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ramnarainakash says

sir, for example 8, i can’t understand how did you get 12 years, could you explain this to me please ?

John Moffat says

The first receipt is in 4 year time.

The second receipt is in 5 years time

The third receipt is in 6 years time.

Keep counting and you will find that the 9th receipt is in 12 years time!

mango1991 says

Sir. In the Annuity Ques thats supposed to earn 500 each year for eight years.

We r saying tht putting 2484 now in the bank will grow to 6484 in eight years (2484+4000) right ?

However when u actually compound 2484 with 12% for eight years it gives us 6150 which effectively gives us 458 each year instead of 500.

Is there any point I’m missing here ?

If not, why is that difference coming ?

John Moffat says

No we are not saying that. Earning 500 in each of 8 years means that in total we receive 4,000 (8 x 500).

This is obviously a lot less that 6150, but you only get that if the whole 2484 is left invested for the whole 8 years.

Here we are getting interest on 2484 in the first year, but each year later we have less and less invested (because we keep taking out 500) and so the total interest we are getting is a lot less.

ameliaduncan92 says

Hi,

For Example 5, could you not just do 800*1.10^-4?

John Moffat says

Of course you can, and I do this in the lecture!! But why not just use the tables that are provided.

shiza32 says

dear sir ,

thank you so much for the lecture it was very helpful

however i was wondering if may tell me wht in the lecture the formula for perpetuity is 1/R and in the notes A/R

looking forward to your reply

thank you

shiza32 says

why*

John Moffat says

It doesn’t matter what the symbol is (and is irrelevant for the exam). All that matters if the you multiply the amount by 1/r.

shiza32 says

understood sir , thank you for your help

John Moffat says

You are welcome 🙂

Mahrukh says

Hi sir, can you please explain if in a similar case of perpetuity, as you discussed, if cash flows were being received, say, quarterly or six monthly, then how we calculate PV, because 12% is the yearly rate. Are we suppose to divide this rate, like 6% for six months or 3% for three months?

John Moffat says

Yes, and then you would multiply by 1/r where r is the 3 monthly rate, or the 6-monthly rate, as applicable.

Mahrukh says

There is such an example in the book, where an investment (PV) of $95 generates an interest of $ 12 per annum, indefinitely. It says that interest is paid half yearly, that is $6 every six months. In order to calculate (r), they have used the compounding method:-

[1+(6/95)]^2 -1 = 13%

In this case, why can’t we use the same method, by reversing the formula.

6/r = 95 therefore 6/95 = r. So r will be 6.3% per annum and (6.3/2) = 3.1% half yearly.

lamour says

For Chapter 22. Discounting, Annuities, Perpetuities – example 6, where did you get the 1200 when calculating the present value.

lamour says

Just saw the other comments re: correction no worries.

janicetingg says

hope you could enlighten me with question number 8,

by using the formula i cant seem to get the answer..

1000[1-(1/1.08*9)] / 0.8

John Moffat says

Which question 8 are you referring to?

janicetingg says

On the video it’s 17:50,

Annuity questions

John Moffat says

The other way of getting the same answer is to multiply by the 9 year annuity factor, but then to multiply by the ordinary 3 year present value factor, because the annuity starts in 4 years instead of in 1 year, so 3 years late.

This will give the same answer (apart from roundings, which is irrelevant).

The annuity factor on its own only works from annuities starting in 1 years time.

janicetingg says

Do you mean this way?

annuity

1000[1-(1/1.08^9)] / 0.08=6246.88

pv

[1/1.08^3]=0.794

6246.88×0.794= 4958.9

i think i got it, thank you!!

John Moffat says

You are welcome (although remember that you get given the annuity tables in the exam, so you don’t need to use the formula 🙂 )

ujun says

Hi. That was helpful. How is it going to be treated if the perpetuity is going to be paid in say 4 years time?

John Moffat says

In the same way as for annuities that start late.

If the first payment is in 4 years time, then you take the factor for the perpetuity (1/r) and subtract the 3 year annuity discount factor. You are left with the discount factor for 4 to infinity.

Cheryl-ann says

hi am lose could you tell me where you got 1200 in example 6

thanks much

John Moffat says

My mistake – I am sorry 🙁

I should have used 2,500 (not 1,200).

Thank you for noticing – I will have it corrected.

haxxangilani says

2500(0.231) = 577.5 ,If I’m not wrong 🙂

weeni0204 says

Dear sir,

I can’t find the Present Value table. Could please help?

John Moffat says

If you look at the contents page of the free lecture notes you will find that the are provided in the notes along with the formula sheet.

aisha4897 says

Another helpful video. Loved it!

John Moffat says

Thank you for your comment 🙂

Sammar says

What I don’t get is that calculating the present factor is quite easy with the calculator, the calculators do have the raise to power button, pressing it a little box appears above the value and you can put any number of years you want there.

John Moffat says

By all means just use your calculator. Just make sure that you can use the tables given if it ever becomes necessary.

Marcus says

Hi John,

I am having difficulties with final example, I am not quite sure where I am going wrong

1’500 x 1 =

(1.064)2

Thanks,

Marcus

John Moffat says

If you look at the lecture again, you will see that I am multiplying 1,500 by the discount factor. The discount factor is 1/(1.064^2)

0.064 because the rate of interest is 6.4%. To the power 2 because we are discounting for 2 years.

Marcus says

Hi John,

Thank you for explaining – I had a break and got back to it and it makes sense now 🙂

Thanks,

Marcus

Tamara says

iam having a problem i need to know when to used annunity from when to use presen value when given a question

John Moffat says

You use the annuity factors when you have an equal cash flow each year.

When the cash flows are different each year, then you use the ordinary present value tables.

silvikss says

In the example for min 16:43, shouldn’t t the discount factor be 0.756 as per the table?

John Moffat says

The factor for 15 years at 2% is 0.743

(0.756 is the factor for 2 years at 15% !!)

silvikss says

oh yes, sorry i looked in the wrong place.

thanks

cckeble says

Quite informative easy to follow.

cameliaursu25 says

excellent tuitor

Reena says

How to calculate

x * (1.10)4

x =- 800 /(1.1)4

546.41 now.

I getting difficulty to count it calculator .Please explain

Musa Bin Masood says

firstly , do (1.10)4 then divide and you will get

chandhini says

Thanks a lot! 🙂

chandhini says

@chandhini, OT definitely is a BOON.. Great job Mr.Muffat! You’ve made my life a lot easier! Kudos! 🙂

anttola911 says

This has been very helpful thanks

williamansah says

great, another missing chapter in.

williamansah says

great