1. Assume the following rates are being utilized for the given yearly periods.

i 8% for 0 t 2
t 0.015t for 2 t 5
d 6% for 5 t 8
i (4) 10% for 8 t
Find the present value of an asset which will payout a single cash-flow amount of 1000 at time t =
10.
(a) 439

(b) 459

(c) 479

(d) 499

(e) 519

Answer: ____________________

2. Eileen buys a perpetuity-immediate with annual payments for a purchase price of X. The first
payment is 1.02, the 2nd payment is 3% greater than the first, the third payment is 2% greater
than the second, and so on, with the increase in future payments alternating between 3% and 2%.
At the purchase price of X, Eileens effective annual interest yield rate is 3%. Determine X. Hint: I
thought of the even-year payments and odd-year payments separately.
(a) 102

(b) 103

(c) 204

(d) 205

(e) 206

Answer: ____________________

3. Account A offers a simple interest rate of 5% per year and Account B offers a force of interest of
t 0.05t where t is the time in years. Suppose that 1000 is invested into each account at time t
= 0. What is the sum of the interest gained from both accounts between times t = 1 and t = 2?
(a) 120

(b) 130

Answer: ____________________

(c) 140

(d) 150

(e) 160

4. Which of the following notations given below is equivalent to a10 i ? Note: Assume that i > 0.
(b) 1 v 9 s9 i

(a) v10a10 i

(c) s10 i a10 i

(d) (1 i)a9 i 1

(e) v s9 i

Answer: ____________________

5. A 39-year annuity-immediate will pay 13 in each of the first 3 years, 12 in each of the next 3 years,
and so on, until payments of 1 are made in each of the last 3 years. The present value of the
annuity at an annual effective interest rate of 3% is X. Determine X.
(a) 59

(b) 165

(c) 177

(d) 184

(e) 187

Answer: ____________________

6. At an annual effective rate of interest i > 0, payments of 100 now, 200 two years from now and
100 four years from now have a total present value of 300. Calculate i
(a) 11.7%

(b) 13.0%

(c) 14.5%

(d) 15.8%

(e) 16.9%

Answer: ____________________

7. You are given the following information.

X is the value at the end of year two of a 20-year annuity-due of 1 per year.
1
The annual effective interest rate for year t is
8t
Which of the summations given below is equal to the value of X?
28
28
29
29
30
10
11
10
11
10
(a)
(b)
(c)
(d)
(e)
t 9 t
t 9 t
t 10 t
t 10 t
t 11 t
Answer: ____________________

8. At an effective annual interest rate of i, where i > 0, each of the following two sets of payments
has present value K.

A payment of 121 immediately and another payment of 121 at the end of one
year.
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

Answer: ____________________

9. Ralph buys a perpetuity-due paying 500 annually. He deposits the payments into a savings
account earning interest at an effective annual rate of 10%.
Ten years later, before receiving the eleventh payment, Ralph sells the remaining payments of the
perpetuity based on an annual effective interest rate of 10%.
Using the proceeds from the sale plus the money in the savings account, Ralph purchases an
annuity-due paying X per year for 20 years at an effective annual interest rate of 10%.
Calculate X.
(a) 1145

(b) 1260

(c) 1385

(d) 1525

(e) 1675

Answer: ____________________

10. A perpetuity pays 1 at the end of the first two years (i.e. at time t = 1 and t = 2), pays 2 at the end
of the second two years (i.e. at time t = 3 and t = 4), 3 at the end of the third two years (i.e. at
time t = 5 and t = 6), and so on.
Assuming an annual effective interest rate of 8%, find the present value of the perpetuity. Give
your answer rounded to the nearest whole number.
Answer: ____________________

11. At time t = 0, Donald puts 1000 into a fund crediting interest at an annual nominal interest rate of
i compounded semiannually.
1
At time t = 2, Lewis puts 1000 into a different fund crediting interest at a force of t
for all t.
5t
At time t = 16, the amounts in each fund will be equal. Note: In this problem, t is representing
time in years.
Calculate i. Give your answer as a percentage rounded to one decimal place.
Answer: ____________________

12. Jeff deposits 11 into an account on day 5, 12 on day 10, 13 on day 15 and so on. The account
gains interest via an annual interest rate of 3.65% compounded daily.
Find the future value of the account on day 600, immediately after the deposit of 130 is made.
Round your answer to the nearest whole number. Note: There are 365 days in a year.
Answer: ____________________

13. Jim buys a perpetuity-immediate which pays 180 each year and has an annual effective interest
rate of 2i. Tina buys a perpetuity-immediate which pays 60 at the end of the first year, and each
subsequent payment increases by 5% from the previous payment. Tinas annuity has an annual
effective interest rate of i. Both annuities have the same present value.
Find i. Give your answer as a percentage rounded to the nearest whole number.
Answer: ____________________

14. At the start of the year you decide to provide yourself with a retirement account. You begin by
depositing 100 into the account at the end of each month, and each year you increase this
amount by 10%. Thus, for the first year, you make 12 deposits of size 100, for the second year
you make 12 deposits of size 110, for the third year you make 12 deposits of size 121, and so on.
Suppose that you make these deposits for 35 years, upon which time you retire. After retirement,
you will make an annual withdrawal from the account at the start of each year for the next 30
years. Each withdrawal will be of equal size X.
If the account gains interest at an annual rate of 8% compounded monthly, and we assume that
after 65 years, the account has a balance of zero, then find X. Round your answer to two decimal
places.
Answer: ____________________

15. An annuity pays 1 at the start of each year for 4n years. Using an annual effective interest rate of
i, the accumulated/discounted value of the entire 4n-year annuity at time 2n is 637.72.
If it is also known that (1 i)n 8.7384, then find n. Round your answer to the nearest whole
number.
Hint: Break the annuity into four n-year annuities and find the value of each of these annuities at
time 2n. The sum of these values will equal 637.72.
Answer: ____________________

16. Bob buys a perpetuity at time t = 0 years for P. The perpetuity makes annual payments beginning
at t = 8. The first payment is for 500. Each annual payment thereafter is decreased by 10 until a
payment of 200 is reached. Subsequent payments remain level at 200.
If the annual effective interest rate is 4%, find the value of P. Round your answer to the nearest
whole number.
Answer: ____________________

17. Iggy borrows X at an annual effective interest rate of 6% and he agrees to pay it back within 10
years. If he pays the principal and accumulated interest in one lump sum at the end of the 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 for the next 10 years.
Calculate X. Round your answer to the nearest whole number. Hint: You need to find the total
amount that Iggy pays in each scenario.
Answer: ____________________