 Problems

Solutions to selected problems can be found at:

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

1. Given two accumulation functions:

(i) a1 (t) = 1 + .08t

(ii) a2 (t) = 1.05t

At what time t will the forces of interest be equal for these two functions?

A. Less than 6.5

B. At least 6.5, but less than 7.5
C. At least 7.5, but less than 8.5
D. At least 8.5, but less than 9.5
E. At least 9.5

2. A loan of $1,000 is made on July 1 and will be repaid with interest two months later on September 1.
Interest will be calculated using the Banker’s rule and a simple interest rate of 20% per annum.

For partial years under the Banker’s rule use the actual number of days / 360. For example, if accumu-
lating from January 1 to February 28, then t = (31 + 28)/360; as opposed to t = 2/12.

What will be the total interest paid?

A. Less than $33.75

B. At least $33.75, but less than $34.00
C. At least $34.00, but less than $34.25
D. At least $34.25, but less than $34.50
E. At least $34.50

TIA 2/FM Seminar A.1 Problems

3. Jones borrows $1,000 for five years. Simple interest is charged. The accumulated value at the end of
the term will be $1,330. The following effective rates of interest and discount over the same five year
period will produce the same accumulated value.

Annual Effective Rates

Year of Interest / Discount
1 Discount of 9%
2 Interest of 4%
3 Interest of 4%
4 Discount of X%
5 Discount of 3%

What is the rate of discount X%?

A. Less than 7.5%

B. At least 7.5%, but less than 7.7%
C. At least 7.7%, but less than 7.9%
D. At least 7.9%, but less than 8.1%
E. At least 8.1%

4. A loan is made for five years at a simple interest rate of 12% per annum. What is the equivalent annual
effective rate of discount during the fourth year of the loan?

A. Less than 0.070

B. At least 0.070, but less than 0.075
C. At least 0.075, but less than 0.080
D. At least 0.080, but less than 0.085
E. At least 0.085

1
5. Find the accumulated value of 1 at the end of N years if δt = 1+t .

eN +1 1
A. eN B. 2N + 1 C. N +1 D. N +1 E. None of the above

6. Find n such that

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

where i(3) , i(4) , and i(n) all produce the same effective rate of interest.

A. 3.5 B. 6 C. 8 D. 9 E. 12

TIA 2/FM Seminar A.1 Problems

 2t
7. If the force of interest is δt = , what is the effective rate of discount during year 4?
1 + t2
A. Less than 0.43
B. At least 0.43, but less than 0.53
C. At least 0.53, but less than 0.63
D. At least 0.63, but less than 0.73
E. At least 0.73

8. Find the nominal rate of interest convertible twice per year, i(2) , which is equivalent to an 18% nominal
rate of discount convertible three times per year.

A. Less than 0.1875

B. At least 0.1875, but less than 0.1925
C. At least 0.1925, but less than 0.1975
D. At least 0.1975, but less than 0.2025
E. At least 0.2025

9. The accumulation function is given by: √

a(t) = 1+t
What is the force of interest, δt , at time t = 1?
1 1 1 2 3
A. 4 B. 3 C. 2 D. 3 E. 4

10. You are given a nominal discount of 12% convertible quarterly. Determine the present value on January
1, 2000 of $20,000 to be paid on January 1, 2005.

A. Less than $10,500

B. At least $10,500, but less than $10,750
C. At least $10,750, but less than $11,000
D. At least $11,000, but less than $11,250
E. At least $11,250

11. At a certain rate of compound interest, 1 grows to 3 in x years, 3 grows to 14 in y years, and 1 grows
to 21 in z years.

Determine what 5 grows to in z − x − y years.

5 15 15
A. 4 B. 4 C. 2 D. 15 E. 30

TIA 2/FM Seminar A.1 Problems

12. You are given the accumulation function:

a(t) = 2t2 + 3t + 1

Determine i9 , the effective interest rate during the ninth year.

A. Less than 0.23

B. At least 0.23, but less than 0.25
C. At least 0.25, but less than 0.27
D. At least 0.27, but less than 0.29
E. At least 0.29

13. Express i(9) as a function of d(3) .

 1
d(3) 3
A. 9 1 − 3 −9
 − 1
d(3) 3
B. 9 1 − 3 −9
 − 1
d(3) 3
C. 9 1 + 3 −9
 1
d(3) 3
D. 9 1 − 3 +9
 − 1
d(3) 3
E. 9 1 − 3 +9

14. The interest on X for one year is $108. The equivalent discount on X for one year is $100.

Determine X.

A. Less than $1,220

B. At least $1,220, but less than $1,260
C. At least $1,260, but less than $1,300
D. At least $1,300, but less than $1,340
E. At least $1,340

TIA 2/FM Seminar A.1 Problems

15. Sally has two IRAs. IRA #1 earns interest at 8% effective annually and IRA #2 earns interest at 10%
effective annually. She has not made any contributions since January 1, 1995, when the amount in IRA
#1 was twice the amount in IRA #2. The sum of the two accounts on January 1, 2003 was $75,000.

Determine how much was in IRA #2 on January 1, 1995.

A. Less than $12,750

B. At least $12,750, but less than $13,000
C. At least $13,000, but less than $13,250
D. At least $13,250, but less than $13,500
E. At least $13,500

16. You are given that i(6) = .15.

Determine the force of interest.

A. Less than 0.147

B. At least 0.147, but less than 0.148
C. At least 0.148, but less than 0.149
D. At least 0.149, but less than 0.150
E. At least 0.150

17. John is deciding between two savings accounts.

Bank #1 offers to pay a nominal rate of interest convertible continuously if John deposits $20,000 and
leaves it in the account for 5 years.

Bank #2 will pay a nominal discount rate of 10% per year convertible 9 times a year if John deposits
$20,000 and leaves it in the account for 5 years.

Determine the force of interest Bank #1 must pay so that John will end up with the same amount of
money at the end of 5 years regardless of where he deposits his money.

A. Less than 0.100

B. At least 0.100, but less than 0.104
C. At least 0.104, but less than 0.108
D. At least 0.108, but less than 0.112
E. At least 0.112

TIA 2/FM Seminar A.1 Problems

18. Four of the following expressions have the same value for i > 0. Which one is the exception?

d3
A.
(1 − d)2
B. (i − d)(1 − e−δ )
C. d(e2δ − 2eδ + 1)
(i − d)2
D.
1−v
E. i3 − i3 d

19. Which of the following are true with respect to simple interest?
# days
1. For exact simple interest t = 360

2. Using simple interest rather than compound interest between integral values of t benefits the
lender.
t
3. The force δt = 1+it

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)

20. You are given a nominal discount rate of 16% convertible quarterly. Determine the present value on
January 1, 1999 of $100,000 to be paid on January 1, 2005.

A. Less than $36,000

B. At least $36,000, but less than $37,000
C. At least $37,000, but less than $38,000
D. At least $38,000, but less than $39,000
E. At least $39,000

21. Which of the following is equivalent to the largest force of interest?

A. i = 0.12
B. d = 0.12
C. i(4) = 0.12
D. d(4) = 0.12
E. d(6) = 0.12

TIA 2/FM Seminar A.1 Problems

22. A loan of $7,493 will be repaid in two $5,000 installments. The second installment is due on 14 years.
If the annual effective rate of interest is 3%, when is the first installment due?

A. Less than 5.5 years

B. At least 5.5 years, but less than 6.5 years
C. At least 6.5 years, but less than 7.5 years
D. At least 7.5 years, but less than 8.5 years
E. At least 8.5 years

23. Jim borrows $5,000 from a bank now, an additional $3,000 one year from now, and an additional $2,000
five years from now. At what point in time, t, would a single payment of $10,000 be equivalent at a
nominal rate of interest of 12% convertible monthly?

A. Less than 0.9 years

B. At least 0.9 years, but less than 1.0 years
C. At least 1.0 years, but less than 1.1 years
D. At least 1.1 years, but less than 1.2 years
E. At least 1.2 years

24. Sally wishes to purchase a stereo system. She is offered the following payment options:

Option 1 Option 2
$0.00 down $82.56 down
$432.00 in 1 year $250.00 in 1 year
$300.00 in 2 years $400.00 in 2 years

Determine the range of interest rates for which the present value of Option 1 is less than the present
value of Option 2.

A. More than 4.2% but less than 16.3%

B. Less than 4.2% or more than 16.3%
C. More than 3.5% but less than 10.2%
D. Less than 3.5% or more than 10.2%
E. More than 4.2%

TIA 2/FM Seminar A.1 Problems

25. You invested $100 on January 1, 1997. The investment was worth $190 on July 1, 2002. The effective
rate for the first year was 12%.

Determine the annualized effective rate of return from January 1, 1998 to July 1, 2002.

A. Less than 0.122

B. At least 0.122, but less than 0.123
C. At least 0.123, but less than 0.124
D. At least 0.124, but less than 0.125
E. At least 0.125

26. John is 30 years old. He will receive 2 payments of $2500 each. The first payment will be an unknown
number of years in the future. The second payment will be five years after the first payment.

At an annual effective interest rate of 5%, the present value of the two payments is $2607.

Determine at which age John will receive the second payment.

A. Less than 40
B. At least 40, but less than 45
C. At least 45, but less than 50
D. At least 50, but less than 55
E. At least 55

27. The accumulated value of one at time t (where 0 ≤ t ≤ 1) is given by a second degree polynomial in t.
You are given:

(i) The nominal rate of interest convertible semiannually for the first half of the year is 5% per annum.

(ii) The effective rate of interest for the year is 4% per annum.

Calculate δ3/4 .

A. 0.021 B. 0.023 C. 0.025 D. 0.027 E. 0.029

28. John borrows $1000 from Jane at an annual effective rate of interest i. He agrees to pay back $1000
after six years and $1366.87 after another six years.

Three years after his first payment, John repays the outstanding balance.

What is the amount of John’s second payment?

A. $1020 B. $1027 C. $1048 D. $1073 E. $1094

TIA 2/FM Seminar A.1 Problems

30. Which of the following are true?

1. d
dd (i) = v −2
m−1
d
i(m) = v − m


2. di
d
3. dδ (i) =1+i

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)

31. You are given two loans, with each loan to be repaid by a single payment in the future. Each payment
includes both principle and interest.

The first loan is repaid by a $3000 payment at the end of four years. The interest is accrued at 10% per
annum compounded semiannually.

The second loan is repaid by a $4000 payment at the end of five years. The interest is accrued at 8%
per annum compounded semiannually.

These two loans are to be consolidated. The consolidated loan is to be repaid by two equal installments
of X, with interest at 12% per annum compounded semiannually. The first payment is due immediately
and the second payment is due one year from now.

Calculate X.

A. $2459 B. $2485 C. $2504 D. $2521 E. $2537

32. Fund X starts with $1000 and accumulates with a force of interest
1
δt = for 0 ≤ t ≤ 15
15 − t

Fund Y starts with $1000 and accumulates with an interest rate of 8% per annum compounded semi-
annually for the first three years and an effective interest rate of i per annum thereafter.

Fund X equals Fund Y at the end of four years.

Calculate i.

A. 0.0750 B. 0.0775 C. 0.0800 D. 0.0825 E. 0.0850

TIA 2/FM Seminar A.1 Problems

33. Jeff puts $100 into a fund that pays an effective annual rate of discount of 20% for the first two years
and a force of interest
2t
δt = 2 , 2≤t≤4
t +8
for the next two years.

At the end of four years, the amount in Jeff’s account is the same as what it would have been if he put
$100 into an account paying interest at the nominal rate of i per annum compounded quarterly for four
years.

Calculate i.

A. 0.200 B. 0.219 C. 0.240 D. 0.285 E. 0.295

34. On January 1, 1990, Jack deposited $1000 into Bank X to earn interest at the rate of j per annum
compounded semiannually.

On January 1, 1995, he transfered his account to Bank Y to earn interest at the rate of k per annum
compounded quarterly.

On January 1, 1998, the balance at Bank Y is $1990.76.

If Jack could have earned interest at the rate of k per annum compounded quarterly from January 1,
1990 through January 1, 1998, his balance would have been $2203.76.

Calculate the ratio k/j.

A. 1.25 B. 1.30 C. 1.35 D. 1.40 E. 1.45

35. An investor puts $100 into Fund X and $100 into Fund Y. Fund Y earns compound interest at the
annual rate of j > 0, and Fund X earns simple interest at the annual rate of 1.05j.

At the end of 2 years, the amount in Fund Y is equal to the amount in Fund X.

Calculate the amount in Fund Y at the end of the 5 years.

A. 150 B. 153 C. 157 D. 161 E. 165

36. You are given:

(i) Fund X accumulates at an interest rate of 8% compounded quarterly.

(ii) Fund Y accumulates at an interest rate of 6% compounded semiannually.

(iii) At the end of 10 years, the total amount in the two funds combined to $1000.

(iv) At the end of 5 years, the amount in Fund X is twice that in Fund Y.

Calculate the total amount in the two funds at the end of 2 years.

A. $560 B. $570 C. $580 D. $590 E. $600

TIA 2/FM Seminar A.1 Problems

37. At an annual effective interest rate of i, i > 0, the following are all equal:

(i) The present value of $10,000 at the end of 6 years.

(ii) The sum of the present values of $6,000 at the end of year t and $56,000 at the end of year 2t

(iii) $5,000 immediately

Calculate the present value of a payment of $8,000 at the end of year t+3 using the same annual effective
interest rate.

A. $1330 B. $1415 C. $1600 D. $1775 E. $2000

39. At time 0, $100 is deposited into Fund X and also into Fund Y. Fund X accumulates at a force of interest
δt = 0.5(1 + t)−2 . Fund Y accumulates at an annual effective interest rate of i.

At the end of 9 years, the accumulated value of Fund X equals the accumulated value of Fund Y.

Determine i.

A. 4.5% B. 4.8% C. 5.1% D. 5.4% E. 5.7%

40. John invests $1000 in a fund which earns interest during the first year at a nominal rate of K convertible
quarterly.

During the 2nd year, the fund earns at a nominal discount rate of K convertible quarterly.

At the end of the 2nd year, the fund has accumulated $1173.54.

Calculate K.

A. 0.064 B. 0.0689 C. 0.072 D. 0.076 E. 0.080

41. A bank agrees to lend John $10,000 now and X three years later in exchange for a single payment of
$75,000 at the end of 10 years.

The bank charges interest at an annual effective rate of 6% for the first 5 years and a force of interest
1
δt = for t ≥ 5
t+1

Determine X.

A. $23,500 B. $24,000 C. $24,500 D. $25,000 E. $25,500

TIA 2/FM Seminar A.1 Problems

 0.05
42. Fund A accumulates at a force of interest at time t (t ≥ 0).
1 + 0.05t
Fund B accumulates at a force of interest 0.05.

You are given:

(i) The amount in Fund A at time zero is $1000.

(ii) The amount in Fund B at time zero is $500.

(iii) The amount in Fund C at any time (t ≥ 0) is equal to the sum of the amount in Fund A and the
amount in Fund B.

(iv) Fund C accumulates at a force of interest δt (t ≥ 0).

Calculate δ2 .
31
A.
660
21
B.
440
1 + e0.1
C.
22 + 20e0.1
2 + e0.1
D.
44 + 20e0.1
2 + e0.1
E.
22 + 20e0.1

43. Calculate the nominal rate of interest convertible once every four years that is equivalent to a nominal
rate of discount convertible quarterly.

A. 0.25[1 − (1 − 0.25d(4) )−16 ]

B. [1 − (1 − 0.25d(4) )−16 ]
C. (1 − 0.25d(4) )−8 − 1
D. 0.5[(1 − 0.25d(4) )−8 − 1]
E. 0.25[(1 − 0.25d(4) )−16 − 1]

44. Gertrude deposits $10,000 in a bank. During the first year, the bank credits an annual effective rate of
interest i. During the second year, the bank credits an annual effective rate of interest (i − 5%). At the
end of two years, she has $12,093.75 in the bank.

What would Gertrude have in the bank at the end of three years, if the annual effective rate of interest
were (i + 9%) for each of the three years?

A. $16,851 B. $17,196 C. $17,499 D. $17,936 E. $18,113

TIA 2/FM Seminar A.1 Problems

 2
45. You are given δt = for 2 ≤ t ≤ 10.
t−1

For any one year interval between n and n + 1, with 2 ≤ n ≤ 9, calculate the equivalent d(2) .
 2
1 2 n−1 n n
A. B. C. D. E.
n n n n−1 n−1

t3
46. The force of interest at time t is .
100

Calculate a−1 (3).

A. 0.76 B. 0.78 C. 0.80 D. 0.82 E. 0.84

47. In Fund A, the accumulated value of 1 at any time t > 0 is 1 + t. In Fund B, the accumulated value of
1 at any time t > 0 is 1 + t2 .

T is the time when the force of interest for Fund A is equal to the force of interest for Fund B.

Calculate T .

A. 0.41 B. 1.00 C. 1.41 D. 2.00 E. 2.41

48. On January 1, 1996, Sam invests $1000 in a fund for which the force of interest at time t is expressed
by 0.1(t − 1)2 , where t is the number of years since January 1, 1996.

Calculate the accumulated value of the fund on January 1, 1998.

A. $1065 B. $1067 C. $1069 D. $1071 E. $1073

1
49. Fund F accumulate at the rate of δt = .
1+t
4t
Fund G accumulates at the rate of δt = .
1 + 2t2
You are given:

(i) F (t) = Amount in Fund F at time t

(ii) G(t) = Amount in Fund G at time t

(iii) H(t) = F (t) − G(t)

(iv) F (0) = G(0)

(v) T is the time t when H(t) is a maximum

Calculate T .

A. 1/4 B. 1/2 C. 3/4 D. 1 E. 5/4

TIA 2/FM Seminar A.1 Problems

50. An investment of 1 will double in 27.72 years at a force of interest δ. An investment of 1 will increase to
7.04 in n years at a nominal rate of interest numerically equal to δ and convertible once every 2 years.

Calculate n.

A. 78 B. 79 C. 80 D. 81 E. 82

51. Given:

(i) i(m) = 0.01

(ii) d(m) = 0.00998

Find m.

A. 3 B. 4 C. 5 D. 6 E. 7

52. On July 1, 2004, a person invests $1,000 in a fund for which the force of interest at time t is expressed
by the formula:
3 + 2t
δt =
50

Where t is the number of years since January 1, 2004.

Determine the accumulated value of the investment on January 1, 2005.

A. $1036 B. $1041 C. $1045 D. $1046 E. $1051

53. Simple interest of i = 0.04 is being credited to a fund. In which year is the equivalent to an effective
rate of 2.5%?

A. 14 B. 15 C. 16 D. 17 E. Never

54. You are given:  t

 75 ,

 0≤t≤3
δt =
 t + 1, 3 < t ≤ 5


100
Find the effective rate of interest per quarter over the five-year period.

A. e0.002 − 1
B. e0.006 − 1
C. e0.008 − 1
D. 4(e0.002 − 1)
E. 4(e0.008 − 1)

TIA 2/FM Seminar A.1 Problems

55. Which of the following is/are true?

1. If i = 0.03, then d(6) = 6[1 − (1.03)−1/6 ]

2. If d(6) = 0.06, then d(4) = 4[1 − (0.99)3/2 ]

3. If v = 0.98, then d(3) = 3[v 1/3 − 1]

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

1
56. Find the accumulated value at t = 210 of $1.00 deposited at t = 1 if δt = 10t .

A. ln 2 B. ln 2 − 1 C. 210 D. 210 − 1 E. 2

57. Investment X for $100,000 is invested at a nominal rate of interest j, convertible semiannually. After
four years, it accumulates to $214,358.88.

Investment Y for $100,000 is invested at a nominal rate of discount k, convertible quarterly. After two
years, it accumulates to $232,305.73.

Investment Z for $100,000 is invested at an annual effective rate of interest equal to j in year one and
an annual effective rate of discount equal to k in year two.

Calculate the value of investment Z at the end of two years.

A. $168,000 B. $182,900 C. $184,425 D. $200,000 E. $201,675

58. A fund starts with a zero balance at time zero. The fund accumulates with a varying force of interest:
2t
δt = for t > 0
t2 +1
A deposit of $100,000 is made at time 2.

Calculate the number of years from the time of deposit for the fund to double.

A. 0.5 B. 1.0 C. 1.5 D. 2.0 E. 2.5

59. Two funds X and Y , start with the same amount. You are given:

(i) Fund X accumulates at a force of interest 5%.

(ii) Fund Y accumulates at a rate of interest j, compounded semiannually.

(iii) At the end of eight years, Fund X is 1.05 times as large as Fund Y .

Calculate j.

A. 0.022 B. 0.023 C. 0.042 D. 0.044 E. 0.046

TIA 2/FM Seminar A.1 Problems

 0.2t
60. You are given that δt = for all t > 0.
1 + 0.1t2
Determine i2 .

A. 0.21 B. 0.24 C. 0.27 D. 0.31 E. 0.36

61. You are given a loan on which interest is charged over a 4-year period, as follows:

(i) an effective rate of discount of 6% for the first year

(ii) a nominal rate of discount of 5% compounded every 2 years for the second year

(iii) a nominal rate of interest of 5% compounded semiannually for the third year

(iv) a force of interest of 5% for the fourth year

Calculate the annual effective rate of interest over the 4-year period.

A. 5.00% B. 5.25% C. 5.50% D. 5.75% E. 6.00%

62. A fund earns interest at a force of interest δt = kt. A deposit of $100 at time t = 0 will grow to $250 at
the end of 5 years.

Determine k.

A. 0.08(ln 1.5) B. 0.06 C. 0.08(ln 2.5) D. 0.08 E. ln 2.5

63. At time t = 0, Billy puts $625 into an account paying 6% simple interest. At the end of year 2, George
1
puts $400 into an account paying interest at a force of interest δt = 6+t for t ≥ 2.

If both accounts continue to earn interest indefinitely at the levels given above, the amounts in both
accounts will be equal at the end of year n.

Calculate n.

A. 23 B. 24 C. 25 D. 26 E. 27

64. An investment will triple in 87.88 years at a constant force on interest δ. Another investment will
quadruple in t years at a nominal rate of interest numerically equal to δ and convertible one every 4
years.

Calculate t.

A. 101 years B. 106 years C. 109 years D. 114 years E. 125 years

TIA 2/FM Seminar A.1 Problems

65. You are given:

1
(i) δt =
2+t
(ii) The total interest earned during the first n years on an investment of 1 at time t = 0 is 8.

Determine n.

A. 4 B. 8 C. 16 D. 24 E. 32

66. At time t = 0, Donald puts $1,000 into a fund crediting interest at a nominal rate of i compounded
semiannually.
1
At time t = 2, Lewis puts $1,000 into a different fund crediting interest at δt = 5+t for all t.

At time t = 16, the amounts in each fund will be equal.

Calculate i.

A. 6.9% B. 7.0% C. 7.1% D. 7.2% E. 7.3%

67. Money accumulates in a fund at an effective annual interest rate of i during the first 5 years, and at an
effective annual interest rate of 2i thereafter.

A deposit of 1 is made into the fund at time 0. It accumulates to 3.09 at the end of 10 years and to
13.62 at the end of 20 years.

What is the value of the deposit at the end of 7 years?

A. 1.90 B. 1.98 C. 2.06 D. 2.14 E. 2.23

68. Given a nominal interest rate of 7.5% convertible semiannually, determine the sum of the equivalent,
determine the sum of the equivalent:

(i) force of interest, and

(ii) nominal discount rate compounded quarterly.

A. 0.1460 B. 0.463 C. 0.1466 D. 0.1469 E. 0.1472

69. Peter deposits 400 into a bank account at time t = 0. During the first year, the bank credits interest at
a nominal rate of 10% compounded semiannually.

Peter makes an additional deposit of 42 into his bank account at time t = 1. During the second year,
1
the bank credits interest at a force of interest δt = k+t .

The total amount in Peter’s account at time t = 2 is 552.

Calculate k.

A. 5 B. 6 C. 7 D. 8 E. 9

TIA 2/FM Seminar A.1 Problems

 0.1
70. At a force of interest δt = , 0 ≤ t ≤ 14, the following payments have the same present value:
1 + 0.1t

(i) X at the end of year 5 plus 2X at the end of year 10

(ii) Y at the end of year 14

Calculate Y /X.

A. 3.5 B. 3.8 C. 4.0 D. 4.4 E. 5.0

71. Jennifer deposits 1000 into a bank account. The bank credits interest at a nominal annual rate of i
convertible semiannually for the first 7 years and a nominal annual rate of 2i convertible quarterly for
all years thereafter.

The accumulated amount in the account at the end of 5 years is X. The accumulated amount in the
account at the end of 10.5 year is 1980.

Calculate X.

A. 1200 B. 1225 C. 1250 D. 1275 E. 1300

72. A deposit of 100 is made into a fund at time t = 0. The fund pays interest at a nominal annual rate of
discount d compounded quarterly for the first two years.
1
Beginning at time t = 2, interest is credited at a force on interest δt = t+1 .

At time t = 5, the accumulated value of the fund is 260.

Calculate d.

A. 12.7% B. 12.9% C. 13.1% D. 13.3% E. 13.5%

73. A deposit of X is made into a fund which pays an annual effective interest rate of 6% for 10 years.

At the same time, X/2 is deposited into another fund which pays an annual effective rate of discount of
d for 10 years.

The amounts of interest earned over the 10 years are equal for both funds.

Calculate d.

A. 9.0% B. 9.5% C. 10.0% D. 10.5% E. 11.0%

TIA 2/FM Seminar A.1 Problems

74. On 1/1/97, Kelly deposits X into a bank account. The account is credited with simple interest at a rate
of 10% per year.

On the same date, Tara deposits X into a different bank account. The account in credited interest using
a force of interest:
2t
δt = 2
t +k

From the end of the 4th year until the end of the 8th year, both accounts earn the same dollar amount
of interest.

Calculate k.

A. 96 B. 104 C. 112 D. 120 E. 128

75. You are given:

(i) Fund X pays interest at the rate of 6% convertible monthly.

1
(ii) Fund Y pays interest at a force of interest δt = .
t + 12
(iii) Ron deposited P into each fund.

(iv) At the end of 12 years, the accumulated amount in Fund X was 2000 and the accumulated amount
in Fund Y was Z.

Determine Z.

A. 1950 B. 1970 C. 2000 D. 2030 E. 2050

76. Brian and Jennifer each take out a loan of X.

Jennifer will repay her loan by making one payment of 800 at the end of year 10. Brian will repay his
loan by making one payment of 1120 at the end of year 10.

The nominal semiannual rate being charged to Jennifer is exactly one-half the nominal semiannual rate
being charged to Brian.

Calculate X.

A. 562 B. 565 C. 568 D. 571 E. 574

TIA 2/FM Seminar A.1 Problems

77. In fund X, money accumulates at a force of interest

δt = 0.01t + 0.1 for 0 ≤ t ≤ 20

In fund Y, money accumulates at an annual effective interest rate i.

An amount of 1 is invested in each of fund X and fund Y for 20 years. The value of the fund X at the
end of 20 years is equal to the value of fund Y at the end of 20 years.

Calculate the value of fund Y at the end of 1.5 years.

A. e0.1 B. e0.2 C. e0.3 D. e0.4 E. e0.5

78. You are given:

2
δt =
1+t
A payment of 300 at the end of 3 years and 600 at the end of the 6 years has the same present value as
a payment of 200 at the end of 2 years and X at the end of 5 years.

Calculate X.

A. 306 B. 316 C. 376 D. 456 E. 506

79. Fund A is invested at an annual effective interest rate of 3%.

Fund B is invested at an annual effective interest rate of 2.5%.

At the end of 20 years, the total in the two funds is 10,000. At the end of 31 years, the amount in Fund
A is twice the amount in Fund B.

Calculate the total in the two funds at the end of 10 years.

A. 5732 B. 6602 C. 7471 D. 7569 E. 8123

80. A loan of 1000 is made at an interest rate of 12% compounded quarterly. The loan is to be repaid with
three payments: 400 at the end of the first year, 800 at the end of the fifth year, and the balance at the
end of tenth year.

Calculate the amount of the final payment.

A. 587 B. 658 C. 737 D. 777 E. 812

TIA 2/FM Seminar A.1 Problems

81. Fund A accumulates at a rate of 12% convertible monthly. Fund B accumulates with a force of interest,
δt = t/6, for all t.

At time t = 0, 1 is deposited in each fund. T is the time that the two funds are equal, T > 0.

Determine T .

A. 12 ln(1.01)
B. 12 [ln(1.12) − ln(1.01)]
C. 12 ln(1.12)
D. 144 ln(1.01)
E. 144 ln(1.12)

82. The present value of 200 paid at the end of n years, plus the present value of 100 paid at the end of 2n
years is 200.

Determine the annual effective rate of interest.

√ !1
n
3+1
A. −1
2
√ !1
n
3−1
B. 1 −
2
√ !1
n
3−1
C. −1
2
√ ! 1
2n
3+1
D. −1
2
√ ! 1
2n
3−1
E. 1 −
2

83. During the first 4 years, interest is credited using a simple interest rate of 5% per year. After 4 years,
interest is credited at a force of interest:
0.2
δt = ,t≥4
1 + 0.2t
The following are numerically equal:

(i) The current value at time t = 4 of payments of 1000 at time t = 2 and 400 at time t = 7

(ii) The present value at time t = 0 of a payment of X at time t = 10

Calculate X

A. 2800 B. 2840 C. 3200 D. 3660 E. 4200

TIA 2/FM Seminar A.1 Problems

84. At an effective annual interest rate of i, i > 0, the following two sets of payments have a present value
of K:

(i) A payment of 121 immediately and another payment of 121 at the end of the year.

(ii) A payment of 144 at the end of two years and another payment of 144 at the end of three years.

Calculate K.

A. 237 B. 232 C. 227 D. 222 E. 217

85. A business permits its customers to pay with a credit card or to receive a percentage discount r% for
paying cash.

For credit card purchases, the business receives 95% of the purchase price one-half month later.

At an annual effective rate of 12%, the two payment methods are equivalent.

Determine r.

A. 4.55 B. 4.85 C. 5.15 D. 5.45 E. 5.75

86. At time t = 0, John deposits 1000 into a fund which credits interest at a nominal interest rate of 10%
compounded semiannually. At the same time, he deposits P into a different fund which credits interest
at a nominal discount rate of 6% compounded monthly. At time t = 20, the amounts in each fund are
equal.

What is the annual effective interest rate earned on the total deposits, 1000+P , over the 20-year period?

A. 0.0744 B. 0.0754 C. 0.0764 D. 0.074 E. 0.0784

δ
87. Find the first derivative with respect to i of f (i) = .
d
A. 0
i−δ
B. 2
i
2
 
d i
C. 2 1 −
i δ
δ−i
D.
i2
d2 i
 
E. 2 −1
i δ

TIA 2/FM Seminar A.1 Problems

88. A deposit of 1 will accumulate to 2.7183 in 10 years with a force of interest

kt 0<t≤5
δt = 2
0.04kt 5 < t ≤ 10

Calculate k.

A. 0.01 B. 0.02 C. 0.03 D. 0.04 E. 0.05

TIA 2/FM Seminar A.1 Problems