SOA Exam FM Sample Question 137
Study guide: Exam FM-2
A life insurance company invests two million in a 10-year zero-coupon bond and four million in a 30-year zero-coupon bond. The annual effective yield rate for both bonds is 8%.
When the 10-year bond matures, the company reinvests the proceeds in another 10-year zero-coupon bond. At that time the bond yield rate is 12% annual effective.
After 20 years from the initial investment, the 30-year bond is sold to yield an annual effective rate of 10% to the buyer. The maturity of the second 10-year bond and the sale of the 30-year bond result in a gain of X on the company's initial investment of six million.
Calculate X.
- A) 23 million
- B) 29 million
- C) 32 million
- D) 34 million
- E) 42 million
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