SOA Exam FM Sample Question 193
Study guide: Exam FM-2
An institute has provided an early retirement incentive package to a 60-year-old retiree that pays 12,000 per year at the end of each year up to and including age 65, plus a lump sum payment of 150,000 at age 65. All payments are guaranteed whether or not the retiree is alive at age 65. The institute will create a portfolio of two five-year bonds to exactly match the payments under this package.
The first bond has a face amount of 100,000 and an annual coupon rate of 10%.
Determine which of the following second bonds will exactly match the liability.
- A) A bond with a price of 42,015, an annual coupon rate of 4% and annual effective yield of 8%.
- B) A bond with a price of 50,000, an annual coupon rate of 4% and annual effective yield of 8%.
- C) A bond with a price of 41,588, an annual coupon rate of 8% and annual effective yield of 10%.
- D) A bond with a price of 50,000, an annual coupon rate of 8% and annual effective yield of 10%.
- E) A bond with a price of 55,451, an annual coupon rate of 8% and annual effective yield of 10%.
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