Chapter 1. Basic Interest Theory. Manual for SOA Exam FM/CAS Exam 2. 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. Collections: Mathematics