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ACCA F2 Discounting, Annuities, Perpetuities
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sir, for example 8, i can’t understand how did you get 12 years, could you explain this to me please ?
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!
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 ?
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.