Nominal vs. Effective Discount Rates (Actuarial Exam FM–Financial Mathematics–Module 1, Section 6)



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SOA Exam FM (Financial Mathematics) Module 1, Section 5

After completing this video you should be able to:
– Define and recognize the definitions of the following terms: discount rate (rate of discount).
– Given any one of the effective interest rate, the nominal interest rate convertible monthly, the effective discount rate, the nominal discount rate convertible monthly, or the force of interest, calculate any of the other items.

Example used in the video:
Bob deposits 1000 into an account which credits interest using a discount rate of 8% compounded quarterly.

How much will Bob have in the account after 6 months?

3 thoughts on “Nominal vs. Effective Discount Rates (Actuarial Exam FM–Financial Mathematics–Module 1, Section 6)

  1. Good day Professor Stephen! I am just confused. 6 months is 1.5 quarters, right? I just want to ask why is it 2 quarters in the solution? Hope you can answer my question. Thank you so much!

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