F2 Chapter 20 Questions
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Hey Mr Moffat in question 5 after getting the $63,158 why do we need to add back the $6000?
Because the first receipt is immediately. Multiplying by 1/r only deals with a perpetuity that starts in 1 years time.
coz for question 2, i calculated the annuity for year 2 and then discounted it
and for question 3, this was wat i did ….1+0.18-1=18…this is from the formula (1+m)=(1+r)(1+i) but since there was no inflation, the effective interest is = to the nominal interest of 18%
For question 2, the first flow is in 3 years time and the last flow is in 10 years time.
You take the 10 year annuity factor and subtract the 2 year annuity factor – this will give the total factor for years 3 to 10.
(Alternatively you can take the 8 year annuity factor (because there are 8 years of flows) and then multiply by the 2 year normal discount factor (because the annuity starts in 3 years time instead of in 1 years time, so starts 2 years late).
Have you watched my free lectures on this? They are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
For question 3, the yearly rate is 1.015^12 – 1 = 0.1956 (or 19.56%)
( 0.015 because it is 1.5% per month; to the power of 12 because there are 12 months in a year)
Again, I do suggest that you watch the lectures before attempting the tests.
greetings sir John…please i dont understand how the answers to question 2 and 3 were gotten…