Practice before your final
Similar to 5.5.4
A 25-year loan of 25,000 is negotiated with the borrower agreeing to repay principal and
interest at 6%. A level payment of 1,500 will apply during the first twenty years and a
higher level payment will apply during the remaining five years. Each time the lender
receives a payment from the borrower, he will deposit the portion representing the
principal into a sinking fund with an annual effective interest rate of 3%. (Assume that
the interest portion remains level throughout these 25 years and assume that all but the
interest portion is deposited into the sinking fund.) This will replace the lender’s capital.
Find the lender’s yield on this investment.
Don purchases a 2000 20-year bond with 1900 redemption and 8% annual coupons for
1850. He invests the coupons at a nominal rate of 6% convertible 3 times a year.
Calculate his annual yield rate over the twenty-year period.
Anuraag receives an annuity paying 1500 at the beginning of each month for 20 years.
He wishes to replace it with an annuity that has the same term of 20 years and has only
two payments each year, both at the beginning of the six month period.
How much should the payments be if the exchange is based on a nominal discount rate
of 12% payable quarterly?
Jay takes a 20 year loan. He borrows 150,000 to be paid back with level quarterly
payments at the beginning of every quarter. The interest is charged on this loan at a
nominal rate of interest of 12% convertible quarterly. Immediately after the 18th
payment, he decides to pay off the loan. Find OLB17 , the outstanding balance after
the 18th payment, which was made at time t=17.
Similar to 5.4.4
Eden borrows 36,000 at AEIR 4%. At the end of each of the first 5 years she will pay
1800 in principal alone, plus she pays the interest due. At the end of each of the next
four years she makes level payments of 2400. She plans on making one final payment
at the end of 10 years to satisfy her loan obligation. What is this 10th payment?
Similar to 4.5.2
A 20-year annuity has end-of-quarter payments. The first year the payments are $100
each. In subsequent years the quarterly payment increases by $10 over what it was
the previous year. Find the present value of this annuity if AEIR=8%
Yours is a closed book examination. You will be allowed a 3 x 5 index card, both
sides. You will need to bring a calculator and something to write with.
You are not allowed a financial/actuarial calculator for this exam.
Using one will disqualify you from getting any grade on your final.
All cell phones (turned off please) and watches must be packed away before
entering the exam room.
Please scan your work to the "Booklet" link immediately after completing your
exam.

Any instance of suspected academic dishonesty, including any communication with
another student during this exam will result in a grade of 0 on this exam and a grade