IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Interest rates over different time periods
A sum of money accumulates to Rs 13,310 after 3 years at an effective annual compound rate of 10%. What was the original sum invested?
The original sum was Rs 10,000. Discounting the accumulated Rs 13,310 back three years at 10% compound means dividing by 1.1 cubed, which is 1.331, giving exactly Rs 10,000.
- ARs 9,310.00
- BRs 10,000.00Correct
- CRs 10,242.31
- DRs 11,000.00
- Rs 8,640.00
Explanation
Principal = 13,310 / 1.1^3 = 13,310 / 1.331 = 10,000. Rs 9,310 subtracts 30% simple interest incorrectly, treating the interest as 3 x 10% of the final amount's proportion. Rs 10,242.31 divides by 1.3.
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