Worked solution · Exam FM
This Exam FM sample reference tests Interest Rate Valuation. Writing the zero-present-value condition in z = v² gives a quadratic; converting its admissible discount-factor roots back to annual effective rates yields the expression in choice E.
Independent solution
Setup
Discount all three project cash flows to time zero with signs for receipts and payment.
Model
After removing a positive common discount factor, substitute z for the two-year discount factor.
Compute
The quadratic formula gives the possible values of z.
Answer
Because one plus i is the reciprocal square root of z, the resulting expression is choice E.
Test the method on unseen problems
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 project receives 100 at years 2 and 6 and pays 203.6446 at year 4. Determine its positive annual effective internal rate of return.
At 10%, the discounted receipts exactly equal the discounted year-4 payment, giving the positive internal rate, choice C.
Setup
Form the signed present value of the two receipts and middle payment.
Model
Test the candidate positive rates through their discount factors.
Compute
At 10%, the payment coefficient equals 100 times the sum of the reciprocal and direct two-year factors.
Answer
The positive project yield is 10.00%, corresponding to choice C.
Calculator reproduction
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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