Past Exam Questions on Section 3g

Past Exam Questions on Section 3g

1. At an annual effective interest rate of i, i > 0, both of the following annuities have a present value
of X:
(i) a 20-year annuity-immediate with annual payments of 55
(ii) a 30-year annuity-immediate with annual payments that pays 30 per year for the first 10 years,
60 per year for the second 10 years, and 90 per year for the final 10 years
Calculate X. [5/03 #33]
(A) 575 (B) 585 (C) 595 (D) 605 (E) 615
2. Dottie receives payments of X at the end of each year for n years. The present value of her annuity
is 493.
Sam 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 vn. [SOA 5/98 #4]
(A) 0.86 (B) 0.87 (C) 0.88 (D) 0.89 (E) 0.90
3. 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. [SOA 11/92 #5]
(A) 14% (B) 17% (C) 20% (D) 23% (E) 26%
4. You are given:
(i) a n = 10.00; and
(ii) a 3n = 24.40.
Determine a 4n . [SOA 11/90 #2]
(A) 28.74 (B) 29.00 (C) 29.26 (D) 29.52 (E) 29.78
5. Eric receives 12000 from a life insurance policy. He uses the fund to purchase two different annuities,
each costing 6000.
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. [SOA 11/90 #7]
(A) 6.0% (B) 6.2% (C) 6.4% (D) 6.6% (E) 6.8%
6. 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.
[SOA 5/90 #6]
(A) 240 (B) 243 (C) 260 (D) 268 (E) 280
7. Samantha receives a 10,000 life insurance benefit. If she uses the proceeds to buy an n-year
immediate annuity, the annual payout will be 1,538. If a 2n-year immediate annuity is purchased,
the annual payout will be 1,072. Both calculations are based on an effective annual interest rate of i.

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section 3. Annuities

Calculate i. [SOA 5/88 #16]

(A) 0.087 (B) 0.088 (C) 0.089 (D) 0.090 (E) 0.091
8. At a rate of interest, i, where i > 0, a 36-year annuity-immediate with annual payments of $4 has
the same present value as an 18-year annuity-immediate with annual payments of $5.
In how many years does money double at rate of interest, i? [SOA SAMPLE/84 #8]
(A) 9 (B) 12 (C) 18 (D) 27 (E) 36
9. An annuity-due has the following present value and accumulated value:
ä n+2 = 13.987

s̈ n = 51.632
Which of the following is closest to the effective annual rate of interest? [CAS 5/83 #7]
(A) 5.2% (B) 5.4% (C) 5.6% (D) 5.8% (E) 6.0%

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 Solutions to Past Exam Questions on Section 3g

Solutions to Past Exam Questions on Section 3g

1. X = 55a 20 = 30a 10 + 60v10a 10 + 90v20a 10
! "
= a 10 30 + 60v10 + 90v20

Dividing by a 10 , we have:

a 20 ! "
55 = 55 1 + v10 = 30 + 60v10 + 90v20
a 10

90v20 + 5v10 − 25 = 0

This is a quadratic in v10:

√
10 −5 + 25 − (4)(90)(−25)
v = (positive root)
180
√
−5 + 9025 90
= = = 0.5
180 180
∴ i = 7.177346%
X = 55a 20 i = 574.97 ANS. (A)

2. Dottie: Xa n = 493
Sam: 3Xa 2n = 2,748
3Xa 2n # $ 2,748
Dividing: = 3 1 + vn =
Xa n 493
2,748
vn = − 1 = .858 ANS. (A)
(3)(493)

3. 2a 18 = 2.5a 9
2a 18 ! "
= 2 1 + v9 = 2.5
a9
2.5
v9 = − 1 = .25, i = 16.65% ANS. (B)
2

4. Dividing (ii) by (i):

a 3n 24.40
= 1 + vn + v2n == 2.44
an 10
√
2n n n −1 + 1 − (4)(−1.44)
v + v − 1.44 = 0, v = = 0.8
2
a 4n = a n + vna 3n = 10 + (0.8)(24.4) = 29.52 ANS. (D)

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section 3. Annuities

5. Ka 24 = 2Ka 8 ; Dividing:
a 24
= 2 = 1 + v8 + v16
a8
√
16 8 8 −1 + 1 − (4)(−1)
v + v − 1 = 0, v =
2
√
5−1
= = .618034
2
i = 6.2% ANS. (B)

6. a n = 40, a 3n = 70
a 3n 7
= = 1 + vn + v2n
an 4
% ! "
−1 + 1 − (4) − 43
3
v2n + vn − = 0, vn = = 0.5
4 2
1 − vn 1 − 0.5 0.5
a n = 40 = = , i= = .0125
i i 40
(1 + i)2n − 1 4 − 1
s 2n = = = 240 ANS. (A)
i .0125

7. 1,538a n = 1,072a 2n
a 2n 1,538
= 1 + vn = = 1.434701
an 1,072
and vn = .434701. Substituting vn:
1,538(1 − .434701)
10,000 = 1,538a n = ,
i
(1,538)(.565299)
i= = .0870 ANS. (A)
10,000

8. 4a 36 = 5a 18
a 36 5 1
= 1 + v18 = , v18 = ,
a 18 4 4

(1 + i)18 = 4, (1 + i)9 = 2 ANS. (A)

9. ä n+2 = 1 + a n+1 = 13.987, a n+1 = 12.987

s̈ n = s n+1 − 1 = 51.632, s n+1 = 52.632

s n+1 52.632
= = 4.05267 = (1 + i)n+1
a n+1 12.987

(1 + i)n+1 − 1 4.05267 − 1
s n+1 = = = 52.632
i i
3.05267
i= = .058 ANS. (D)
52.632

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