IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Equation of value
A pension fund pays Rs 10,000 at the end of each year for 3 years. Using an effective annual interest rate of 10%, what is the present value of these payments?
The present value is Rs 24,868.52. Each year-end payment of Rs 10,000 is discounted at 10%, giving 10,000 times the annuity-immediate factor 2.486852. Treating payments as advance, or accumulating them, would give different values.
- ARs 17,355.37
- BRs 24,868.52Correct
- CRs 27,355.37
- DRs 30,000.00
- Rs 33,100.00
Explanation
PV = 10,000 × a3 at 10% = 10,000 × (0.909091 + 0.826446 + 0.751315) = 10,000 × 2.486852 = Rs 24,868.52. Rs 27,355.37 treats the payments as made in advance. Rs 33,100.00 is the accumulated value at time 3, not the present value.
Did you get it right without looking?
One question tells you little. A timed set on Equation of value shows your real accuracy, how long you take and where you lose marks.
More Equation of value questions
- A deposit of Rs 40,000 accumulates to Rs 46,866.38 after exactly two years under a fixed rate of interest. What is the nominal annual rate o…
- An investor pays Rs 10,00,000 now and receives Rs 5,50,000 at the end of year 1 and Rs 6,05,000 at the end of year 2. What is the internal r…
- Rs 2,000 is deposited at the start of each year for 10 years into an account earning 7% effective annual interest. What is the accumulated v…
- An investor deposits Rs 50,000 today in an account earning 8% per annum effective. What is the accumulated value after 5 years?
- An investment requires an outlay of Rs 1,000 now and pays Rs 600 at the end of year 1 and Rs 600 at the end of year 2. What is the yield (in…
- A project requires an outlay of Rs 10,000 now and returns Rs 5,500 at the end of year 1 and Rs 6,050 at the end of year 2. What is the yield…