Verified solution · Exam FM
This Exam FM sample reference tests Interest Rate Valuation. Beginning balance was 8,000 − 400 = 7,600; interest as a fraction of ending balance is 400/8,000 = 5%, which is the effective discount rate, choice C.
Independent solution
Setup
Recover the beginning balance by removing the year's interest from the ending balance.
Model
An effective discount rate divides interest earned by the ending accumulated value.
Compute
That ratio is exactly 400 divided by 8,000.
Answer
The 5% quantity is the annual effective discount rate, corresponding to choice C.
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Error diagnosis
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Original practice · fully worked
An account ends a year with 8,000 after earning 400 during the year and receiving no other cash flows. Determine the annual effective interest rate.
The beginning balance is 7,600, so interest divided by beginning value gives 5.263%, choice C.
Setup
Subtract earned interest from ending value to recover the amount invested initially.
Model
An effective interest rate uses beginning value in the denominator.
Compute
The ratio 400 to 7,600 is 0.0526316.
Answer
The annual effective interest rate is 5.263%, corresponding to choice C.
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ActuaryProof. “SOA Exam FM Sample Question #414 — Verified Solution.” Verified 2026-07-31.
Source reference: official SOA sample-question PDF. Last reviewed 2026-07-31.
