IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Financial instruments and insurance contracts as cashflow models
Meera deposits ₹10,000 at the end of each year for 3 years into an account earning 5% effective annual interest. What is the accumulated value immediately after the third deposit, to the nearest rupee?
The accumulated value is ₹31,525. The first deposit grows for two years, the second for one year and the third not at all, so the sum is 10,000 times (1.1025 + 1.05 + 1), which equals 31,525.
- A₹31,525Correct
- B₹33,100
- C₹30,000
- D₹34,401
- ₹27,232
Explanation
Accumulation = 10000 x (1.05^2 + 1.05 + 1) = 10000 x 3.1525 = 31,525. The figure ₹27,232 is the present value, so it uses the wrong time point. ₹34,401 treats deposits as made at the start of each year, giving an extra year of interest.
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