SOA Exam FM Sample Question 11
Study guide: Exam FM-2
Mike buys a perpetuity-immediate with varying annual payments. During the first 5 years, the payment is constant and equal to 10. Beginning in year 6, the payments start to increase. For year 6 and all future years, the payment in that year is K% larger than the payment in the year immediately preceding that year, where K < 9.2.
At an annual effective interest rate of 9.2%, the perpetuity has a present value of 167.50.
Calculate K.
- A) 4.0
- B) 4.2
- C) 4.4
- D) 4.6
- E) 4.8
Answer this question and see the worked solution
Concepts tested
- Geometric Increasing Perpetuity
- Geometric Increasing Annuity
- Perpetuity
- Geometric Progression
- Non-level Annuities