Sponsored Ads
D.W. Simpson
Worldwide Actuarial Recruitment
Life Health Pension Casualty US Asia Australia Europe Salary Apply
Ezra Penland Actuarial Recruiters
Top Actuary Jobs
Salary Surveys Apply Bios Casualty Health Life Pension
ACTEX Publications / MadRiver Books
The Experts in Actuarial Education
Serving students worldwide for over 40 years
S.C. Inernational, Ltd.
Recruiting Actuaries and Risk Prof. Since 1986
Actuarial Jobs     Surveys     For Employers
Pauline Reimer, ASA, MAAA
Pryor Associates
Actuarial Openings: Life, P&C, Health, Pensions, Finance
Actuarial Careers, Inc. ®
Actuarial Jobs Worldwide
Search positions: Geographic Region, Specialization, Salary

Results 1 to 3 of 3

Thread: ASM Perpetuity Confusion

  1. #1
    Actuary.com - Level I Poster
    Join Date
    Aug 2010
    Posts
    11

    ASM Perpetuity Confusion

    Hello all,

    When I am dealing with m-thy payment perpetuities, (pg. 177 11th edition) if anyone has it.

    The book keeps saying that the PV formula, for say, a m-thly perpetuity-immediate with payments of 1/m every m-th period and 1 per year is one divided by i^(m). However, it seems as if the numerical answers use one divided by the m-thy effective rate.

    For example, if we are looking at a perpetuity-immediate with payments of 1/12 per month forever. Then, we would want to do one divided by the effective monthly interest rate to find the PV of this annuity. However, it looks like the manual is saying to use the nominal monthly interest rate?

    I just wanted to clear this up because in many equations in this manual, i^(m) or d^(m) is used and I was under the assumption that these were nominal rates of interest and discount.

    Thanks all.

  2. #2
    Actuary.com - Level III Poster
    Join Date
    Jan 2011
    Posts
    195
    Quote Originally Posted by MHailJ View Post
    Hello all,

    When I am dealing with m-thy payment perpetuities, (pg. 177 11th edition) if anyone has it.

    The book keeps saying that the PV formula, for say, a m-thly perpetuity-immediate with payments of 1/m every m-th period and 1 per year is one divided by i^(m). However, it seems as if the numerical answers use one divided by the m-thy effective rate.

    For example, if we are looking at a perpetuity-immediate with payments of 1/12 per month forever. Then, we would want to do one divided by the effective monthly interest rate to find the PV of this annuity. However, it looks like the manual is saying to use the nominal monthly interest rate?

    I just wanted to clear this up because in many equations in this manual, i^(m) or d^(m) is used and I was under the assumption that these were nominal rates of interest and discount.

    Thanks all.
    I did not use ASM for FM, but I don't think 11 edition would have any major issue on important concepts.

    PV of yearly perpetuity immediate of 1 is 1/i where i is the effective interest rate.

    PV of m-thly perpetuity immediate of 1 is 1/i^(m) where i^(m) is the m-thly effective interest rate.

  3. #3
    Actuary.com - Level I Poster
    Join Date
    Aug 2010
    Posts
    11
    Quote Originally Posted by BeanCounter View Post
    I did not use ASM for FM, but I don't think 11 edition would have any major issue on important concepts.

    PV of yearly perpetuity immediate of 1 is 1/i where i is the effective interest rate.

    PV of m-thly perpetuity immediate of 1 is 1/i^(m) where i^(m) is the m-thly effective interest rate.
    That is what I thought...but then, we also see in the manual;

    (1+i) = (1+i^(m)/m)^m

    where i is the annual effective and i^(m) is the nominal m-thy rate...

    And they use 1/i^(m) in the manual - where I believe it should be 1/(i^(m)/m)

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Confusion
    By iromio in forum SOA Exam MFE - Actuarial Models, Financial Economics - with practice exam problems
    Replies: 2
    Last Post: September 16th 2009, 10:56 AM
  2. DM confusion..
    By cknapp1 in forum SOA Exam FM / CAS Exam 2 - Financial Mathematics - with practice exam problems
    Replies: 0
    Last Post: August 15th 2009, 02:30 PM
  3. Wording confusion
    By Sinjin in forum SOA Exam P / CAS Exam 1 - Probability - with practice exam problems
    Replies: 6
    Last Post: June 29th 2009, 02:49 PM
  4. Confusion about ASA requirements.
    By Ren_St in forum Actuarial Exams - General Discussion
    Replies: 1
    Last Post: December 11th 2007, 05:57 PM
  5. confusion
    By Anu Dhanuka in forum SOA Exam P / CAS Exam 1 - Probability - with practice exam problems
    Replies: 2
    Last Post: June 5th 2007, 08:16 AM

Bookmarks - Share

Bookmarks - Share

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •