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Hi Dear Tutor, I have some questions.
QN 95
It says an investor is due to receive a 5 year annuity starting in 3 year’s time of 7000$ per annum.
Years———D.F.10%
0-7———–(4.868+1)=5.868
0-2———–(1.736+1)=2.736
0-5==============3.132In annuity if it says three years 0,1 ,2 not 1 2 3 is it correct?
QN 96
it says option 1 take 90000$ per annum indefinitely starting in 3 years’ time
Perpetuity
I did in this way
——————————D.F.10%
0-infinity——————(1/0.1+1)=110-2————————(1.736+1)=2.736
3-infinity==================8.264*90000=743760Bpp shows
90000/0.1=900000
discount it two years 900000*0.826=743400Could you explain difference between my way and bpp way the figure is close to eacth other but it is still different
Your are obviously using an old edition of the Revision Kit because the question numbers are different. However I have found them.
Q95
You can see for yourself that your answer is correct. However the way you have written it is ridiculous (but fortunately the way you write it is not marked!!).
It is an annuity from time 3 to time 7. Therefore you take the 7 year annuity and subtract the 2 year annuity. The result is 3 – 7, not 0 – 5.I suggest you watch my free Paper MA lectures on discounting.
Q96
It is because the discount factors in the tables are rounded to 3 decimal places. The BPP answer actually explains this!!!
The difference is completely irrelevant – both in practice and in the exam (just as it is irrelevant in this question).
Qn95
ohh I mistakenly wrote 0-5 sorry it should be 3-7 .Years———D.F.10%
0-7———–(4.868+1)=5.868
0-2———–(1.736+1)=2.736
3-7==============3.132for the question n96 the way I used is also correct?
Yes, although I don’t know why you took 0-7 and 0-2. More sensible is to take 1-7 and 1-2, but obviously it ends up with the same figure.
this is because in annuity factor when it says in three years’s time it starts from 0 and ends at 2, therefore I included o in each time length.
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