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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Annuity and accumulation functions

Meera invests Rs 20,000 at 12% per annum nominal, convertible quarterly. What is the accumulated amount after 2 years, to two decimal places?

The accumulated amount is Rs 25,335.40. A nominal 12% convertible quarterly means 3% per quarter, and over two years there are eight quarters, so the factor is 1.03 to the power 8, which is 1.26677, applied to Rs 20,000.

  1. ARs 25,000.00
  2. BRs 25,335.40Correct
  3. CRs 25,080.00
  4. DRs 25,335.40 less 1
  5. Rs 25,298.00

Explanation

The quarterly rate is 3% and there are 8 quarters. 1.03^8 = 1.26677008, so 20,000 x 1.26677008 = 25,335.40. Using 12% annual compounding for 2 years gives 25,088, not an option here, while simple interest gives 24,800.

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