Spring 2015 25a) , b)

Hi, could you please explain why part b) calculated the present value of loss using interest rate while part a) did not?
In what situation do we need to use the interest rate to get the present value of loss?

Comments

  • Graham has a note on this in the Wiki, regarding his two practice problems that come right after Method 4 of Risk Transfer Testing. He says he used discounting both for 10-10 and for ERD, while old exam problem solutions did not discount for the 10-10 rule. I think he's of the opinion that logically, discounting should apply in both cases. But the examiners seem to have dispensed with discounting for 10-10, probably because it was not presented that way in the text. So, it looks like it'll be your judgment call whether to discount for 10-10.

  • Thank you!!

  • Sure, good luck.

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