Welcome to the hotseat. We've prepared a guide if you'd like to read more about how it works.

Evaluating Annuity Due etc at an adjusted interest rate

+1 vote
63 views
asked Aug 4, 2016 in BUS 3024S - Contingencies by Zaheero95 (150 points)
edited Aug 4, 2016 by simon_rigby

Hi All

For question 6.8 and 6.9 in DHW 2nd Edition, the interest rate for the annuity and whole life factors have to be changed since the Sum assured / annuity payments are inflated for as long as life \( x \) is alive. Are we required to calculate this by hand since the standard tables can  no longer be used? If so, how?

image

commented Aug 4, 2016 by simon_rigby (4,220 points)

I added the question - hope it's the right one!

commented Aug 4, 2016 by Zaheero95 (150 points)

Hi Simon

Many thanks those are the correct questions :)

1 Answer

+2 votes
answered Aug 4, 2016 by Feroz (1,230 points)

Often in the textbook questions, where there is a change in the interest rate, you will have to use either R or Excel to change the interest rate assumption and obtain the new annuity and/or assurance values. 

You will not be expected to calculate these values manually for such long terms. If, however, it was a short term annuity, e.g. 3-5 years, then maybe you will have to do it manually - which is not too difficult nor tedious.

...