Problem 1 (28 points)

Discuss the convergence or divergence for each of the following sequences and series:

a) = 2 + 1 +

b) = (1) 2 +1+sin()

c) = 2
2
d)
=1 2
3
5
2 1
e)
=1 2 + +5
7
3 +1
f)
=1 5
1
g)
=1 cos ( )
Problem 2 (28 points)

a) Find a, b, c and d, so that the function f(x) is continuous everywhere:

2 + , if
sin() + ( + ) + , if 0
() = 2 2 + 3 + , if 0 1
3 3 + , if 1 2
{ 26, if 2

b) Find the continuous intervals and discontinuities of the following functions. Indicate what
kind of discontinuity they are.
( 2 +5+6)
i. () = |+2|(+3)(1)
cos()
, if < 0
4
ii. () = 1, if = 0
2
{sin() + 2 +93 if > 0
c) Are the following statements True or False? If true explain, if false give a counterexample.
i. If lim () = + and lim () = 0, then lim () () = +.
0 0 0
ii. If () () () and the limits lim () and lim () exist, then

lim () exists too.

()
iii. If lim () = 1 and lim () = 2 with 2 0, then lim () = 1 .
0 0 0 2
2 1
iv. Are the functions () = + 1 and () = equal?
1

2
d) Prove that cos() + 2 = 10|| has at least one solution in [ 2 , 2 ].
Problem 3 (18 points)

Find the forward rate r(0; t1; t2) given the zero rate curves r(0; t1) and r(0; t2), t2 > t1, assuming
discrete compounding m times a year equally spaced, where t1 and t2 are measured in years.
Problem 4 (26 points)
A person is 65 years old and wants to buy an annuity for $500K under the following terms: At
the age of 70, i.e. 5 years later, he will be receiving $3K per month till he dies. After death, any
nonzero balance calculated by subtracting all payments made from $500K will be given to his
beneficiaries. If all $500K is used, the person will still be receiving the $3K per month till he
dies. There is also the option to put the cash in a bank at annual interest rate of 1:5%
compounded monthly and guaranteed for 30 years and withdraw $3K per month at the age of 70.
Which of the two options is better if the person estimates to live to become (a) 90 years old, (b)
80 years old?