Worked solution · Exam FM
This Exam FM sample reference tests Reinvestment of Withdrawn Fund Interest. The ten deposits leave 100000 of principal. The annual 6% interest installments, increasing with the number of deposits, accumulate separately at 4% to 37295.27. A 55400 outlay growing to 137295.27 over ten years earns 9.5001%, choice B.
Independent solution
Setup
The ten beginning-year deposits remain as principal because fund interest is paid out.
Model
At the end of year t, t deposits produce 600t of interest, which is reinvested to year 10.
Compute
Combine principal and reinvested interest, then solve the ten-year yield on the original outlay.
Answer
The annual effective yield is 9.5001%, choice B.
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Original practice · fully worked
A savings arrangement receives 5,000 on six consecutive annual dates starting immediately. Each contribution earns 5%, but every year-end interest distribution moves to a separate account earning 3% through time 6. What percentage of the combined terminal value is held in the separate account?
The side account accumulates to 5520.52 while principal remains 30000. Thus reinvested interest is 15.5418% of total terminal value, choice C.
Setup
Each active deposit produces 250 of annual interest.
Model
Accumulate the six increasing interest installments at 3%.
Compute
Principal remains 30000, so form the requested terminal-value share.
Answer
The reinvested-interest share is 15.54%, choice C.
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