Worked solution · Exam FM
This Exam FM sample reference tests Interest Rate Valuation. Real growth is nominal accumulation divided by inflation accumulation; 1.09/1.05 − 1 = 3.81%, nearest choice B.
Independent solution
Setup
Compare purchasing power using accumulation factors rather than subtracting rates.
Model
Remove the 5% price-level growth from the 9% nominal investment growth.
Compute
The factor ratio gives real rate 0.038095.
Answer
The real annual effective return is about 3.8%, corresponding to 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
An investment earns 10% nominally and 4% in real purchasing-power terms. Determine the annual effective inflation rate.
Dividing 1.10 by 1.04 gives inflation accumulation 1.057692, or 5.77%, choice C.
Setup
Represent nominal return as real growth compounded with inflation.
Model
Divide the nominal factor by the real factor.
Compute
The remaining price-level growth rate is 0.0576923.
Answer
Annual effective inflation is 5.77%, corresponding to choice C.
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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