IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Interest rates over different time periods
Rohan deposits Rs 50,000 in an account paying simple interest at 8% per annum. What is the accumulated amount after 3 years and 6 months?
The accumulated amount is Rs 64,000. Under simple interest, the interest is 8% of Rs 50,000 for each of 3.5 years, which is Rs 14,000, added to the principal. Compounding would give a larger figure and is not applicable here.
- ARs 62,000.00
- BRs 64,000.00Correct
- CRs 66,000.00
- DRs 65,847.18
- Rs 54,000.00
Explanation
Simple interest accumulation is 50,000 x (1 + 0.08 x 3.5) = 50,000 x 1.28 = 64,000. Rs 65,847.18 wrongly uses compound interest (1.08^3.5 = 1.3095). Rs 62,000 uses only 3 years of interest.
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