IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Interest rates over different time periods
The effective annual discount rate is 5%. What is the present value of Rs 1,00,000 due in 2 years, to the nearest rupee?
With an effective discount rate of 5%, the present value is 100000 times 0.95 squared, which equals Rs 90,250.
- ARs 90,250Correct
- BRs 90,703
- CRs 95,000
- DRs 89,000
- Rs 92,500
Explanation
PV = 100000 x (1-d)^2 = 100000 x 0.95^2 = 90,250. Rs 90,703 uses i = 5% (1.05^-2). Rs 90,000 style simple discounting is also wrong.
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