SOA Exam FM Sample Question 159
Study guide: Exam FM-2
Bank P offers a 3-year certificate of deposit that pays an annual effective interest rate of 4%. In addition, a bonus of 2% of the initial investment is paid at the end of the 3-year period.
Bank Q offers a 3-year certificate of deposit without any bonus.
Calculate the annual effective interest rate that Bank Q would have to offer to produce the same annual yield as the certificate from Bank P.
- A) 4.3%
- B) 4.4%
- C) 4.5%
- D) 4.6%
- E) 4.7%
Answer this question and see the worked solution
Concepts tested
- Time Value of Money
- Time Value of Money Equations
- Compound Interest
- Accumulated Value
- Effective Rate
- Discount Factor