ACTL10001 Chapter Notes - Chapter 2: Interest, Financial Transaction, Linear Interpolation

• School: University of Melbourne
• Department: Actuarial Studies
• Course: ACTL10001
• Professor: Shuanming Li

Document Summary

Principal - the principal is the amount of money originally invested and which attracts interest. Simple interest - let r be the rate of simple interest earned by a unit investment over a unit period of time. Then, after a period of time t, where t>0, the unit investment will have grown to 1+rt. Simple discount - a unit investment made for a unit period of time at a rate of simple discount d per period of time accumulates to 1/(1-d) If i is the effective rate of interest per unit time, then a unit investment accumulates to 1+i at the end of one time period. Suppose p is invested for n time periods at a rate of compound interest i per period. After n periods, the investment will have accumulated to p(1+i)^n v is the present value of a unit payment at time t=1, evaluated at an effective rate of interest i per period v=(1+i)^-1.