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2020 Midterm Exam
2020 Midterm Exam
2020-Midterm exam
TERM 1 2020
Circle the tutorial group (NOT lab session) you belong to:
Tue 10:30 Tue 12:00 Tue 13:30 Tue 15:00 Tue 16:00
Wed 12:00 Wed 13:30 Wed 15:00 Wed 16:30 Thu 10:30
Thu 12:00 PG Sorry I forgot
INSTRUCTIONS:
• Marks allocated for each part of the questions are indicated in the examination paper.
The questions are not of equal value.
• Use your own calculator for this exam. All calculators must be UNSW approved.
• Answer all questions in the space allocated to them. If more space is required, use
the additional pages at the end and state the question number.
• This is a closed-book test and no formula sheets are allowed except for the Formulae
and Tables for Actuarial Exams (any edition). IT MUST BE WHOLLY UNANNO-
TATED.
• Show all necessary steps in your solutions. If there is no written solution, then
no marks will be awarded.
Question Mark
1 [5 marks]
2 [7 marks]
3 [7 marks]
4 [6 marks]
5 [6 marks]
6(a) [5 marks]
6(b) [3 marks]
7(a) [5 marks]
7(b) [6 marks]
Question 1 (5 marks)
It is given that a20 = 11.196 and (Ia)20 = 95.36. Find i.
Question 2 (7 marks)
Tom deposits $100 today plus another $300 five years later into his bank account earning
simple interest of 11% per annum. On the other hand, Ann’s bank quotes an annual
effective interest rate of 9%. Ann will deposit $100 into her account t years from now,
and another $300 will be deposited 2t years from now. The accumulated amount of Tom’s
deposits equals the accumulated amount of Ann’s deposits, where the accumulated amounts
are calculated 10 years from now. Given that 2t < 10, calculate the value of t.
Question 3 (7 marks)
John deposits $200 into a fund now. During the first year, the interest is earned at a
nominal rate of 10% per annum compounded semi-annually. John deposits another $21
one year from now. During the second year, interest is earned continuously under a force
of interest δ(t) = (K + t)−1 (for 1 ≤ t ≤ 2 where t denotes the time measured in years). If
the total accumulated amount in John’s fund two years from now is $276, find the value
of K.
Question 4 (6 marks)
Susan pays $100,000 now to purchase a special increasing perpetuity that makes annual
payments as follows. The first payment takes place one year from now and is of amount
P . The amount of the second payment is 2P , and the third one is 3P , and so on, until a
payment of 10P is made 10 years from now. Afterwards, the amount of the 11th payment
is 1.05 times that of the 10th payment, and the amount of the 12th payment is 1.05 times
that of the 11th payment, and so on, and this continues forever (i.e. each payment is 1.05
times the previous one in terms of the amount). If the annual effective rate of interest is
7%, determine P .
Question 5 (6 marks)
Sam pays $10,000 now to purchase a special deferred perpetuity-due. The perpetuity-due
has monthly payments. Each payment is $100 for the first five years and then decreases to
$50 thereafter. Given that the annual effective interest rate is 5%, calculate the deferral
period.
(b) (3 marks) Use part (a) to derive the standard formula for (Da)n .
(b) (6 marks) Using the result of part (a), apply the Newton-Raphson method with the
starting point i0 = 0.05 to calculate the (approximate) values of i in the next three itera-
tions.
END OF PAPER
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