 
Summary: 1/19
Chapter 1. Basic Interest Theory.
Manual for SOA Exam FM/CAS Exam 2.
Chapter 1. Basic Interest Theory.
Section 1.4. Present value and discount.
c 2008. Miguel A. Arcones. All rights reserved.
Extract from:
"Arcones' Manual for the SOA Exam FM/CAS Exam 2,
Financial Mathematics. Spring 2009 Edition",
available at http://www.actexmadriver.com/
c 2008. Miguel A. Arcones. All rights reserved. Manual for SOA Exam FM/CAS Exam 2.
2/19
Chapter 1. Basic Interest Theory. Section 1.4. Present value and discount.
Present value and discount
Suppose that we make an investment of $k in an account earning
compound interest with effective annual rate of interest i. t years
later the balance in this account is k(1 + i)t. Here, k(1 + i)t is the
future value of the investment t years in the future. Under
compound interest, balances multiply by (1 + i)t every t years. $k
at time s is worth $k(1 + i)t at time s + t.
