Worked solution · Exam FM
This Exam FM sample reference tests Loan Balances and Amortization. The monthly effective rate equivalent to 8% annually is 0.6434%. Principal portions in a level-payment loan grow by 1 + j each month; payment 24 is 18 steps after payment 6, giving 673.42 and choice B.
Independent solution
Setup
Convert the annual effective rate to the equivalent monthly effective rate.
Model
Successive principal portions of a level-payment loan increase by the monthly accumulation factor.
Compute
There are 18 steps from payment 6 to payment 24, so the principal portion is 673.4214.
Answer
The principal in payment 24 is approximately 673, selecting choice B.
Test the method on unseen problems
30 original loans problems with complete solutions and wrong-choice analysis. Written for Exam FM, not copied from the SOA set. One-time $19 PDF.
Original practice · fully worked
In a level-payment monthly loan, the principal portion is 450 in payment 4 and 500 in payment 16. Calculate the annual effective interest rate.
Twelve monthly progression steps separate the two principal portions. Their ratio gives the monthly rate, and annual compounding gives annual effective rate 11.11%, choice C.
Setup
Principal portions grow monthly by the factor 1 + j.
Model
Solve the monthly factor and compound it for twelve months to obtain the annual effective rate.
Compute
The monthly rate is 0.881870%, and the annual effective rate is 11.1111%.
Answer
The annual effective rate is 11.11%, selecting choice C.
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These references share syllabus concepts or sit nearby in the official sequence. All 82 Exam FM loans practice problems.
Drill the method: Exam FM Loan Amortization and Balances problems
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