SOA Exam FM Sample Question 284
Study guide: Exam FM-2
A ten-year certificate of deposit pays an annual effective interest rate of 8%. If the balance is withdrawn before the end of ten years, the purchaser can choose between two different penalties:
- i) a loss of the last nine months' interest.
- ii) a reduction in the annual effective rate of interest to
j.
If the purchaser withdraws the funds after three years, the two penalties are equivalent.
Calculate j.
- A) 5.74%
- B) 5.94%
- C) 6.14%
- D) 6.34%
- E) 6.54%
Answer this question and see the worked solution