IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Equation of value
An investor deposits Rs 50,000 today in an account earning 8% per annum effective. What is the accumulated value after 5 years?
The accumulated value is Rs 73,466.40. Under compound interest at 8% effective, the accumulation factor over 5 years is 1.08^5 = 1.469328, and multiplying this by the Rs 50,000 deposit gives the final amount.
- ARs 70,000.00
- BRs 73,466.40Correct
- CRs 75,000.00
- DRs 69,444.44
- Rs 68,400.00
Explanation
Accumulation factor = 1.08^5 = 1.469328. Multiplying, 50,000 × 1.469328 = 73,466.40. Rs 70,000 uses simple interest (50,000 × 1.4), which is wrong for compound interest. Rs 69,444.44 is the present value, obtained by dividing by 1.08^5 and then using the wrong direction.
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