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jnsburks
July 10th 2008, 08:22 PM
Hello.

I just completed my first year of college and plan to take an actuarial exam in a year or so. I am studying now. Can anyone answer these questions, which I am surer are extremely simple to most of you experienced actuaries.

Question 1: Exam FM-09-05 May 2005 Questions (now used as sample questions). Number 3:

Eric deposits 100 into a savings account at time 0, which pays interest at a nominal rate of i, compounded semiannually.
Mike deposits 200 into a different savings account at time 0, which pays simple interest at an annual rate of i.
Eric and Mike earn the same amount of interest during the last six months of the 8th year.
Calculate i.

This problem seemed extremely easy until I looked at the solution and the formula that they had for Eric seemed weird to me. I thought the formula was P(1+r/m)^(mt), which came to 100(1+i/2)^ (15). But the solution has 100(1+i/2)^(15) times i/2. ?????? Please don't solve the problem, simply provide the formula, please and why this is needed. Thanks!

Question 2: Can the dollar-weighted rate of return be solved without the use of a calculator and if so, how? Also, if so, will I be expected to be able to perform such calculations on P1 and FM2?

Question 3: Can a BA II Plus or BA 35 solar calculator be used on P1 and FM2?

Irish Blues
July 10th 2008, 10:36 PM
I'm a little rusty here, but I'll try to help.

1. While Eric's deposit is earning compound interest, he's earning [deposit balance * i/2] interest each 6 months. Thus, the amount of interest he earns in the final 6 months is the deposit balance after 7.5 years * i/2 ... or, [100(1+i/2)^15] * i/2.

2. If you understand how a dollar-weighted return is calculated, then you'll know whether you need a calculator to do it or not. [Hint: if the calculations are simple, you won't ... but if the calculations were simple, they probably wouldn't be on an actuarial exam.] You won't have to do it on P; you will have to know it for FM.

3. Yes, the solar-powered models are acceptable.

jnsburks
July 11th 2008, 08:54 PM
Mr. Blues,

1. I understand that an i/2 is multipled against the equation, but I am still confused as to why? Again, I am teaching myself, so I would appreciate all the help you can give me.

2. I don't know the dollar-weighted return formula. I have seen a few formulas, but I do not understand them. Can you please provide a simplified version of the way to calculate it.

Thanks!