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ACCA F2 Discounting, Annuities, Perpetuities

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ACCA F2 / FIA FMA lectures Download ACCA F2 notes


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Comments

  1. ameliaduncan92 says

    March 23, 2018 at 5:31 pm

    Hi,

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

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    • John Moffat says

      March 24, 2018 at 9:44 am

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

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  2. shiza32 says

    August 19, 2017 at 8:28 pm

    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

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    • shiza32 says

      August 19, 2017 at 8:29 pm

      why*

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      • John Moffat says

        August 20, 2017 at 5:57 am

        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

        August 20, 2017 at 8:03 am

        understood sir , thank you for your help

      • John Moffat says

        August 20, 2017 at 2:59 pm

        You are welcome 馃檪

  3. Mahrukh says

    August 8, 2017 at 3:28 pm

    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?

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    • John Moffat says

      August 8, 2017 at 4:28 pm

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

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      • Mahrukh says

        August 9, 2017 at 7:52 am

        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.

  4. lamour says

    May 30, 2017 at 6:22 pm

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

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    • lamour says

      May 30, 2017 at 7:10 pm

      Just saw the other comments re: correction no worries.

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  5. janicetingg says

    May 11, 2017 at 5:06 pm

    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

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    • John Moffat says

      May 11, 2017 at 7:05 pm

      Which question 8 are you referring to?

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      • janicetingg says

        May 12, 2017 at 1:29 am

        On the video it’s 17:50,
        Annuity questions

      • John Moffat says

        May 12, 2017 at 6:56 am

        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

        May 12, 2017 at 4:43 pm

        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

        May 12, 2017 at 6:57 pm

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

  6. ujun says

    April 25, 2017 at 7:06 am

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

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    • John Moffat says

      April 25, 2017 at 7:26 am

      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.

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  7. Cheryl-ann says

    February 19, 2017 at 2:49 pm

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

    thanks much

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    • John Moffat says

      February 19, 2017 at 3:42 pm

      My mistake – I am sorry 馃檨

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

      Thank you for noticing – I will have it corrected.

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      • haxxangilani says

        February 20, 2017 at 5:57 pm

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

  8. weeni0204 says

    July 5, 2016 at 12:52 pm

    Dear sir,

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

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    • John Moffat says

      July 5, 2016 at 7:21 pm

      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.

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  9. aisha4897 says

    June 17, 2016 at 2:04 pm

    Another helpful video. Loved it!

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    • John Moffat says

      June 17, 2016 at 4:56 pm

      Thank you for your comment 馃檪

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  10. Sammar says

    October 28, 2015 at 1:10 am

    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.

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    • John Moffat says

      October 28, 2015 at 6:35 am

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

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  11. Marcus says

    April 22, 2015 at 7:14 pm

    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

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    • John Moffat says

      April 22, 2015 at 8:14 pm

      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.

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      • Marcus says

        April 22, 2015 at 11:11 pm

        Hi John,

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

        Thanks,

        Marcus

  12. Tamara says

    October 26, 2013 at 2:37 pm

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

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    • John Moffat says

      October 26, 2013 at 2:47 pm

      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.

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  13. silvikss says

    September 15, 2013 at 7:39 pm

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

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    • John Moffat says

      September 16, 2013 at 8:25 am

      The factor for 15 years at 2% is 0.743

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

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      • silvikss says

        September 16, 2013 at 7:25 pm

        oh yes, sorry i looked in the wrong place.

        thanks

  14. cckeble says

    June 3, 2013 at 10:09 pm

    Quite informative easy to follow.

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  15. cameliaursu25 says

    February 16, 2013 at 5:05 pm

    excellent tuitor

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  16. Reena says

    December 9, 2012 at 7:42 am

    How to calculate
    x * (1.10)4
    x =- 800 /(1.1)4
    546.41 now.
    I getting difficulty to count it calculator .Please explain

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    • Musa Bin Masood says

      February 10, 2013 at 6:56 pm

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

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  17. chandhini says

    November 24, 2012 at 7:59 am

    Thanks a lot! 馃檪

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    • chandhini says

      November 24, 2012 at 7:59 am

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

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  18. anttola911 says

    July 24, 2012 at 11:14 pm

    This has been very helpful thanks

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  19. williamansah says

    July 9, 2012 at 6:10 pm

    great, another missing chapter in.

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  20. williamansah says

    July 9, 2012 at 6:09 pm

    great

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