Really confused for some reason when aaked to work out the accumulated value with probabilities. (know this should be easy!!!) Never sure from reading the question whether it is a fixed or varying model, it seems obvious from the notes but never quite sure from the question wording. Any help much appreciated!
For the variable rate model, you're looking for the word "independent", as this model relies on the fact that the interest rates in different years are independent of one another. If you don't see "independent", then it's a fixed rate model. For this model, you may see wording referring to "constant" interest rates, or "the interest rate once determined is the same in all future years". Hope this helps.
