Question
2
If the frequency of compounding is bi-monthly (every
two months), then there are 6 interest periods in a year, and the effective
monthly interest rate is 2.5% (15% divided by 6). The accumulated balance of the loan after 2 years would be:
$1,800 ´ 1.02512 = $2,420.80
Therefore, the frequency of compounding is every two
months.
Answer is B.
Question
4
The equation of value representing the present value
of the loan payments is:
100,000 = 3,100
+ Xv111 + (2X)v112 + (22X)v113
+ … + (29X)v120
= 3,100
+ 2v110X(2v + (2v)2 + (2v)3
+ … + (2v)10)
= 3,100
+ 2v110X(
)
X = 21.98
Final repayment = 21.98 ´ 29 = 11,253.76
Answer is B.
Question 7
A = $1,700 + $1,900 + $2,100
+ $2,300 + $2,500 = $10,500
B = $1,700v2 + $1,900v4
+ $2,100v6 + $2,300v8 + $2,500v10 = $7,337
A – B = $10,500 - $7,337 =
$3,163
Answer is C.
Question 11
The amortized value of the bond as of January 1, 2005
is equal to the accumulation of the original purchase price, less the accumulated
value of the coupon payments. Coupons
were paid on December 31, 2002 and December 31, 2004.
A = Amortized value on January 1, 2005 = (691.49 ´ 1.084) – (60 ´ 1.082) – 60 = 810.78
The amortized value of the bond as of January 1, 2007
is equal to the accumulation of the January 1, 2005 value, less the coupon
paid on December 31, 2006.
B = Amortized value on January 1, 2007 = (810.78 ´ 1.082) – 60 = 885.69
B – A = 885.69 – 810.78 = 74.91
Answer is E.
Question
15
Recall the following formula
for a geometric series:
1 + x + x2 + … +
xn-1 = 
In determining the present value X, the assumed increase
in the CPI (6%) exceeds the stated 3 percentage points by 3%. The present value is:
X = 10,000 ´ (v + 1.03v2 + …
1.0311v12) = 10,000v ´ (1 + 1.03v + … 1.0311v11)
= 10,000v
´ 
= 86,762
In determining the present value Y, the assumed increase
in the CPI (4%) exceeds the stated 3 percentage points by 1%. The present value is:
Y = 10,000 ´ (v + 1.01v2 + …
1.0111v12) = 10,000v ´ (1 + 1.01v + … 1.0111v11)
= 10,000v
´ 
= 78,932
X – Y = 86,762 - 78,932 = 7,830
Answer is B.