Worked solution · Exam FM
This Exam FM sample reference tests Interest Rate Measures. Losing the final nine months of interest after a three-year holding leaves only 2.25 years of 8% accumulation. Equating that factor to three years at rate j gives j = 5.94%, choice B.
Independent solution
Setup
Under the interest-loss penalty, only three years minus nine months earns the original 8% rate.
Model
Under the reduced-rate penalty, the full three-year holding earns j.
Compute
Equating the two accumulation factors gives j = 5.941914%.
Answer
The equivalent reduced annual rate is approximately 5.94%, selecting choice B.
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30 original Exam FM questions across the syllabus, to be worked in 150 timed minutes, with a full worked solution for each one. Written for Exam FM, not copied from the SOA set. One-time $39 PDF.
Original practice · fully worked
A certificate normally earns 7% annually. If redeemed after four years, one penalty forfeits the final M months of interest; another credits 5.5% annually for all four years. Calculate M when the two penalties are equivalent.
Equating 7% accumulation for four years minus M/12 years to four years at 5.5% and solving logarithmically gives 10.02 months, choice B.
Setup
Write the accumulation factor after forfeiting M months from the four-year original-rate term.
Model
Set it equal to four years at the reduced annual rate.
Compute
Taking logarithms and isolating M gives 10.015842 months.
Answer
The forfeited interest period is 10.02 months, selecting choice B.
Keep practicing
These references share syllabus concepts or sit nearby in the official sequence. All 51 Exam FM time value of money practice problems.
Drill the method: Exam FM Annual Force of Interest and Rate Conversion problems
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