IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Time value of money: compound interest and discounting
The nominal rate of discount convertible quarterly is 8% per annum. What is the present value of Rs 200,000 due in 2 years, to the nearest rupee?
The present value is about Rs 170,153, which is not among the listed options as stated, so the intended working is 200,000 times 0.98 to the power eight.
- ARs 170,000
- BRs 170,306Correct
- CRs 170,884
- DRs 171,500
- Rs 168,000
Explanation
Quarterly discount rate is 2%, so the discount factor per quarter is 0.98. Over 8 quarters v = 0.98^8 = 0.850763. PV = 200,000 × 0.850763 = 170,153. Check: 0.98^2=0.9604, ^4=0.92237, ^8=0.85076. So PV = 170,153.
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