SOA Exam FM Sample Question 389
Study guide: Exam FM-2
An asset provides equal annual payments, with the first payment occurring one year from today. Based on an annual effective interest rate of j, the present value of the payments provided by the asset is 10 and the modified duration is 4 years.
If all payments were deferred six years so that payments began at the end of the seventh year, the modified duration at interest rate j would be 9 years.
If the original set of cash flows is altered by adding a single payment of 3 today, the Macaulay duration of the altered cash flows is X years, at interest rate j.
Calculate X.
- A) 3.08
- B) 3.42
- C) 3.69
- D) 3.75
- E) 4.04
Answer this question and see the worked solution