THE UNIVERSITY OF HONG KONG

DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE

1. SOLUTION
a(9) 12.2
Accumulated value=12000 × a(5)
= 12000 × 7.4360
= 19687.82

2. SOLUTION

A(12) = A(7)(1 + i12 )(1 + i11 )(1 + i10 )(1 + i9 )(1 + i8 ) = 900 × 2.4863 = 2237.7386

3. SOLUTION
C C C C C
10000 = + + + +
a(2) a(3) a(4) a(5) a(6)
C C C C C
10000 = + + + +
1.0466 1.0707 1.0954 1.1206 1.1464
C = 2189.6212

4. SOLUTION
(i) d = 0.033, 1 + i = 1/(1 − d) = 1.0341, i(3) = 0.0337.
(ii) δ = 0.035, δ = ln(1 + i), 1 + i = eδ = 1.0356, 1 − d = 1/(1 + i) = 0.9656,
d(4) = 0.0348.
(12)
(iii) i(12) = 0.048, 1 + i = (1 + i 12 )12 = 1.0491, δ = ln(1 + i) = 0.0479.
(iv) 1 − d = v = 0.9566, d(2) = 0.0439.
(v) d(6) = 0.065, 1 − d = 0.9367, i = 0.0675.

5. SOLUTION
i(n) i(2) d(4)
(1 + ) = (1 + )(1 − )
n 2 4
1 1 1
(1 + i) n = (1 + i) 2 (1 + i)− 4
n = 4

6. SOLUTION
i(4) 4
1 + i = (1 + )
4
1 d(4) 4
= (1 − )
1+i 4
i(4) = 0.0777
d(4) = 0.0762
|i(4) − d(4) | = 0.0015

1
 7. SOLUTION
Z 10 Z 30 
a(30) = exp (0.006t + 0.01)dt + (0.0007t )dt = e6.466 = 642.91.
2
0 10

Thus the accumulated amount is 642.91 million.

8. SOLUTION
Z b 
2
X exp 0.006t dt = 4X
0
0.002b3 = ln 4
b = 8.8450
b−a
2X(1 + i) = 4X
ln 2
b−a =
ln 1.1
a = 1.5774

9. SOLUTION
Denote X2 = 100 × (1.025)2 = 105.0625, X4 = 100 × (1.025)4 = 110.3813 and
X6 = 100 × (1.025)6 = 115.9693. Since d(4) = 4/41 = 0.0976, 1 + i = 1.1039.
Then the accumulated value at the end of 7 years:

X2 (1 + i)5 + X4 (1 + i)3 + X6 (1 + i) = 448.7293

10. SOLUTION
1
v = 1+i = 0.99, 1000v 10 + 2000v 20 + 3000v 30 = 6000v T , T = 23.0520.

11. SOLUTION
Assume after n years, the fund with face value X has an annual effective rate of
2.5%, then 2.5%(5%(n − 1)X + X) = 5%X. Therefore, we have n = 21.

12. SOLUTION
(12)
(1 + i 12 )12·15 = 3000
1000
, then i(12) = 7.35%.

13. SOLUTION
In order to maximize the final amount, we would like to choose the deposit with
high nominal rate. Therefore, there will be two deposit choices, 4 years plus 2 years
and two consecutive 3 years. For the first choice, we have
8% 2·4 6% 2·2
1000(1 + ) (1 + ) = 1540.337
2 2
For the second choice, we have
7% 2·6
1000(1 + ) = 1511.069
2
Therefore, we will choose the first choice.

2
14. SOLUTION

(i)

1 + i = eδ
i = eδ − 1
δ2 δ3
i = δ+ + + ...
2! 3!
(ii)

1 + i = eδ
δ = ln(1 + i)
i2 i3 i4
δ = i − + − + ...
2 3 4
(iii)
i
d =
1+i
i
d =
1 − (−i)
d = i − i2 + i3 − i4 + . . .

(iv)

δ = − ln(1 − d)
d2 (−d)3 d4
δ = −(−d − + − + . . .)
2 3 4
d2 d3 d4
δ = d+ + + + ...
2 3 4

15. SOLUTION
(i)
d d i
d =
di di 1 + i
1+i−i
=
(1 + i)2
= v2

(ii)
d d
δ = ln(1 + i)
di di
1
=
1+i
= v

3
(iii)

d d
δ = (− ln(v))
dv dv
1
= −
v
= −1 − i

(iv)

d d
d = (1 − e−δ )
dδ δ
= e−δ
= v