Exam FM practice problems: Level annuities and perpetuities

10 problems · Untimed · Worked solution after each answer

Annuities-immediate and annuities-due, deferred annuities, perpetuities, payments m-thly or continuously, and solving for the term or the rate. This drill covers topic 2 of the Exam FM syllabus, Annuities and cash flows with non-contingent payments (20–30% of the exam).

2a Annuity definitions
2b Annuity present and accumulated values

Line drawing of six equal coin stacks in a row in front of a desk calendar

Before you start

Every problem has five options, A to E, and one correct answer, as on the real exam. Every value you need is in the problem, so you can work it with an approved calculator; the worked solution shows each step and names the mistake behind the most tempting wrong answer.
Check each answer to see the explanation before moving on. Checked answers cannot be changed.

Study guide: Level annuities and perpetuities

aₙ⌉ = (1 − vⁿ)/i and äₙ⌉ = (1 + i)·aₙ⌉; a perpetuity-immediate is worth 1/i, a perpetuity-due 1/d.
Match the payment period to the rate: monthly payments need the effective monthly rate.
A deferred annuity is the annuity value moved back with vᵏ; count the deferral period carefully (first payment at time k + 1 for an annuity-immediate deferred k periods).
On the BA II Plus, set P/Y = C/Y = 1 and enter the periodic rate to avoid compounding mistakes.

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Original practice problems written to the published SOA syllabus; not SOA sample questions. Independent preparation, not affiliated with or endorsed by the Society of Actuaries (SOA).