1. Asset Liability Management Cloud User Guide
  2. Business Rules Administration
  3. Application Specific Rules
  4. Discount Methods
  5. Discount Method Examples
  6. Forecast Original Term

4.3.9.7.3 Forecast Original Term

The Forecast Original Term Method uses the forecasted Interest Rate Data to determine the discount factor.

Interest Rate Code = Treasury Yield Curve

The formula for the market value of the account is:

Market Value = Cash Flow1/ (1+ 2 Year Treasury Rate at the 1 year point in the forecast) + Cash Flow2/ ((1+ 2 Year Treasury Rate at the 2 year point in the forecast)^2)

Cash Flow1 is the Cash Flow at the end of year 1. Cash Flow2 is the cash flow at the end of year 2. Note that Cash Flow1 is discounted at the 2 year Treasury rate. The 2 Year rate is used with this method, because the Forecast Original Term method always uses the term equivalent to the original term of the instrument.