SOA Exam FM Sample Question 155
Study guide: Exam FM-2
SOA Life Insurance Company has a portfolio of two bonds:
- Bond 1 is a bond with a Macaulay duration of 7.28 and a price of 35,000; and
- Bond 2 is a bond with a Macaulay duration of 12.74 and a price of 65,000.
The price and Macaulay duration for both bonds were calculated using an annual effective interest rate of 4.32%.
Bailey estimates the value of this portfolio at an interest rate of i using the first-order Macaulay approximation to be 105,000.
Determine i.
- A) 3.49%
- B) 3.62%
- C) 3.85%
- D) 3.92%
- E) 4.03%
Answer this question and see the worked solution