SOA Exam FM Sample Question 461
Study guide: Exam FM-2
A geometric perpetuity-due provides annual payments. The first payment is 1, and each subsequent payment is 2% less than the previous payment. Let M be the price of this perpetuity using an annual effective interest rate of 8%.
The price should have been calculated using an annual effective interest rate of 7%. Let P be the correct price of this perpetuity and let E be the estimate of P based on the initial price, M, using the first-order Macaulay approximation.
Calculate \dfrac{E-P}{P}, the percentage error of the estimate.
- A)
-1.48\% - B)
-1.16\% - C)
-0.92\% - D)
-0.49\% - E)
-0.26\%
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