QA Bank 4 - Q4.17

the question reads "The rate of accumulation is 6%. Reserves are calculated using an interest rate of 4%."

How much interest do we earn on reserves - 4% or 6%?

Thanks for all the help

 

We earn 6% on reserves.

 

What tells you so? Except that it is given in the answers of course...

When it is stated reserves are "calculated" at x%, x% is the rate only for "calculating" reserves. The rate at which they earn interest is stated separately. Can we conclude this?

 

It's clear written my friend that rate of accumulation is 6%, i.e. funds are accumulating @6%

Note:reserving basis and earning basis can be different, you can see in profit testing Qs.

 

This is how I interpreted it initially :
Other cashflows accumulate @ 6%, Reserves accumulate @ 4%.