ACTSC231 Lecture Notes - Lecture 4: Annual Percentage Rate, Discounting, Interest

• School: University of Waterloo
• Department: Actuarial Science
• Course: ACTSC231
• Professor: Keith Freeland

Document Summary

Lectures week 2 a 1 t 1 is called the discount function or present a t value function. It moves money from time t to time 0. First move it from t1 to 0 and then from 0 to t2. Example: given a t 1 . 07t, calculate how much. at time 2 is worth at time 4. Example: given compound interest with an annual effective rate of interest of 6%, calculate how much. at time 3 is worth at time 10. Compound interest a 1 t 1 i t v t, where v 1. Example: elliot received an inheritance from his aunt. 1. 063 1000 1. 067 1503. 63 is called the discount factor. a 2 500 1 . 07 4 a 3 1000 1. 0610 when she died on his 5th birthday. On his 18th birthday the inheritance has grown to ,168.