ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web

# ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web...

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ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web Page 1 of 10 Family name, comma, personal names:____________________________________ Your student ID:______________________________________________________ Your signature: ______________________________________________________ UNIVERSITY OF TORONTO ACT245 W2011 TERM TEST 1 Duration – 50 Minutes Aids: All non-programmable calculators allowed. Scrap paper OK if needed. Instructor: Keith Sharp PhD FSA FCIA CFA NOTES: 1. It’s OK to write on book. 2. This is a closed book exam. 3. Multiple choice: only your Scantron will be graded. 4. Scantrons: please write blobs and letters for ID and name, for eyes and computers. 5. Scantrons: pencil preferred, ink might have to be hand-graded 6. Each question: 10 points correct, two if blank, zero points if wrong 7. So expectation if you guess is the same as leaving a blank. 8. Make sure you’ve indicated your letter answers on the Scantron before time’s up 9. Please stay in your seats and don’t talk till all materials have been collected. 10. Photo ID on desk during exam 11. Name and student ID and signature on this question paper and on Scantron 12. Good luck!

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ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web Page 2 of 10 1.- A company must pay liabilities of 1000 and 2000 at the end of years 1 and 2, respectively. The only investments available to the company are the following two zero-coupon bonds: Maturity (years) Effective Annual Yield Par 1 10.2% 1000 2 13.0% 1000 Determine the cost to the company today to match its liabilities exactly. (A) Less than 2,460.00 (B) 2,460.00 but less than 2,470.00 (C) 2,470.00 but less than 2,480.00 (D) 2,480.00 but less than 2,490.00 (E) 2,490.00 or more (C) Solution: 1000/1.102 + 2000/1.13 2 = \$2473.73
ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web Page 3 of 10 2. Today is time t=0 years. You need to first-order immunize (match PV and duration) a payment of \$1,000,000 which you need to make at time t=4 years. Market interest rates are 6% per annum effective for all terms, a flat yield curve. The only bonds available are zero coupon bonds with maturities at t=2 years and at t=7 years and you buy some of each. Calculate how much face value of the 7-year bond you buy. (A) Less than

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## This note was uploaded on 08/13/2011 for the course ACT 245 taught by Professor Sharp during the Winter '07 term at University of Toronto- Toronto.

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ACT245 W11 TT1 v04 Privacy Version Code 111 with solns web...

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