Class Notes (1,100,000)
CA (620,000)
Western (60,000)
AS (70)
AS 2053 (20)
Lecture 10

Actuarial Science 2053 Lecture Notes - Lecture 10: Discounting, Promissory Note, Raw Image Format


Department
Actuarial Science
Course Code
AS 2053
Professor
Steven Kopp
Lecture
10

This preview shows pages 1-3. to view the full 16 pages of the document.
Discounted Values (section 2.3)
Given: S, n, i
Determine: P
In other words, we wish to determine how
much we need to invest today, P, in order to
have S at the end of n-interest periods, if we
can earn i per period
Recall
S = P (1 + i)
n
Thus,
P = S (1 + i)
n
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Notes
1. The term (1 + i)
n
is called the discount
factor
2. P is called the discounted value OR
present value of S
we are discounting at a compound
interest rate
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Example 2.3.1
How much money would have to be deposited
today in an account paying j4 = 7% in order to
have $10,000 in 3 years time?
Solution to 2.3.1
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
You're Reading a Preview

Unlock to view full version