SOA Exam FM Sample Question 168
Study guide: Exam FM-2
A borrower takes out a 15-year loan at an annual effective interest rate of i with payments of 50 at the end of each year.
The borrower decides to pay off the loan early by making extra payments of 30 with each of the sixth through tenth regularly scheduled payments. As a result, the loan will be paid off at the end of 10 years (instead of 15).
Determine which of the following equations of value is correct.
- A)
50a_{\overline{15}|} = 50a_{\overline{10}|} + 30a_{\overline{5}|} - B)
50s_{\overline{15}|} = 50s_{\overline{10}|} + 30s_{\overline{5}|} - C)
50v^5 s_{\overline{15}|} = 50s_{\overline{10}|} + 30s_{\overline{5}|} - D)
50s_{\overline{15}|} = 50s_{\overline{10}|} + 30v^5 s_{\overline{5}|} - E)
50s_{\overline{15}|} = 50s_{\overline{10}|} + 30(1+i)^5 s_{\overline{5}|}
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