Coming soon - Get a detailed view of why an account is flagged as spam!
view details

This post has been de-listed

It is no longer included in search results and normal feeds (front page, hot posts, subreddit posts, etc). It remains visible only via the author's post history.

2
Trying to solve a Continuous Annuity Practice problem
Post Flair (click to view more posts with a particular flair)
Post Body

So for problem 104 in the link below, I have a continuous perpetuity with the following properties:

payment of 1 for 0<t<10

payment of 1.03^t-10 for t>=10

i is annual effective rate of .06 and they want the PV at t =0. I can solve the PV when the payment is 1 and get that portion of the printed solution but the part with the increasing payment I cannot seem to get to the integral in the printed solution.

I start with discounting 10 years so 1.06^-10 and the integral from 10 to infinity of the function 1.06^-t *1.03^t-10. Then I move the -10 outside to get (1.06*1.03)^-10 times the integral from 10 to infinity of 1.06^-t *1.03^t which I work out as (1.06*1.03)^-10 * (1.03/1.06)^t * ln(1.03/1.06) evaluated from 0 to infinity.

Which I then solve as 10.86. The solution says this portion should evaluate to 19.45

I know the solution has some sort of substitution going on but I cannot wrap my hear around how they got to the solution. Perhaps I am missing something that looks simple but if anyone can help, that would be great.

Problem sets: https://www.soa.org/globalassets/assets/Files/Edu/2018/2018-10-exam-fm-sample-questions.pdf

Solutions:https://www.soa.org/globalassets/assets/Files/Edu/2018/2018-10-exam-fm-sample-solutions.pdf

Author
Account Strength
90%
Account Age
10 years
Verified Email
Yes
Verified Flair
No
Total Karma
1,129
Link Karma
528
Comment Karma
601
Profile updated: 1 day ago
Posts updated: 6 months ago

Subreddit

Post Details

We try to extract some basic information from the post title. This is not always successful or accurate, please use your best judgement and compare these values to the post title and body for confirmation.
Posted
3 years ago