IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Equation of value
A payment of Rs 1,00,000 is due in 4 years. The force of interest is 6% per annum constant. What is its present value, to the nearest rupee?
The present value is about Rs 78,663. With a constant force of interest of 6%, the discount factor over 4 years is e to the power minus 0.24, which is 0.786628. Treating 6% as an effective rate would give a different, incorrect figure.
- ARs 78,663Correct
- BRs 76,000
- CRs 79,209
- DRs 1,27,125
- Rs 78,000
Explanation
PV = 100000 e^(-0.24). e^(-0.24) = 0.786628. So PV = Rs 78,663. Using 6% effective would give 79,209, which is wrong because the rate given is a force of interest.
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