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An investor has a cost of capital of10%. She is due to receive a 5-year annuity starting in 3 years Time $7,000 per year ?
what is lumpsum amount of money you would need to offer today to make her indifferent ?
in the solutiion they have found out 7 year annuity and subtracted 2 year 10% annunity and multiplied it by 7000 they have got ans as 21924
DOUBT – if i calculate 10% 5 year annunity and then disocunt it by 10% 2 year DF i am getting an answer of 21919 would my ans be wrong ?
DOUBT – if this question is an MCQ which is automatically checked even a slight differ would make my answer wrong ?
No your answer is not wrong. It is because the tables are rounded to three decimal places.
The program that marks the exam is programmed to deal with this (although most often the question will ask for the answer to (for example) the nearest thousand, in which case there is no problem at all!))
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