Exercise Sheet Series A - Worksheet 2

Questions

1. Calculate the annual payments required over a period of 20 years in

order to accumulate a fund of 100,000 given interest rates are 5.6%
p.a?

2. What is the interest rate achieved (expressed as a force of interest) if

payments of 500 per month for 10 years have accumulated to 150,000?

3. You have purchased a 250,000 house and intend to pay for it with an
interest only mortgage over 25 years. To cover the capital you plan
to invest in an equity fund which offers returns of 8% p.a. (added to
your fund account monthly) How much should you invest per month
to accumulate the correct amount?

4. You have credit cards debts of 15,000 to pay off at an interest rate of
19.2% p.a. you decide you can afford to pay 300 per month. How long
will it take you to clear your debt?

5. You decide the amount in 4. Is too long and you decide to remortgage
your house to raise the funds. The interest rate on your additional
mortgage is 4.89% p.a. how much quicker will clear the debt? How
much have you actually saved / lost?

6. A business is creating projections for a new project it is looking to invest

in. The business wants to build a new shopping centre on campus to
cater for students during term time. They project building costs to
be 1,000,000 per year over the next 5 years increasing at a continuous
rate of 10% p.a. Income is expected to be 500,000 p.a. from years 6
onwards increasing at 3% p.a.
Calculate the number of years before the business will see a profit from
the venture assuming that finance is raised at 7% p.a. and income
receives returns of 6.4% p.a.

1
 7. You are a maturing individual reaching retirement and have a pot of
570,000 with which to buy an annuity for your retirement. You believe
that the market price for annuities is too high and so you decide to
drawdown on your savings to pay for your retirement. Assuming that
your investment receives returns of 10% p.a. you chose to draw down
100,000 p.a. in monthly instalments. How long before you run out of
funds?

8. Calculate the duration of a 10 year coupon bond with coupon payments

of 7% six monthly and which is redeemed at par, assume that interest
rates are 6% p.a.?

9. You are the scheme actuary to the QTV pension scheme which has
active, deferred and pensioner members. The average age of the actives
is 30, the average age of the deferreds is 40 and the average age of the
pensioners is 72. You are given the following information: Calculate

Interest rate 7%p.a Total DP at vdate 75,500

RPI 3.5% Total salary at vdate 325,000

Salary growth 4.5% Average past service 10 years (accrual 60ths)

Annuity at 65 28.250 Total pension in payment 108,000

Annuity at 72 20.150 NRA 65

the funding level of the pension scheme given the assets equal 3.5m?