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#1
01-25-2011, 07:59 PM
 killjacker Member Join Date: Sep 2010 Location: Illinois Posts: 61
Actuarial Accumulated Future Value

Hello there, I am studying for MLC and I seem to have run into a wall concerning actuarial accumulated future value. I understand all of the life annuity background and the interest rate adjustment, but do not understand the nPx adjustment factor.

The text I read concerning AFV gave an explanation of AFV in terms of a group of people contributing to a single fund. From that, I understand the adjustment factor since you are likely to receive more money, but I still don't understand the adjustment factor in the case of a single contributor. From what I can gather, money is worth more in the future because you might not live to receive it? Is that right?

Any clarification is greatly apprecited.
#2
01-25-2011, 08:58 PM
 sarahl1286 Member Join Date: Jul 2009 Posts: 1,621

Here is my (very non-theory based) explanation. To discount things to present value, they are always worth less than their accumulated value, right? i.e. we multiply by v and p, which are values always less than one, to calculate a present value. So to move to an accumulated value, we have to do the opposite and divide by v (multiply by 1 + i) and divide by p.

Alternatively, you mention that you understand it in the concept of a group of people. Well just use the same concept but in terms of one person. (assume p = .95 and i =.05) If I am alive now and have one dollar, how much will I have in one year? With interest I will have 1.05, but will I be alive? Well.. not quite, only 95% of me will be alive (or I only have a 95% chance of being alive) so I have to divide my 1.05 by the remaining 95% of people that remain in the population.
#3
01-26-2011, 07:50 AM
 sarahl1286 Member Join Date: Jul 2009 Posts: 1,621

So um, did that help?
#4
01-26-2011, 08:26 AM
 cat060 SOA Join Date: Nov 2010 Studying for MLC MFE College: Career Changer Posts: 22 Blog Entries: 8

Yes
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#5
01-26-2011, 09:25 AM
 killjacker Member Join Date: Sep 2010 Location: Illinois Posts: 61

Ya I think I got it now. Thanks!