Past Exam Questions on Section 6a

Past Exam Questions on Section 6a

1. Seth, Janice, and Lori each borrow 5000 for five years at a nominal interest rate of 12%, compounded
semiannually. Seth has interest accumulated over the five years and pays all the interest and principal
in a lump sum at the end of five years. Janice pays interest at the end of every six-month period as it
accrues and the principal at the end of five years. Lori repays her loan with 10 level payments at the
end of every six-month period. Calculate the total amount of interest paid on all three loans. [5/01
#7]
(A) 8718 (B) 8728 (C) 8738 (D) 8748 (E) 8758
2. Ron has a loan with a present value of a n . The sum of the interest paid in period t plus the principal
repaid in period t + 1 is X. Calculate X. [5/01 #13]
vn−t vn−t
(A) 1 + i (B) 1 + d (C) 1 + vn−t i (D) 1 + vn−t d (E) 1 + vn−t
3. Seth borrows X for four years at an annual effective interest rate of 8%, to be repaid with equal
payments at the end of each year. The outstanding loan balance at the end of the second year is
1076.82 and at the end of the third year is 559.12. Calculate the principal repaid in the first payment.
[5/01 #37]
(A) 444 (B) 454 (C) 464 (D) 474 (E) 484
4. Kevin takes out a 10-year loan of L, which he repays by the amortization method at an annual
effective interest rate of i. Kevin makes payments of 1000 at the end of each year. The total amount
of interest repaid during the life of the loan is also equal to L. Calculate the amount of interest repaid
during the first year of the loan. [11/00 #12]
(A) 725 (B) 750 (C) 755 (D) 760 (E) 765
5. An investor took out a loan of 150,000 at 8% compounded quarterly, to be repaid over 10 years
with quarterly payments of 5483.36 at the end of each quarter. After 12 payments, the interest rate
dropped to 6% compounded quarterly. The new quarterly payment dropped to 5134.62. After 20
payments in total, the interest rate on the loan increased to 7% compounded quarterly. The investor
decided to make an additional payment of X at the time of his 20th payment. After the additional
payment was made, the new quarterly payment was calculated to be 4265.73, payable for five more
years. Determine X. [11/00 #34]
(A) 11,047 (B) 13,369 (C) 16,691 (D) 20,152 (E) 23,614
6. Iggy borrows X for 10 years at an annual effective rate of 6%. If he pays the principal and
accumulated interest in one lump sum at the end of 10 years, he would pay 356.54 more in interest
than if he repaid the loan with 10 level payments at the end of each year. Calculate X. [11/00 #55]
(A) 800 (B) 825 (C) 850 (D) 875 (E) 900
7. A bank customer borrows X at an annual effective rate of 12.5% and makes level payments at the
end of each year for n years.
(i) The interest portion of the final payment is 153.86.
(ii) The total principal repaid as of time (n − 1) is 6009.12.
(iii) The principal repaid in the first payment is Y .
Calculate Y . [5/00 #10]
(A) 470 (B) 480 (C) 490 (D) 500 (E) 510
8. A small business takes out a loan of 12,000 at a nominal rate of 12%, compounded quarterly, to help
finance its start-up costs. Payments of 750 are made at the end of every 6 months for as long as is
necessary to pay back the loan. Three months before the 9th payment is due, the company refinances
the loan at a nominal rate of 9%, compounded monthly. Under the refinanced loan, payments of R

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section 6. Loans

are to be made monthly, with the first monthly payment to be made at the same time that the 9th
payment under the old loan was to be made. A total of 30 monthly payments will completely pay
off the loan. Determine R. [5/00 #24]
(A) 448 (B) 452 (C) 456 (D) 461 (E) 465

9. A loan is being amortized by means of level monthly payments at an annual effective interest rate of
8%. The amount of principal repaid in the 12th payment is 1000 and the amount of principal repaid
in the t th payment is 3700. Calculate t. [SAMPLE/00 #37]
(A) 198 (B) 204 (C) 210 (D) 216 (E) 228

10. Paul lends 8000 to Peter. Peter agrees to pay it back in 10 annual installments at 7% with the
first payment due in one year. After making 4 payments, Peter renegotiates to pay off the debt
with 4 additional annual payments. The new payments are calculated so that Paul will get a 6.5%
annual yield over the entire 8-year period. Determine how much money Peter saved by renegotiating.
[SAMPLE/99 #7]
(A) Less than 550
(B) At least 550, but less than 600
(C) At least 600, but less than 650
(D) At least 650, but less than 700
(E) At least 700
11. Tom and Marie have a 30-year $150,000 mortgage with an 8% interest rate convertible monthly.
Immediately after the 120th payment, they refinance the mortgage. The interest rate is reduced to
6.5%, convertible monthly, and the term is reduced to 20 years (so there are 10 years of payments
remaining). They also make an additional payment of $20,000 at the time of refinancing. Calculate
their new monthly payment. [CAS 11/99 #7]
(A) At least $1,050, but less than $1,100
(B) At least $1,100, but less than $1,150
(C) At least $1,150, but less than $1,200
(D) At least $1,200, but less than $1,250
(E) At least $1,250
12. Larry is repaying a loan with payments of $2,500 at the end of every two years. If the amount of
interest in the fourth installment is $2,458, find the amount of principal in the seventh installment.
Assume an annual effective interest rate of 13%. [CAS 11/99 #8]
(A) Less than $60
(B) At least $60, but less than $70
(C) At least $70, but less than $80
(D) At least $80, but less than $90
(E) At least $90
13. A $6,000 loan is being repaid with regular payments of X at the end of each year for as long as
necessary plus a smaller payment one year after the final regular payment. Immediately after the
ninth payment, the outstanding principal is three times the size of the regular payment (that is, 3X).
If the annual interest rate i is 10%, what is the value of X? [CAS 5/99 #8]
(A) Less than $850
(B) At least $850, but less than $875
(C) At least $875, but less than $900
(D) At least $900, but less than $925
(E) At least $925
14. Ming borrows X for 10 years at an annual effective interest rate of 8%. If he pays the principal and
accumulated interest in one lump sum at the end of 10 years, he would pay 468.05 more in interest

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 Past Exam Questions on Section 6a

than if he repaid the loan with 10 level payments at the end of each year. Calculate X. [SOA 5/98
#15]
(A) 675 (B) 700 (C) 725 (D) 750 (E) 775

15. Elaine takes out a $100,000 mortgage on December 1, 1997. Elaine will repay the mortgage over
20 years with level monthly payments at an effective annual interest rate of 8%. The first payment
is due January 1, 1998. After making her 120th payment, Elaine does not make any new payments
for the entire next year. Elaine starts making revised monthly payments, of amount P, beginning
January 1, 2009. The amount P is such that Elaine will pay off the loan in the original, 20-year
term—that is to say, her last payment will be due December 1, 2017. Determine P. [CAS 11/97 #3]
(A) Less than $900
(B) At least $900, but less than $975
(C) At least $975, but less than $1,050
(D) At least $1,050, but less than $1,125
(E) $1,125 or more
16. A loan is repaid by level payments of $1 at the end of each year for 10 years. At the time of the 4th
regular payment, the borrower makes an additional payment equal to the amount of principal that,
according to the original payment schedule, would have been repaid in the 5th regular payment.
Payments of $1 continue to be made in the 5th and succeeding years until the loan is fully repaid.
Determine how much the borrower saved in interest payments over the term of the loan. [CAS 11/97
#6]
(A) 1 − v5 (B) 1 − v6 (C) 1 − v7 (D) i(v6 + v7)
(E) The correct answer is not given by (A), (B), (C), or (D).

17. Dave takes out a 15-year, $100,000 mortgage with monthly payments beginning one month from
now. He makes regular payments until and including the first payment in which the principal portion
exceeds the interest portion of the payment.

i(12)
You may assume = 0.004.
12

Determine the total interest Dave has paid on the mortgage after making the first payment in which
the principal portion exceeds the interest portion of the payment. [CAS 11/96 #9]
(A) Less than $2,500
(B) At least $2,500, but less than $2,750
(C) At least $2,750, but less than $3,000
(D) At least $3,000, but less than $3,250
(E) $3,250 or more
18. John borrows 50,000 that is to be paid back over 10 years with level monthly payments at the end
of each month. The interest is charged on the loan at a nominal rate of 10% compounded monthly.
On the due date of the 50th payment. John decides to repay the loan in full with a single payment
of X. Calculate X. [SOA 11/96 #12]
(A) 34,600 (B) 34,900 (C) 35,100 (D) 35,300 (E) 35,600

19. Jason takes out a 15-year loan, which is repaid with annual payments at the end of each year. He
repays the loan by making payments which are equal to X during years 1–5, 3X during years 6–10,
and 2X during years 11–15. Interest is charged on the loan at an annual effective rate of i, i > 0.
The amount of interest repaid during year 6 is twice as much as the amount of interest repaid during
year 11. Calculate i. [SOA 11/96 #14]
(A) 14.5% (B) 14.7% (C) 14.9% (D) 15.1% (E) 15.3%

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section 6. Loans

20. Christine takes out a 30-year, $100,000 mortgage loan with monthly payments of $812.54 beginning
at the end of the first month, at an effective annual interest rate of 9.5%. Immediately after five years
of monthly payments, she renegotiates the loan in order to pay it off more quickly. She will now
make monthly payments of $1,500, and the interest rate has dropped to an 8.0% effective annual
rate. Christine will also make one final, partial payment (made one month after the last $1,500
payment). Determine the amount of the final, partial payment. [CAS 5/96 #4]
(A) Less than $300
(B) At least $300, but less than $600
(C) At least $600, but less than $900
(D) At least $900, but less than $1,200
(E) $1,200 or more
21. A loan, at a nominal annual interest rate of 24% convertible monthly, is to be repaid with equal
payments at the end of each month for 2n months. The nth payment consists of equal payments of
interest and principal. Calculate n. [SOA 5/95 #14]
(A) 34 (B) 35 (C) 36 (D) 37 (E) 38
22. Mr. Brown obtains an $85,000 mortgage where he pays $1,000 per month for the first year (12
payments). He gets into a legal dispute and makes no payments for the second year (12 payments).
The dispute is resolved and as part of the settlement. Mr. Brown is liable for the remaining principal
and accumulated interest. He pays $1,500 per month thereafter with the final payment being a partial
payment. The nominal annual interest rate is 12% convertible monthly and the first payment is made
one month after the loan is taken out. Determine how many months it will take Mr. Brown to pay
off his mortgage from the day he obtained it. [CAS 5/94 #4]
(A) 98 (B) 99 (C) 110 (D) 122 (E) 123
23. Bert borrows $150,000 from Friendly Mortgage on January 1, 1993, to be paid in 360 monthly
installments at a 9% nominal annual interest rate compounded monthly. The first payment is due
February 1, 1993. Immediately after Bert’s 15th payment, Friendly sells the remainder of the loan
to Buy-Em-Up Trust for an amount that will yield a 10% annual effective interest rate to Buy-Em-
Up. Determine Friendly’s effective annual yield over the time that Friendly owns the loan. [CAS
5/94 #16]
(A) Less than 5%
(B) At least 5% but less than 6%
(C) At least 6% but less than 7%
(D) At least 7% but less than 8%
(E) At least 8%
24. Phil takes out a loan of $100.00 to be repaid in 360 monthly installments. You are given that the
first payment will be one month after the inception of the loan and that the effective annual rate of
interest is 10%. Determine which payment will be the first where the amount of principal paid is
more than two-thirds the amount of interest paid. [CAS 5/94 #18]
(A) 115th (B) 116th (C) 244th (D) 245th (E) 246th
25. Todd has a $100,000 25-year mortgage with a 12% nominal interest rate convertible monthly. The
first payment is due one month after the mortgage is taken out. Twelve years after taking out the
mortgage (after making his 144th payment), he refinances with a new nominal interest rate of 8%,
again convertible monthly. The new mortgage will be paid off on the same date as the original one.
Calculate the difference in the monthly mortgage payment after refinancing. [CAS 11/93 #7]
(A) Less than $170
(B) At least $170 but less than $190
(C) At least $190 but less than $210
(D) At least $210 but less than $230
(E) At least $230

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26. Bernard borrows $100,000 on January 1, 1993, to be repaid in 360 monthly installments at a nominal
annual interest rate of 9% convertible monthly. The first monthly payment is due February 1, 1993.
Bernard misses the first payment, but begins payments on March 1, 1993, and makes 359 payments.
Determine how much Bernard still owes on the loan after making his 359th payment. [CAS 11/93
#13]
(A) Less than $11,500
(B) At least $11,500 but less than $11,600
(C) At least $11,600 but less than $11,700
(D) At least $11,700 but less than $11,800
(E) At least $11,800
27. A $1,000,000 business loan with an annual effective interest rate of 15% is being repaid with annual
payments of $200,000, plus a smaller final payment. The first payment is due one year after the loan
is taken out. Determine the interest portion of the final payment. [CAS 11/93 #16]
(A) Less than $21,000
(B) At least $21,000 but less than $22,000
(C) At least $22,000 but less than $23,000
(D) At least $23,000 but less than $24,000
(E) At least $24,000
28. Frank was making annual payments of $1,000 on a 15-year loan with the first payment due one
year after taking out the loan. The interest on the loan was 11% effective. After making 8 payments
he renegotiated the loan to pay off the debt in 4 more years with the lender being satisfied with a
9% effective yield over the entire 12-year period. Determine the amount of his new payment. [CAS
11/93 #19]
(A) Less than $1,000
(B) At least $1,000 but less than $1,100
(C) At least $1,100 but less than $1,200
(D) At least $1,200 but less than $1,300
(E) At least $1,300
29. Donald takes out a loan to be repaid with annual payments of 500 at the end of each year for 2n
years. The annual effective interest rate is 4.94%. The sum of the interest paid in year 1 plus the
interest paid in year n + 1 is equal to 720. Calculate the amount of interest paid in year 10. [SOA
11/93 #10]
(A) 318 (B) 335 (C) 364 (D) 376 (E) 388
30. Sam borrowed $1,000 on January 1, 1993 to be repaid by level payments every two years beginning
January 1, 1995, at an effective annual rate of interest of 9%. The amount of interest in the 4th
installment is $177.72. Determine the amount of principal in the 6th installment. [CAS 5/93 #11]
(A) Less than $30
(B) At least $30, but less than $35
(C) At least $35, but less than $40
(D) At least $40, but less than $45
(E) At least $45
31. A loan of 100,000 is being repaid by 15 equal annual installments made at the end of each year
at 6% interest effective annually. Immediately after the eighth payment, the loan is renegotiated as
follows:
(i) The borrower will make seven annual payments of K to repay the loan, with the first payment
made three years from the date of renegotiation.
(ii) The interest rate is changed to 7.5% effective annually.
Calculate K. [SOA 5/93 #11]
(A) 11,068 (B) 11,666 (C) 11,900 (D) 12,193 (E) 12,540

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section 6. Loans

32. A 1,000 loan is to be repaid with equal payments at the end of each year for 20 years. The principal
portion of the 13th payment is 1.5 times the principal portion of the 5th payment. Calculate the total
amount of interest paid on the loan. [SOA 5/93 #12]
(A) 632 (B) 642 (C) 652 (D) 662 (E) 672

33. Date of loan: 1/1/92

Amount of loan: $1,000,000
Date of first payment: 1/31/92.
Frequency of payments: Monthly.
Amount of each payment: Level.
Number of payments: 360.
Interest rate: X% per year, compounded monthly.
Portion of monthly payment due on 9/30/97 applied to interest: 94.473%
Portion of monthly payment due on 10/31/97 applied to interest: 94.418%
In what range is X? [SOA SAMPLE/93 #2]
(A) 12.00% (B) 12.25% (C) 12.50% (D) 12.75% (E) 13.00%

34. You purchased a home on January 1, 1985 with a $100,000 mortgage requiring 30 equal annual
payments at 10% interest with the first payment due on January 1, 1986. The bank sold your
mortgage to an investor on January 1, 1992, immediately after receiving your 7th payment. The
yield to the investor is 8%. Determine the bank’s overall return on its investment. [CAS 11/92 #16]
(A) Less than 11.0%
(B) At least 11.0%, but less than 11.5%
(C) At least 11.5%, but less than 12%
(D) At least 12.0%, but less than 12.5%
(E) At least 12.5%
35. A loan of L is to be repaid with 40 payments of 100 at the end of each quarter. Interest on the
loan is charged at a nominal rate of i, 0 < i < 1, convertible monthly. The outstanding principal
immediately after the 8th and 24th payments are 2308.15 and 1345.50, respectively. Calculate the
amount of interest repaid in the 15th payment [SOA 11/92 #11]
(A) 39.50 (B) 40.05 (C) 40.75 (D) 41.60 (E) 41.95

36. Mark takes out a 30-year loan on January 1, 1992 for 20,000 at an annual effective interest rate of
5%. Payments are made at the end of each year. On January 1, 2002, Mark takes out a 20-year loan
for 10,000 at an annual effective interest rate of 7%. Payments are also made at the end of each year.
Calculate the total amount of principal repaid during the year 2002 on both loans. [SOA 11/92 #13]
(A) 410 (B) 510 (C) 535 (D) 735 (E) 935

37. Rachel buys a house and takes out a $150,000 30-year mortgage. The interest rate is 12% convertible
monthly and Rachel makes monthly payments of $1,400 for the first 3 years. Determine how large
her monthly payment needs to be for the remaining 27 years in order to pay off the mortgage at the
end of the 30-year period. [CAS 5/92 #5]
(A) Less than $1,550
(B) At least $1,550 but less than $1,600
(C) At least $1,600 but less than $1,650
(D) At least $1,650 but less than $1,700
(E) At least $1,700
38. You have just purchased a home with a $100,000 mortgage. The nominal rate of interest is 9%,
convertible monthly. A monthly payment of X is calculated based on a 30-year amortization. If
instead, you were to make a payment of one-half of X every two weeks, how many years will it take

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 Past Exam Questions on Section 6a

to pay off the mortgage? (Assume that a year consists of exactly 52 weeks. Note that two weeks is
not one half of a month.) [CAS 5/92 #14]
(A) Less than 22 years
(B) At least 22 years but less than 24 years
(C) At least 24 years but less than 26 years
(D) At least 26 years but less than 28 years
(E) At least 28 years
39. A $3,000 loan at 18% per year is being repaid by 10 equal annual payments, the first payment due
one year after the loan is made. Determine how much the interest part of the sixth payment is. [CAS
5/92 #15]
(A) Less than $300
(B) At least $300 but less than $320
(C) At least $320 but less than $340
(D) At least $340 but less than $360
(E) At least $360
40. 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 decides to
add X to each monthly payment (starting with the first payment) the term of the mortgage would
be reduced to 25 years. [CAS 5/91 #10]
(A) X < $20 (B) $20 ≤ X < $30 (C) $30 ≤ X < $40 (D) $40 ≤ X < $50 (E) $50 ≤ X

41. Ann established a home equity line of credit. The interest rate is recalculated at the beginning of
each year at prime + 1% convertible monthly. Ann withdrew $2,000 on 1/1/90 and began making
payments of $100 every month starting on 2/1/90. The prime rate increased from 11% on 1/1/90
to 12% on 1/1/91. Immediately after making her payment on 4/1/91, Ann withdrew an additional
$4,000. Her payments remained at $100 per month. What was the amount of principle, P, in her
next payment on 5/1/91? [CAS 5/91 #16]
(A) P < $48.50
(B) $48.50 ≤ P < $49.50
(C) $49.50 ≤ C < $50.50
(D) $50.50 ≤ P < $51.50
(E) $51.50 ≤ P
42. Jeff obtains a mortgage loan of 55000 to be repaid with monthly payments at the end of each month
over n years. Each monthly payment is 500.38, based on a nominal interest rate of i compounded
monthly, i > 0. Jeff is unable to make the first payment but makes all the other payments on time.
Still because he skipped the first payment, he owes 3077.94 at the end of n years. Calculate i, [SOA
5/91 #3]
(A) 9.15% (B) 9.25% (C) 9.35% (D) 9.45% (E) 9.55%

43. A loan of 1000 at a nominal rate of 12% convertible monthly is to be repaid by six monthly payments
with the first payment due at the end of 1 month. The first three payments are x each, and the final
three payments are 3x each. Determine the sum of the principal repaid in the third payment and the
interest paid in the fifth payment. [SOA 5/91 #9]
(A) 80 (B) 82 (C) 84 (D) 86 (E) 88

44. A loan is to be repaid by level annual installments at the end of each of the next 6 years. In the
fifth installment, the amount of principal repayment is equal to nine times the amount of interest.
Determine the annual effective interest rate. [SOA 5/91 #20]
(A) 5.0% (B) 5.4% (C) 5.8% (D) 6.1% (E) 6.5%

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section 6. Loans

45. A $10,000 loan is being paid off by annual payments of $2,000 plus a smaller final payment. If the
effective annual rate of interest is 15%, and the first payment is made one year after the time of the
loan, find the amount of interest, $X, contained in the fifth payment. [CAS 5/90 #16]
(A) X < $800
(B) $800 ≤ X < $900
(C) $900 ≤ X < $1,000
(D) $1,000 ≤ X < $1,100
(E) $1,100 ≤ X
46. A loan is to be repaid by annual installments of X at the end of each year for 10 years. You are
given:
(i) the total principal repaid in the first 3 years is 290.35; and
(ii) the total principal repaid in the last 3 years is 408.55.
Calculate the total amount of interest paid during the life of the loan. [SOA 5/90 #11]
(A) 300 (B) 320 (C) 340 (D) 360 (E) 380

47. Bob takes out a loan of 1000 at an annual effective interest rate of i. You are given:
(i) the first payment is made at the end of year 6;
(ii) ten equal annual payments are made to repay the loan in full at the end of 15 years; and
(iii) the outstanding principal after the payment made at the end of year 10 is 908.91.
Calculate the outstanding principal at the end of year 5. [SOA 5/90 #12]
(A) 1390 (B) 1420 (C) 1450 (D) 1480 (E) 1510

48. A loan is to be amortized by n level annual payments of X, where n > 5. You are given:
(i) The amount of interest in the first payment is 604.00.
(ii) The amount of interest in the third payment is 593.75.
(iii) The amount of interest in the fifth payment is 582.45.
Calculate X. [SOA 5/89 #11]
(A) 704 (B) 739 (C) 1,163 (D) 1,198 (E) 1,233

49. Humphrey purchases a 100,000 home. Mortgage payments are to be made monthly for 30 years,
with the first payment to be made one month from now. The annual effective rate of interest is 5%.
After 10 years, the amount of each monthly payment is increased by 325.40 in order to repay the
mortgage more quickly. Calculate the amount of interest paid over the duration of the loan. [SOA
11/88 #10]
(A) 66,300 (B) 68,500 (C) 70,100 (D) 70,700 (E) 74,400

50. You are given a 15-year mortgage with monthly payments of 1,000 and interest compounded
monthly. At the end of each month, you make a 1,000 payment. In addition to the regular monthly
payment of 1,000, you make an additional payment equal to the amount of principal that would have
been repaid in the next regular monthly payment. Under this scheme the loan will be completely
repaid after 90 payments. Determine an expression for the amount of interest saved over the life of
the loan. [SOA 11/88 #12]
a
(A) 1,000 {90 − (1 + i) 180 }
a
2
a
(B) 1,000 {90 − (1 + i) ä180 }
2
a
(C) 1,000 {90 − (1 + i) a180 }
3
a
(D) 1,000 {90 − (1 + i) 180
s }
2
a
(E) 1,000 {90 − (1 + i) 180
s̈ }
2

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51. Jones borrowed $8,000 to be repaid in 25 equal payments at the end of each year. At the time of the
loan, the annual effective rate of interest was 4%, but immediately after the fifth payment, the annual
effective rate of interest changed to 5% for the remainder of the loan. Jones is allowed to continue
paying off the loan with the same annual payment as long as he immediately makes a payment of
less than $100 to reduce the principal such that the loan will end on an integral number of years
with no balloon or fractional payment. What is the amount of the small payment made immediately
after the fifth level payment? [CAS 5/88 #9]
(A) Less than $49
(B) At least $49, but less than $51
(C) At least $51, but less than $53
(D) At least $53, but less than $55
(E) $55 or more
52. On December 31, 1984, Smith borrowed $5,000 to be repaid in four years with level payments made
at the end of every quarter. The first payment was made on March 31, 1985. The effective annual
interest rate was 4%. What was the amount of interest paid in 1986? [CAS 5/88 #12]
(A) Less than $130
(B) At least $130, but less than $133
(C) At least $133, but less than $136
(D) At least $136, but less than $139
(E) $139 or more
53. You are given a loan. Payments of one are made at the end of each one-half of an interest conversion
period for a total of five interest conversion periods. What is the amount of principal included in the
eighth payment? [SOA 5/88 #10]
(A) 0.5v3/2 (B) 0.5v5/2 (C) 0.5v7/2 (D) 1 − 0.5v3/2 (E) v3/2

54. A loan, for amount A, is to be amortized by n annual payments of 1, based on an interest rate of i.
P is the present value, at interest rate i, of the principal portions of the loan payments. Determine
an expression for (Ia) n . [SOA 11/87 #4]
v2
(A) i (A − P) (B) vi (A − P) (C) 1i (A − P) (D) 1+i
d (A − P) (E) d1 (A − P)

55. A loan of 10,000 is amortized by equal annual payments for 30 years at an effective annual interest
rate of 5%. Determine the year in which the interest portion of the payment is most nearly equal to
one-third of the payment. [SOA 11/87 #17]
(A) 6 (B) 7 (C) 8 (D) 23 (E) 25

56. A loan is repaid in ten equal annual installments with the first installment paid one year after the
loan is made. The effective annual interest rate is 4%. The total amount of principal repaid in the
fifth, sixth, and seventh payments combined is $6,083. What is the total amount of interest paid in
the second, third, and fourth payments combined? [CAS 5/87 #13]
(A) Less than $2,000
(B) At least $2,000, but less than $2,020
(C) At least $2,020, but less than $2,040
(D) At least $2,040, but less than $2,060
(E) $2,060 or more.
57. A 35-year loan is to be repaid in equal annual installments. The amount of interest paid in the 8th
installment is 135. The amount of interest paid in the 22nd installment is 108. Calculate the amount
of interest paid in the 29th installment. [SOA 11/86 #3]
(A) 72 (B) 73 (C) 74 (D) 75 (E) 76

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section 6. Loans

58. (This question actually belongs in Section 6f.) Two loans for equal amounts are amortized at 4%
interest. Loan L is to be repaid by 30 equal annual payments. Loan N is to be repaid by 30 annual
payments, each containing equal principal amounts with the interest portion of each payment based
upon the unpaid balance. The payment for loan L first exceeds the payment for loan N at end of
year t. Find t. [SOA 11/86 #9]
(A) 12 (B) 13 (C) 14 (D) 15 (E) 16
59. A loan is repaid in twelve equal annual installments. The effective annual interest rate is 3 21 %. The
first payment is due one year after the loan is made. The total amount of principal repaid in the ninth
through twelfth payments is $9,503. What is the interest paid in the fourth payment?
(A) Less than $680
(B) At least $680, but less than $690
(C) At least $690, but less than $700
(D) At least $700, but less than $710
(E) $710 or more.
60. A ten-year adjustable rate mortgage loan of 23,115 is being repaid with quarterly installments of
1000 based upon an initial interest rate of 12% compounded quarterly. Immediately after the twelfth
payment the interest rate is increased to 14% compounded quarterly. The quarterly installments
remain at 1000. Calculate the loan balance immediately after the 24th payment. [SOA 11/85 #2]
(A) 12,000 (B) 12,550 (C) 12,950 (D) 13,350 (E) 13,750
61. A loan is being repaid in 17 level annual installments. The first payment is at the end of the first
year. The principal portion of the tenth payment is $65.85 and the interest portion is $22.21. Which
of the following is closest to the effective annual interest rate being paid on the loan? [CAS 5/85
#11]
(A) 3.5% (B) 3.6% (C) 3.7% (D) 3.8% (E) 3.9%
62. A loan is being repaid over a number of periods by level payments (principal and interest on the
outstanding balance) at the end of each period. Given the following:
A = Principal outstanding at beginning of t-th period
B = Interest included in t-th payment
C = Principal repaid in t-th payment
R = B/A
Find the amount of the original loan. Assume all annuity functions are calculated at interest rate R.
[CAS 5/85 #12]
(A) A + Ca t−1 (B) (B + C)a t + A (C) A[1 + R]t−1 + Cs t−1 (D) A[1 + R]t + Cs t (E) (B + C)s t + A
63. A loan is repaid in nine equal annual installments. The first payment is due one year after the loan is
made. The effective annual interest rate is 5%. The total amount of interest paid in the third, fourth,
and fifth payments combined is $3798. What is the total amount of principal repaid in the seventh,
eighth, and ninth payments combined? [CAS 5/84 #10]
(A) Less than $13,600
(B) At least $13,600, but less than $13,700
(C) At least $13,700, but less than $13,800
(D) At least $13,800, but less than $13,900
(E) $13,900 or more
64. A loan is to be paid off in twenty annual installments of $100, with the first payment due one year
after the loan is made. What is the total amount of principal paid in the even numbered installments,
if the effective rate of interest is 4%? [CAS 5/84 #11]

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 Past Exam Questions on Section 6a

(A) Less than $685

(B) At least $685, but less than $690
(C) At least $690, but less than $695
(D) At least $695, but less than $700
(E) $700 or more
65. A purchase is financed by five annual payments of $1,000 the first payment due at time of purchase.
The effective rate of discount, d, is 10%. Find the total amount of interest paid. [SOA SAMPLE/84
#3]
(A) $900 (B) $905 (C) $910 (D) $915 (E) $920
66. A loan of 1 at rate of interest i was originally scheduled to be repaid by 25 equal annual payments,
the first due one year after the loan date. An extra payment K with each of the 6th through the 10th
scheduled payments, inclusive, will be sufficient to repay the loan 5 years earlier than under the
original schedule. Find an expression for K. [SOA SAMPLE/84 #12]
a −a a −a a −a a −a a −a
(A) 25 20 (B) 25 20 (C) 25 20 (D) 20 15 (E) 20 15
a a a a a a a a a a
15 5 20 5 25 5 20 5 25 5
67. A $6,000 loan is to be repaid by n equal annual installments. The annual interest rate is 4%. The
interest paid in the (n − 2)nd installment is $111. Find n. [SOA SAMPLE/84 #14]
(A) 5 (B) 7 (C) 9 (D) 11 (E) 13
68. A loan is to be repaid in level installments paybable at the end of each year for seven years. The
effective annual interest rate on the loan is 5%. After the 4th payment the principal remaining is
$5,000. Which of the following is closest to the amount of the loan? [CAS 5/83 #2]
(A) $10,625 (B) $10,675 (C) $10,725 (D) $10,775 (E) $10,825
69. Jones obtains a 36 month automobile loan at a nominal interest rate of 18%, compounded monthly.
Equal payments are due at the end of each month. After 24 payments have been made, what is the
ratio of total interest paid to total principal repaid? [CAS 5/83 #6]
(A) Less than .44
(B) At least .44 but less than .45
(C) At least .45 but less than .46
(D) At least .46 but less than .47
(E) .47 or more
70. A loan is to be repaid in N level installments, one due at the end of each year for N years. The principal
repaid in the fourth payment is $11.74 and the principal outstanding after the fourth payment is
$223.32. The effective annual interest rate is 4%. What is N? [CAS 5/83 #12]
(A) 17 (B) 18 (C) 19 (D) 20 (E) 21
71. A loan is being repaid in equal annual installments of $1,000 each, paid at the end of the year.
There are 20 payments in all. The principal contained in the fifth payment is $18.15 greater than the
principal contained in the fourth payment. Which of the following is closest to the effective annual
interest rate? [CAS 5/83 #15]
(A) 5% (B) 4% (C) 3% (D) 2% (E) 1%
72. Smith borrows $100,000. The interest rate is 8%, compounded semiannually. The loan is to be
repaid by level monthly installments for twenty years. The first payment is due one month from the
date of the loan. What is the amount of principal repaid during the sixth year of payments? [CAS
11/82 #9]
(A) $33,350 (a 2 .04/a 40 .04) (B) $33,350 (s 2 .04/s 40 .04) (C) $33,350 (a (6) /a 40 .04)
2 .04
(6) (6) (6)
(D) $33,350 (a 2 .04/a ) (E) $33,350 (s /a )
40 .04 2 .04 40 .04

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section 6. Loans

73. A $40,000 loan is to be repaid in level installments due at the end of each year. The effective annual
interest rate is 5%. The principal contained in the third installment is $460. To the nearest $10, what
is the amount of each installment? [CAS 11/82 #10]
(A) $2,390 (B) $2,400 (C) $2,410 (D) $2,420 (E) $2,430
74. A $1,000 loan is to be repaid in ten installments. one due at the end of each year for ten years.
The first five payments are $K each. The last five payments are $2K each. What is the principal
outstanding just after the eighth payment? [CAS 11/82 #12]
$1,000 a $2,000 a $2,000 a $2,000 a $2,000 a
(A) 2 (B) 2 (C) 2 (D) 2 (E) 2
2a −a 2a +a a 2a −a a +a
10 5 10 5 5 10 5 10 5

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 Solutions to Past Exam Questions on Section 6a

Solutions to Past Exam Questions on Section 6a

! "
1. Seth: 5,000 1.0610 − 1 = 3,954.24
# 5,000$(.06)(10) = 3,000
Janice:
5,000
Lori: a (10) − 5,000 = 1,793.40
10 .06
Total interest on all 3 loans = 8,747.64 ANS. (D)

2. Assume the loan is repaid by level payments of 1 (although this was not stated in the question).
Then:

It = 1 − vn−t+1 and Pt+1 = vn−(t+1)+1 = vn−t

It + Pt+1 = 1 − vn−t+1 + vn−t = 1 + vn−t (1 − v)

= 1 + vn−t d ANS. (D)

3. R
B3 = Ra 1 = = 559.12
1.08
R = 603.8496
P1 = 603.8496v4−1+1 = 443.85 ANS. (A)

4. L = 1,000a 10 i
Total interest = sum of the payments minus amount of loan = (10)(1,000) − 1,000 a 10 i = 1,000 a 10 i
a 10 i = 5, i = 15.1%
Interest in first year = 1,000(1 − v10) = 754.95 ANS. (C)

5. Determine the outstanding balance after 5 years retrospectively:

% &
B20 = 150,000(1.02)12(1.015)8 − 5,483.36s 12 .02(1.015)8 + 5,134.62s 8 .015

= 214,299.75 − 126,145.42 = 88,154.33

Now set the PV of the future payments equal to this outstanding balance:

X + 4,265.73a 20 .0175 = 88,154.33

X = 88,154.33 − 71,463.27 = 16,691 ANS. (C)

' (
6. 10 X
X(1.06) − X − 356.54 = 10 −X
a 10 .06

1.7908477X − 356.54 = 1.3586796X

X = 825 ANS. (B)

7. If P is the annual payment, X = Pa n .125.

(i) In = P(1 − v) = 153.86, P = 1,384.74
(ii) Total principal repaid as of time n − 1 is the loan amount minus the PV of the final payment P:

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section 6. Loans

Pa n − Pv = 6,009.12
6,009.12 + Pv
an =
P
6,009.12 + 1,384.74v
= = 5.2284
1,384.74
n=9
y = 1,384.74v9 = 479.73 ANS. (B)

8. The effective semiannual rate for the original loan is 1.032 − 1 = .0609. Outstanding balance at end
of 4 41 years = 12,000(1.03)17 − 750s 8 .0609(1.03) = 19,834.17 − 7,447.12(1.03) = 12,163.63. Set
the PV of the payments R equal to this balance:

Ra 30 .0075(1.0075)−2 = 12,163.63
12,163.63
R= = 461.13 ANS. (D)
26.377926

9. First find the equivalent monthly rate j: (1 + j)12 = 1.08, j = .643403%.

The principal repayments form a geometric progression with common ratio 1 + j. The tth payment is
(t − 12) months after the 12th payment. Thus, (1 + j)t−12 = 3,700
1,000 = 3.7, t − 12 = 204 and t = 216
ANS. (D)
8,000
10. Under the original terms, the annual payment is a = 1,139.02
10 .07
If the new payment is X, we have:

4
1,139.02a 4 .065 + Xa 4 .065v.065 = 8,000

in order for Paul to get a 6.5% yield. X = 1,538.87 and Peter’s total payment is 4(1,139.02 +
1,538.87) = 10,711.57 under the new terms, as compared to 10(1,139.02) = 11,390.20 under the
original terms. This is a savings of 678.63. ANS. (D)
150,000
11. The monthly payment under the original terms is a = 1,100.65 Outstanding balance at time
360 23 %
of refinancing = B120 = 1,100.65a 240 2 % = 131,587.06. We set this equal to the PV of the revised
3
payments under the new terms, letting X = new monthly payment:

131,587.06 = 20,000 + Xa 120 6.5 %

12

X = 1,267.05 ANS. (E)

12. If the interest in the 4th installment is 2,458, the principal is 2,500 − 2,458 = 42. The principal
repayments form a geometric progression with common ratio 1 + j, where j is the effective rate
for the period between payments. In this case, it is a 2-year period and 1 + j = 1.132 = 1.2769.
The principal in the 7th installment is 3 interest periods after the 4th, so P7 = 1.27693(42) = 87.44
ANS. (D)

13. B9 = 6,000(1.1)9 − Xs 9 = 3X

6,000(1.1)9 14,147.69
X= = = 853.33 ANS. (B)
3 + s9 16.579477

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14. 10X
X(1.08)10 − X = − X + 468.05
a 10
2.1589X = 1.4903X + 468.05
X = 700 ANS. (B)

15. The equivalent monthly rate j is given by (1 + j)12 = 1.08, j = .643403% The original monthly
payment = 100,000
a = 819.15. The outstanding balance just after the 120th payment = 819.15a 120 j =
240 j
68,343.66. We set this equal to the PV of the revised payments P: 68,343.66 = P(a 120 − a 12 )

68,343.66
P= = 950.28 ANS. (B)
71.919533

16. The additional payment = P5 = v10−5+1 = v6. Note that v6 at time 4 is the PV of the last payment
of 1 due at time 10. Thus, under the new schedule, the loan will be paid off by making payments
of 1 at time 5 to time 9. Total payments under original schedule =10; total payments under revised
schedule = 9 + v6. Savings = 10 − (9 + v6) = 1 − v6. ANS. (B)
100,000
17. Monthly payment = a = 780.41
180 .004
Let t = payment in which principal portion equals interest portion. Then: 780.41v180−t+1 =
780.41(1 − v180−t+1) or v181−t = 0.5. ∴ 181 − t = 173.6 and 7 < t < 8. Since the principal repaid
increases, the first principal portion that exceeds the interest portion is in the 8th payment.
One way to determine the total interest paid through the 8th payment is to determine the total
principal repaid and subtract it from the total payments. The total principal repaid is 100,000 − B8 =
100,000 − 780.41a 172 = 3,086.82. Total payments = 8 × 780.41 = 6,243.28. Total interest in 1st
8 payments = 6,243.28 − 3,086.82 = 3,156.46 ANS. (D)
50,000
18. Monthly payment = a = 660.75. X = 660.75ä 71 = 35,597 ANS. (E)
120 10%
12

(Note that X includes the payment due at time 50. This is implicit in the wording of the question.)
19. I6 = i(3Xa 5 + 2Xv5a 5 )

= 3X(1 − v5) + 2Xv5(1 − v5)

= 3X − Xv5 − 2Xv10
I11 = i(2Xa 5 ) = 2X(1 − v5)

Equating i6 and 2I11, dividing by X, and simplifying:

√
10 5 5 3± 9−8
2v − 3v + 1 = 0, v = = 0.5 (Ignoring the trivial root v5 = 1)
4
i = 14.87% ANS. (C)

20. (There is a “freebie” here; if you trust the question, you don’t have to compute
100,000 1
= 812.54 at j = 1.095 12 − 1.)
a 360 j

The outstanding balance after the 60th payment = 812.54a 300 at j = 0.759153% = 95,961.84. Let
1
n = no. of payments of 1,500 each that will pay off this balance at a rate k = 1.08 12 − 1 = .643403%.
1,500a n = 95,962 so 82 < n < 83.
The drop payment will occur 83 months after the 60th month. Assuming that I/Y , PV and PMT

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section 6. Loans

are already entered, we enter 83 N CPT FV . The result is 453, which shows that the loan would be
overpaid by this amount if we made 83 full payments of 1,500. Thus, the drop payment is 1,500 −
453 = 1,047. ANS. (D)
21. In = P(1 − v2n−n+1), Pn = Pv2n−n+1, where P is the monthly payment. Equating:

1 − vn+1 = vn+1, vn+1 = 0.5 at 2%

n + 1 = 35, n = 34 ANS. (A)

22. The PV of Mr. Brown’s payments must be equal to 85,000. We have 85,000 = 1,000a 12 +
1,500v24a n at 1% where n is the number of months after the 24th month. a n = 62.424322 and
98 < n < 99
This means that the partial (“drop”) payment is made 99 months after the 24th month, so the term
of the loan is 99 + 24 = 123 months ANS. (E)
150,000
23. Monthly payment = a = 1,206.93
360 .0075
For Buy-Em-Up to get a 10% annual effective rate, the price it should pay for the mortgage
is equal to the PV of the 345 remaining payments of 1,206.93 at a monthly effective rate of
1
1.1 12 − 1 = .797414%:
Price = 1,206.93a 345 = 141,584.53. If j is Friendly’s effective monthly rate, we have:

150,000 = 1,206.93a 15 j + 141,585.53vj15

Calculate j by entering 15 N 150,000 PV 1,206.93 +/− PMT 141,584.53 +/− FV CPT I/Y . The
result is j = .4421%. To calculate the effective annual rate (1 + j)12 − 1, we continue as follows: ÷
100 + 1 yx 12 − 1. The answer is 5.44%. ANS. (B)
24. 100
Pt = v360−t+1
a 360 j

100
It = (1 − v360−t+1)
a 360 j

where (1 + j)12 = 1.1 or j = .797414%.

Determine t for which Pt = 23 It :

2
Pt = I2
3
2
v361−t = (1 − v361−t )
3
v361−t = 0.4 at rate j
361 − t = 115.4, t = 245.6

Since the principal repayments increase with time, the first payment for which Pt > 23 It is the 246th.
ANS. (E)
100,000
25. Original payment = a = 1,053.22
300 .01
B144 = 1,053.22a 156 .01 = 83,018.22
If X is the revised payment, Xa 156 2 % = 83,018.22 and X = 857.64. Difference = 1,053.22 −
3
857.64 = 195.58 ANS. (C)
100,000
26. Scheduled payment = a = 804.62. At time 360 (the time of his 359th payment), Bernard still
360 .0075
owes the AV of his missed first payment, i.e., 804.62 (1.0075)359 = 11,764.32 ANS. (D)

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 Solutions to Past Exam Questions on Section 6a

27. First, determine the number of regular payments of 200,000 each:

15 I/Y 1,000,000 PV 200,000 +/− PMT CPT N
The result is N = 9.919. This shows that there will be 9 regular payments of 200,000 followed by a
smaller final payment at time 10. The interest portion of the final payment is .15B9, where B9 should
be computed retrospectively. Since all of the values are already in the registers except for N , all we
have to do is:
9 N CPT FV × .15 = +/− .
The answer iw 24,106.19. ANS. (E)
28. Original loan amount = 1,000a 15 .11 = 7,190.87
For the lender to get a 9% yield rate, we have:

7,190.87 = 1,000a 8 + X(a 12 − a 8 ) at 9%,

where X is the payment for the last 4 years.

7,190.87 − 1,000a 8 1,656.05

X= = = 1,018.54 ANS. (B)
a 12 − a 8 1.625906

29. Interest in year 1 = 500(1 − v2n) and in year n + 1 = 500(1 − vn). 500(1 − v2n) + 500(1 − vn) =
720. vn = 0.4 and n = 19. Interest in year 10 = 500(1 − v(2)(19)−10+1) = 500(1 − v29) = 376.50
ANS. (D)
30. Time will be measured in 2-year periods at rate 1.092 − 1 = .188. I4 = .188B3. I4 = 177.72 = .188B3.
B3 = 177.72/.188 = 945.32. B3(retrospectively) = 1,000(1.188)3 − Xs 3 = 945.32, where X is the
payment made every 2 years. We can compute X as follows:
3 N 18.8 I/Y 1,000 PV 945.32 +/− FV CPT PMT
The payment is 203.19. To determine P6, don’t clear the TVM registers, compute I6 = .188B5 and
subtract it from the payment:
5 N CPT FV × .188 − RCL PMT =
The answer is 35.95. ANS. (C)
100,000
31. Original payment = a = 10,296.28. Balance after 8th payment = 10,296.28a 7 .06 = 57,477.74
15 .06

57,477.74(1.075)2
K= = 12,541 ANS. (E)
a 7 .075

1 1,000
32. v20−13+1 = 1.5v20−5+1, v8 = 1.5 = .66̇, i = 5.198951% and loan payment = a = 81.57. Total
20 i
interest = total payments − loan amount = (20)(81.57) − 1,000 = 631.40 ANS. (A)
33. Since the portion of the payment due on 9/30/97 applied to interest is .94473, the portion applied
to principal is 1 − .94473 = .05527. Similarly, the portion of the payment due on 10/31/97 applied
to principal is 1 − .94418 = .05582. For convenience, let j = X/12 (the monthly effective rate). We
know that the principal repaid in successive monthly payments follows a geometric progression
with common ratio 1 + j. Thus, we have:

.05582
= 1.009951 = 1 + j
.05527
from which j = .00951 and X = 12j = 11.94%. ANS. (A)

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section 6. Loans

100,000
34. Payment = a = 10,607.92. Investor paid bank 10,607.92a 23 .08 = 110,015. Bank received 7
30 .10
payments of 10,607.92 and a lump sum of 110,015 at time 7. To solve for Bank’s i,
7 N 100,000 +/− PV 10,607.92 PMT 110,015 FV CPT I/Y .
The answer is 11.61%. ANS. (C)
35. B8 = 100a 32 = 2,308.15 and B24 = 100a 16 = 1,345.60 at the effective rate j for a 41 -year period

a 32 2,308.15
= 1 + v16 = = 1.715331
a 16 1,345.60

v16 = .715331 and j = 2.115882%

I15 = jB14 = (.02115882)(100)a 26 = 41.98 ANS. (E)

20,000 10,000
36. Payments on loans are a = 1,301.03 and a = 943.93.
30 .05 20 .07

30−11+1 20−1+1
Principal repaid in 2002 = 1,301.03v.05 + 943.93v.07
20 20
= 1,301.03v.05 + 943.93v.07 = 490.34 + 243.93 = 734.27

Note that for the first loan, the principal repaid in 2002 is included in the 11th payment, not the
10th. ANS. (D)
37. Let X = the monthly payment for the remaining 27 years.

150,000 = 1,400a 36 + X(a 360 − a 36 ) at 1%

150,000 − 1,400a 36 107,849.49
X= = = 1,607.04 ANS. (C)
a 360 − a 36 67.110826

100,000
38. X = a = 804.62
360 .0075
Let n = number of payments of X2 = 402.31 to be made every 2 weeks. 100,000 = 402.31a n j , where
(1 + j)26 = 1.007512 or j = .3455%. To compute n, enter j in I/Y and then 100,000 PV 402.31 +/−
PMT CPT N . The answer is 567.406. To get the number of years, divide by 26: 567.406 26 = 21.8.
(The examiners accepted either answer (A) or (B).)
3,000
39. Payment = a = 667.54. The interest in the 6th payment is 18% times the balance at the end of
10 .18
the 5th year. B5 = 667.54a 5 = 2,087.52.

I6 = (.18)(2,2087.52) = 375.75 ANS. (E)

100,000
40. The payment to repay the loan in 25 years = a = 1,053.22. The original payment was 100,000
a =
300 .01 360
1,028.61

X = 1,053.22 − 1,028.61 = 24.61 ANS. (B)

) * ) *
11+1 12+1
41. The effective monthly rate during the first 12 months = 12 % = 1% and after that = 12 %=
1.083̇%. Determine the balance just after the payment of 100 and the new loan of 4,000 on 4/1/91.
(This is the end of the 15th month).

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 Solutions to Past Exam Questions on Section 6a

% &
B15 = 2,000(1.01)12 − 100s 12 .01 (1.01083̇)3

− 100s 3 1.083̇% + 4,000

= (985.40)(1.032853) − 303.26 + 4,000
= 4,714.51
I16 = (.01083̇)(4,714.51) = 51.07
P16 = 100 − 51.07 = 48.93 ANS. (B)

i
42. Let j = 12 be the effective monthly rate.

500.38(1 + j)12n−1 = 3,077.94

500.38
v12n−1 = = .1626
3,077.94
# $
1 − v12n
55,000 = 500.38a 12n j = 500.38
j
# $
1 − v . v12n−1
= 500.38
j
) *
1 − .1626
1+j
= 500.38
j

55,000j2 + 54,499.62j − 419.02 = 0

j = .00763, i = 12j = .09156 ANS. (A)

43. xa 3 + 3xv3a 3 = 1,000 at 1%, x = 86.92, 3x = 260.77. Principal repaid in 3rd payment = B2 − B3 =
86.92a 1 + v(260.77)a 3 − 260.77a 3 = 78.47
Interest paid in 5th payment = .01B4 = .01(260.77a 2 ) = 5.14. Total = 78.47 + 5.14 = 83.61
ANS. (C)

44. Principal repaid = vn−t+1 = v6−5+1 = v2. Interest paid = 1 − v2. ∴ v2 = 9(1 − v2), v2 = 0.9 and
i = 5.41% ANS. (B)

45. B4 = 10,000(1.15)4 − 2,000s 4 , which can be computed by entering 4 N 15 I/Y 10,000 PV 2,000
+/− PMT CPT FV . The result is 7,503.31. Multiply by .15 to get I5 = 1,125.50 ANS. (E)

46. X(v8 + v9 + v10) = 290.35

X(v + v2 + v3) = 408.55
Dividing, we get v7 = 290.35
408.55 = .710684 and i = 5.00%.

408.55 408.55
X= 2 3
= = 150.02
v+v +v a3

Total interest = 10X − Xa 10 = 150.02(10 − a 10 ) = 342 ANS. (C)

1,000
47. Let P = annual payment. From (i) and (ii), P = v 5a
. From (iii),
10

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section 6. Loans

1,000a 5 1,000
Pa 5 = 908.91 = =
v 5a 10
v5(1 + v5)
1,000
v5(1 + v5) = = 1.1002, v5 = .662
908.91
1,000
P5 = 1,000(1 + i)5 = = 1510.60 ANS. (E)
.662

48. The amount of principal in the first, third and fifth payments is equal to X minus the amount of
interest in those payments. Since the principal repaid is in geometric progression, the ratio of P1 to
P3 is equal to the ratio of P3 to P5. Thus:
X − 604 X − 593.75
=
X − 593.75 X − 582.45

Cross-multiplying, the X 2 terms drop out. Solving, we get X = 704 ANS. (A)
100,000
49. Initial monthly payment = a , where (1 + j)12 = 1.05, j = .407412%. Payment = 530.06.
360 j
Outstanding balance after 120th payment = 530.06a 240 = 81,068.47. New terms: (530.06 +
325.40)a n = 81,068.47, n = 120. Loan will be paid off with 120 payments of 530.06 and 120
payments of 855.46, or a total of 166,262. Deduct loan amount of 100,000, for interest of 66,262.
ANS. (A)
50. This is a very difficult problem to do under exam conditions. The wording is also a little ambiguous.
It’s a good candidate for skipping and coming back to if you have any time left. Here is one approach.
We will omit 1,000. In addition to the first payment of 1, a payment of the principal in the next
payment is made. This is equal to v180−2+1 = v179. This is the PV of the payment due at time 180,
so at this point, payments are due only until time 179. In addition to the payment of 1 at time 2,
a payment equal to the principal in the next payment is made. Since the loan now has only 177
payments remaining (until time 179), the additional payment is equal to v177−1+1 = v177. This is
the PV of the payment due at time 179, so at this point, payments are due only until time 178.
Continuing in this manner, each additinal payment reduces the term of the loan by one month.
Thus, by the 90th additional payment, the loan is paid off. The interest saved is equal to the
total payments under the original schedule minus the total payments under the revised schedule
= 180 − (90 + v179 + v177 + . . . + v). The series can be summed either by using the “fission”
approach or by using the geometric progression formula. A little messing around will get it in
the form of ANS. (D).
51. Enter 25 N 4 I/Y 8,000 PV CPT PMT
Thus, the level payment is 512.10. To determine the loan balance at the end of 5 years, don’t clear
the TVM registers and enter 20 N CPT PV . The loan balance is 6,959.55. Leave this in PV , change
the interest rate to 5% by entering 5 I/Y , leave the PMT as −512.10 (since the same annual payment
will continue) and CPT N . This gives N = 23.3, which shows that 23 integral payments of 512.10
should be made. Enter 23 N CPT PV . The result is 6,907.44, the present value of the 23 payments of
512.10. This is short of the loan balance of 6,959.55 (computed above) by 52.11. ANS. (C)
52. Let j = effective quaterly rate. Then j = 1.041/4 − 1 = .985341%
5,000 %) * ) * ) * ) *&
I 5 + I6 + I 7 + I 8 = 1 − v12 + 1 − v11 + 1 − v10 + 1 − v9
a 16 j

5,000 % &
= 4 − (a 12 − a 8 )
a 16 j

= (339.31)(.391111) = 132.71 ANS. (B)

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 Solutions to Past Exam Questions on Section 6a

53. Let j = effective rate for 21 -year period. Then (1 + j)2 = 1 + i and P8 = vj10−8+1 = vj3 = (1 + j)−3 =
3 3
(1 + i)− 2 = vi2 ANS. (E)
n
+
54.
A = an , P = vt . vn−t+1 = nvn+1
t=1

ä n − nvn (1 + i)a n − (1 + i)nvn+1

(Ia) n = =
i i
1
= (A − P) ANS. (E)
d

55. 1 2
i(P)a 30−t+1 = (P), v31−t =
3 3
31 − t = 8.31, t = 22.69 ANS. (D)

56. If R is the annual payment,

P5 + P6 + P7 = R(v6 + v5 + v4) = 6,083

6,083
R= = 2,465.70
a6 − a3
% &
I2 + I3 + I4 = 2,465.70 (1 − v9) + (1 − v8) + (1 − v7)
% &
= 2,465.70 3 − (a 9 − a 6 ) = (2,465.70)(.806805)

= 1,989.34 ANS. (A)

57. Loan amount = Pa 35 , 135 = iPa 28 = P(1 − v28), 108 = iPa 14 = P(1 − v14). Dividing:

135
= 1.25 = 1 + v14, v14 = .25, v7 = .50
108
108 108
P= 14
= = 144
1− v .75
I29 = iPa 7 = P(1 − v7) = 144(.50) = 72 ANS. (A)

) *
A A 30−t+1
58. If loan amount is A, payments under Loan L are a and under Loan N are 30 + .04 30 A,
30 .04
A
since the principal repayment under loan N is a constant 30 . (For more details on repaying a loan
with equal principal payments, see Section 6f of this manual.) Equating:
# $
A A 30 − t + 1
= + .04 A
a 30 30 30

Cancelling A and solving for t, we get t = 12.63. Since the payments under Loan L are constant
and those under Loan N are decreasing, the correct answer is 13. ANS. (B)

59. If R is the annual payment, R(v4 + v3 + v2 + v) = Ra 4 = 9,503 and R = 2,587.20. I4 = R(1 − v9) =
2,587.20(.266269) = 688.89 ANS. (B)

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section 6. Loans

% &
60. B24 = 23,115(1.03)12 − 1,000s 12 .03 (1.035)12 − 1,000s 12 .035

= 18,764.43(1.511069) − 14,601.96
= 13,752 ANS. (E)

61. Payment = principal portion + interest portion = 65.85 + 22.21 = 88.06

P10 = 65.85 = 88.06v17−10+1 = 88.06v8 and i = 3.7% ANS. (C)
62. The original loan amount is equal to the outstanding balance at the end of (t − 1) years (= A) plus
the sum of the principal repaid in the first (t − 1) payments. Since the principal repayments are
in geometric progression, the latter item = C(v + v2 + . . . + vt−1) = Ca t−1 and the original loan
amount = A + Ca t−1 ANS. (A)
, - % &
63. If R = annual payment, I3 + I4 + I5 = R (1 − v7) + (1 − v6) + (1 − v5) = R 3 − (a 7 − a 4 ) =
3,798 and R = 5,000. P7 + P8 + P9 = 5,000(v3 + v2 + v) = 5,000a 3 = 13,616 ANS. (B)
64. P2 + P4 + . . . + P20 = 100(v19 + v17 + . . . + v)
v[1 − (v2)10] 100v(1 − v20)
= 100 = at 4%
1 − v2 1 − v2
= 692.84 ANS. (C)

d
65. Loan amount = 1,000ä 5 i , where i = 1−d .09 = 11.1̇%. ∴ loan amount = 4,095 and total inter-
= .10
est = (5)(1,000) − 4,095 = 905 ANS. (B)
Note: You could also compute the loan amount using the discount rate d = 10% as 1,000(1 + .9 +
.92 + .93 + .94) = 4,095.10.
1 1
66. Original payments are a for 25 years. Revised payments are a for 20 years and an additional
25 25
K at time 6 through time 10. Since the first 5 payments are the same under either schedule, we can
equate the PV of payments as of time 5:
' ( ' (
1 1
a 20 = a 15 + Ka 5
a 25 a 25
a 20 − a 15
K= ANS. (E)
a 25 a 5

Note: The 0% test shows that only answers (C) and (E) could be correct.
) *
67. In−2 = i 6,000
an a 3 = 111 (the interest rate times the previous loan balance using the prospective
method)
6,000ia 3
an = =6
111
and n = 7 ANS. (B)
L
68. If the loan amount is L, the payment is a . The principal remaining just after the 4th payment
7 .04
L
using the prospective method is a a 3 . Thus,
7

L a
a 3 = 5,000, L = 5,000 7 = 10,624 ANS. (A)
a7 a3

69. Let the monthly payment be 1. (Payment will cancel out.)

352 Copyright © 2017 ASM, 12th edition

 Solutions to Past Exam Questions on Section 6a

24
+
It = (1 − v36) + (1 − v35) + . . . + (1 − v13)
1

= 24 − (a 36 − a 12 )
= 24 − 16.753179 = 7.246821
.
Similarly, 241 Pt = a 36 − a 12 = 16.753179
7.246821
Ratio = 16.753179 = .43 ANS. (A)
70. If R is the annual installment:

P4 = RvN−4+1 = RvN−3 = 11.74

B4 = Ra N−4 = 223.32

Dividing:
a N−4 223.32
= = 19.022147
vN−3 11.74
(1 − vN−4) 1.04N v3 − 1.04
(1 + i)N−3 = = 19.022147
i .04
1.04N = [(.04)(19.022147) + 1.04] (1.04)3
= 2.025752 and N = 18 ANS. (B)

71. P5 = 1,000v20−5+1 = 1,000v16

P4 = 1,000v17

P5 − P4 = 1,000v16(1 − v) = 1,000v16d = 1,000iv17

= 18.15 and iv17 = .01815.

Trying i = 5%, 4%, . . . , at 3%, iv17 = .01815 ANS. (C)

72. The effective rate is 4% per 21 -year. There are 6 monthly payments of R over 40 interest periods (20
years), where R is determined by:

6Ra(6) = 100,000,
40

100,000
R=
6a(6)
40

The principal repaid in the 6th year is equal to the decrease in the loan balance from the end of the
5th year to the end of the 6th year:

100,000 ) *
B10 − B12 = 6 a(6) − a(6)
6a(6) 30 28
40

Since “upper m’s cancel,” we have:

100,000 ) *
B10 − B12 = a 30 − a 28
a 40

100,000 28 33,347.75
Looking at the answers, we get this into the form: a v a2 = a a2 . ANS. (A)
40 40

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section 6. Loans

73. Let the level installment = R. The principal repaid in the third installment can be determined as
follows:

B2 = 40,000(1.05)2 − Rs 2 (retrospectively)
= 44,100 − 2.05R
I3 = .05B2 = 2,205 − .1025R
P3 = R − I3 = R − (2,205 − .1025R)
= 1.1025R − 2,205 = 460
R = 2,417 ANS. (D)

74. 1,000 = 2Ka 10 − Ka 5

1,000
K=
2a 10 − a 5
2,000
B8 = 2Ka 2 = a ANS. (D)
2a 10 − a 5 2

Note: The “0% test” would show that (D) and (E) are the only possible correct answers.

354 Copyright © 2017 ASM, 12th edition