The Time Value of Money Example (Actuarial Exam FM – Financial Mathematics – Module 1, Section 1)

Master periodic accumulation and discount factor problems for Actuarial Exam FM (Financial Mathematics Module 1 Section 1). In this video, we walk through two step by step examples:
1. Calculate the periodic accumulation factor and determine the future value of an additional deposit.
2. Reverse the problem and calculate the periodic discount factor to find the present value.

These concepts are heavily tested on Exam FM and are essential for timeline based interest problems.

What you will learn:
• How to build a correct timeline for Exam FM problems
• How to calculate accumulation and discount factors
• How to apply factors to determine future and present values
• How to interpret growth between time periods in interest bearing accounts

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SOA Exam FM (Financial Mathematics) Module 1, Section 1, Part 1

Example 1
At time 0, 100 is deposited into an interest bearing account.
At time 5 the deposit has grown to 240, and at time 7 the deposit has grown to 300.
If an additional 100 was deposited into the account at time 5, how much would have been in the account at time 7?

Learning Objectives:
Use a timeline to represent a time value of money problem
Define and recognize the definitions of the following terms: accumulation factor and discount factor
Understand how to use an accumulation factor and when to use a discount factor

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