Krzysio's Weekly Practice Problems for FM/2 - Page 7

krzysio · #61 11-05-2006, 01:07 AM

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise77.pdf
Yours,
Krzys'

P.S. My new edition of exam FM manual, for 2007 exam, is ready, and should be available from New England Actuarial Seminars by the end of the week.

P.P.S. Next week I will start posting questions on the new investments material on FM.

krzysio · #62 11-05-2006, 01:15 AM

Quote:

Originally Posted by mykenk

Here's a little chart of the spot rates. Notice that you're going to be using the last diagonal:

Code:

n-year spot rate m years from now:

n      m=0      m=1      m=2      m=3      m=4
-      ----     ----     ----     ----     ---- 
1      7.00     6.75     6.50     6.25     6.00
2      8.00     7.75     7.50     7.25
3      8.75     8.50     8.25
4      9.25     9.00
5      9.50

Now:

Code:

Time     Yrs       Rate      
 of       to        to        Acc.
Pymt     Acc.      Acc.       Factor
-----    -----     -----      ------
  0        5       1.0950     1.574239
  1        4       1.0900     1.411582
  2        3       1.0825     1.268480
  3        2       1.0725     1.150256
  4        1       1.0600     1.060000
                              --------
                              6.464557

This assumes the typo is in the solution (first line, the first payment should be invested at the five year spot rate today, not a year from now, as a year from now the 5 year spot rate would be 9.25, and you'd only accumulate 4 years).

To correct the solution, if I'm right, change "a year from now" to "today", and everything else should be perfect.

Yes. I just posted a corrected version. The only typo was in the sentence you quoted. I am sorry I missed that, I corrected that typo in my manual but missed it here. Thanks so much for noticing it.

Yours,
Krzys'

krzysio · #63 11-05-2006, 11:28 AM

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise78.pdf
Yours,
Krzys'

P.S. I promised new material, but since there was a thread on convexity with questions related to this, I decided to write this one. This is still on the test in May 2007. Derivatives stuff (options, forwards, futures, swaps, etc.) is coming, next week, and since I am posting this early, this may help those of you who are studying for Wednesday, November 8, 2006, exam FM.

P.P.S. And November 11 is my grandmother's birthday, so it is a very special day. I better call her now.

krzysio · #64 11-05-2006, 12:11 PM

I am posting exercise for April 14. 2007 early, to help those studying for
November 2006 exam:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise99.pdf
Yours,
Krzys'