IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Annuity and accumulation functions
Rajesh deposits Rs 50,000 in an account paying simple interest at 8% per annum. What is the accumulated amount after 3 years?
The accumulated amount is Rs 62,000. Under simple interest, interest is earned only on the original principal, so the accumulation is 50,000 multiplied by (1 + 0.08 x 3) = 1.24, giving Rs 62,000 after three years.
- ARs 62,000.00Correct
- BRs 62,985.60
- CRs 60,000.00
- DRs 64,000.00
- Rs 55,000.00
Explanation
Simple interest accumulates as 50,000 x (1 + 0.08 x 3) = 50,000 x 1.24 = 62,000. The option Rs 62,985.60 uses compound interest (1.08^3 = 1.259712), which is wrong because the interest is not reinvested. Rs 60,000 counts only 2 years of interest.
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