IC28 Mock Test Sample 15

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Q1. For two rates of interest in loan repayment, when $i' > i$:

a) Lender receives smaller annual amount than $i + 1/s_n$
b) Lender receives larger annual amount viz. $i' + 1/s_n$
c) Lender pays additional sum
d) Same as one rate case

Q2. In Exercise 4 Q.1, the level payment is approximately:

a) Rs. 300
b) Rs. 407.66
c) Rs. 500
d) Rs. 250

Q3. In Exercise 4 Q.1, the interest in the 5th instalment uses the formula:

a) $X \cdot v^{n-m+1}$
b) $X(1-v^{n-m+1})$
c) $X \cdot s_n$
d) $X \cdot a_n$

Q4. In Exercise 4 Q.6, the pure annual premium is given by:

a) $20000/s_{\overline{10}|}$
b) $20000/\ddot{s}_{\overline{10}|}$
c) $20000 \cdot v^{10}$
d) $20000/a_{\overline{10}|}$

Q5. For a sinking fund accumulating at rate $i$, the formula $1/s_n$ equals:

a) $1/a_n - i$
b) $\frac{i}{1-v^n} - i$
c) Both A and B
d) Neither

Q6. For p-thly payable annuity-immediate factor $a_n^{(p)}$:

a) $> a_n$
b) $< a_n$
c) #ERROR!
d) Cannot compare

Q7. For p-thly payable annuity-due:

a) $\ddot{a}^{(p)} = a^{(p)}(1+i)^{1/p}$
b) $\ddot{a}^{(p)} > a^{(p)}$
c) Both A and B
d) Neither

Q8. The principal contained in the t-th instalment decreases by what factor each year?

a) $(1+i)$
b) $1/(1+i)=v$
c) Stays constant
d) Decreases by $i$

Q9. The principal contained in the t-th instalment increases by what factor each year?

a) $(1+i)$
b) $1/(1+i)$
c) Stays constant
d) $v$

Q10. As t increases, the interest contained in the t-th instalment:

a) Interest increases
b) Interest decreases
c) Stays constant
d) Has no pattern

Q11. In a level payment loan, the sum of all interest portions over n years equals:

a) $n-a_{\overline{n}|}$
b) $n \cdot i$
c) $1-v^n$
d) $a_n/n$

Q12. Why is the sinking fund rate usually lower than the loan rate?

a) Risk-free deposits earn less than risky loan investments
b) Sinking funds are taxed differently
c) Banks fix it that way
d) Government regulation

Q13. Total payment exceeds the level annuity payment because:

a) $i' > i$ adds extra $(i'-i)$
b) Sinking fund replaces capital
c) Compound interest effect
d) Inflation

Q14. In Capital Redemption Policy, the equation of value gives:

a) $P_n \cdot \ddot{a}_{\overline{n}|} = v^n$
b) $P_n \cdot a_n = 1$
c) $P_n = i$
d) $P_n = v^n$

Q15. The policy value ${}_tV_n$ measures:

a) Reserve value of policy at time t
b) Surrender value
c) Maturity value
d) Future premiums

Q16. The retrospective reserve method calculates policy value as:

a) Accumulated value of past premiums
b) Present value of future benefits less premiums
c) Sum assured minus paid amounts
d) Initial premium

Q17. The prospective reserve method calculates policy value as:

a) Past accumulation
b) PV of future benefits minus PV of future premiums
c) Single premium
d) Annual premium times t

Q18. The two reserve methods for capital redemption policy give:

a) Different values
b) Same value
c) Approximate values
d) Conditional values

Q19. What is the title of Chapter 5?

a) Compound Interest
b) Further Compound Interest and Investment Yields
c) Annuities
d) Loan Repayment

Q20. What does $d^{(m)}$ denote?

a) Effective rate of discount
b) Nominal rate of discount per annum convertible m times a year
c) Nominal rate of interest
d) Discount factor

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