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I'm reading through Marcel B. Finan's A Basic Course in the Theory of Interest and Derivatives Markets: A Preparation for the Actuarial Exam FM/2 on my own and I want to make sure I understand discounting. To check that I understand it correctly, I'm copying two of his questions (from page 63, section 8), and my answers, and asking y'all to correct my work.

The amount of interest earned on A for one year is \$336, while the equivalent amount of discount is \$300. Find A.

Given are

  • $(A-300)(1+i)=A$ and
  • $A(1+i)=A+336$

so we get $300(1+i)=336$ so that $i=.12$. Then $.12A=336$ so $A=2800$.

Calculate the accumulated value at the end of 3 years of 15,000 payable now assuming an interest rate equivalent to an annual discount rate of 8%.

It's just $15000(100/92)^3$, or $19263.17\ldots$.

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They are both correct. –  mathguy Dec 23 '12 at 19:03
    
@mathguy thank you! –  not William Sealy Gosset Dec 23 '12 at 19:07
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1 Answer

Answered by @mathguy that both are correct.

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