ACTSC371 Study Guide - Final Guide: Retirement Savings Account, Savings Account

• School: University of Waterloo
• Department: Actuarial Science
• Course: ACTSC371
• Professor: Peter B

Document Summary

Concept: money has the ability to earn more money over the passage of time. Hence today is worth more than a in the future since today can make money starting today. Time value of money problems look for answers to questions such as: Where pv = the amount being invested today; could also be called the principal i = the interest rate per compounding period n = the number of interest compounding periods in total. Obviously the formula can also be written as: pv = fv (1+i)-n. Interest rates: in most commercial transactions, interest is compounded. The most common compounding periods are annually, semi-annually, monthly and daily. At the end of each compounding period, interest is added to the balance. In this way, the investor gets interest on the interest as well as on the principal amount invested. # of compdg periods per year: j1 = 9, j2 = 9, j4 = 9%