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102-Sol_0503

102-Sol_0503

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05/09/2014

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Actuarial Society of India
EXAMINATIONS
May 2003
Subject 102 \u2013 Financial Mathematics
Indicative Solution
Solution to Q1:
Consider a loan of Re 1 which is to be repaid by \u201cn" equal installments annually in arrear.
If the annual rate of interest isi then the amount of each repayment is X, where
1
*
=
n
a
X
. Thus,
n
a
X
/
1
=
When the lender receives each repayment he may consider an amounti of the payment
as interest and deposit the balance of the payment, i.e.,
i
an\u2212
/
1
, in a savings account
which earns interest at ratei per annum.
After n years the accumulated savings account must be sufficient to repay the original
loan, i.e., Re 1. Thus, at the rate of interesti
1
*
)
/
1
(
=
\u2212
n
n
S
i
a
i
S
a
n
n
+
=
\u21d2
1
1
[3 marks]
Note: Credit can be given to students who have concluded in other ways.
Solution to Q2 (a):
LetA be the accumulated proceeds:
( )
( )
\u222b
+
\u222b
=
10
5
10
0
100
100
dt
t
dt
t
e
e
A
\u03b4
\u03b4
\ue009\ue012\ue009\ue011\ue010
\ue009\ue008\ue009\ue007\ue006
\ue00e\ue00f\ue00d
\ue004\ue005\ue003
+
+
+
\ue00e\ue00f\ue00d
\ue004\ue005\ue003
+
+
=
10
5
3
2
10
0
3
2
3
0001
.
2
001
.
05
.
exp
3
0001
.
2
001
.
05
.
exp
100
t
t
t
t
t
t
{
}
26667
.
0
58333
.
0
58333
.
100
\u2212
+
=
e
e45
.
316
=
[5 marks]
Solution to Q2 (b):
The equivalent constant force is\u03b4 where
(
)
\u03b4
\u03b4
5
10
100
45
.
316
e
e+
=
0
100
*
2
100
*
45
.
316
*
4
100
100
5
2
5
>
+
\u00b1
\u2212
=
\u21d2
\u03b4
\u03b4
e
and
e
%
.
or
.
\u00e4
e
97
5
05970
34784
.
1
5
=
\u21d2
=
\u03b4
[3 marks]
Solution to Q3:
(
)
(
)
(
)
%
8
@
1
...
1
*
125000
1000000
10
9
2
v
p
v
p
v
+
+
+
+
+
=
10
0.08-p
125000* *
@1+p
v a
=
&&
[3 marks]
atp = 4.0%, RHS = 982,376.322
atp = 4.5%, RHS = 1,002409.346
p = 4.4398682
= 4.44% per annum
[2 marks]
Solution to Q4(a):
(
)
( )
%
3
@
12
%
7
@
5
%
7
@
5
10
15
*
10000
50000
1
*
*
2
*
*
a
i
S
X
S
X
S
X
+
=
+
+
+
&
&
&
&
&
&
[3 marks]
0399
.
149540
*
70726601
.
75
=
X
240262
.
1975
=
X
[2 marks]
Solution to Q4(b):
(
)
( )
%
5
.
2
@
12
%
6
@
5
%
6
@
5
10
15
10000
1
*
*
2
*
240262
.
1975
a
X
i
S
S
S
+
\u2032
=
+
+
+
&
&
&
&
&
&
[3 marks]

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