Actuarial Outpost Drop Payments, Sample Interest Theory Problem 106
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#1
02-01-2017, 02:36 PM
 kevintanen Non-Actuary Join Date: Oct 2016 Studying for None College: Adelphi University: Alumni Posts: 8
Drop Payments, Sample Interest Theory Problem 106

106.
A company takes out a loan of 15,000,000 at an annual effective discount rate of 5.5%. You are
given:
i) The loan is to be repaid with n annual payments of 1,200,000 plus a drop payment
one year after the nth payment.
ii) The first payment is due three years after the loan is taken out.
Calculate the amount of the drop payment.
(A) 79,100
(B) 176,000
(C) 321,300
(D) 959,500
(E) 1,180,300

In the solutions, before they calculate the accumulated value of the payments, they accumulate the balance to time 2. I was wondering why they didn't go to to time 3, when the first payment is due.
#2
02-01-2017, 04:16 PM
 Academic Actuary Member Join Date: Sep 2009 Posts: 8,926

So you don't have to switch to bgn mode.
#3
10-17-2017, 11:32 AM
 Acstumpf SOA Join Date: May 2017 College: University of Wisconsin Milwaukee Posts: 10

Quote:
 Originally Posted by kevintanen 106. A company takes out a loan of 15,000,000 at an annual effective discount rate of 5.5%. You are given: i) The loan is to be repaid with n annual payments of 1,200,000 plus a drop payment one year after the nth payment. ii) The first payment is due three years after the loan is taken out. Calculate the amount of the drop payment. (A) 79,100 (B) 176,000 (C) 321,300 (D) 959,500 (E) 1,180,300 In the solutions, before they calculate the accumulated value of the payments, they accumulate the balance to time 2. I was wondering why they didn't go to to time 3, when the first payment is due.
Where do you find the solutions?