Exercise
Nov 20'23
Answer
Solution: D
[[math]]
\begin{aligned}
& 1.0725^5=1.0575^3(1+f)^2 \\
& f=0.0954
\end{aligned}
[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Current loan rates are based on the following term structure of interest rates:
| Investment Length (years) | Spot Rate |
|---|---|
| 1 | 5.00% |
| 2 | 5.25% |
| 3 | 5.75% |
| 4 | 6.25% |
| 5 | 7.25% |
A loan of 6000 is to be repaid with a single payment of principal plus interest at the end of five years. The borrower has two choices:
Calculate the annual effective interest rate on the 2-year loan such that the borrower is indifferent between the two choices.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Solution: D
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.