SOA Exam FM Sample Question 143
Study guide: Exam FM-2
An insurer enters into a four-year contract today. The contract requires the insured to deposit 500 into a fund that earns an annual effective rate of 5.0%, and from which all claims will be paid. The insurer expects that 100 in claims will be paid at the end of each year, for the next four years. At the end of the fourth year, after all claims are paid, the insurer is required to return 75% of the remaining fund balance to the insured.
To issue this policy, the insurer incurs 100 in expenses today. It also collects a fee of 125 at the end of two years.
Calculate the insurer's yield rate.
- A) 9%
- B) 24%
- C) 39%
- D) 54%
- E) 69%
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