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ACCA F9 Discounted Cash Flow – annuities and perpetuities

ACCA Financial Management lectures Download FM notes


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Comments

  1. claire02 says

    September 26, 2017 at 12:26 pm

    sir please when solving the example 5 , i noticed you inluced the 4th year when counting 10 years , why ?

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    • John Moffat says

      September 26, 2017 at 2:03 pm

      The question says that the first receipt is in 4 years time. So the second receipt is in 5 years time, the third receipt is in 6 years time, and so on until there is a total of 10 receipts.

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  2. Mahrukh says

    August 12, 2017 at 9:38 am

    Hi sir,
    There is an example in the book, where an investment in irredeemable bonds (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 of perpetuity,
    6/r = 95 therefore 6/95 = r. So r will be 6.3% per annum and (6.3/2) = 3.1% half yearly.
    I can’t understand why the compounding method is used, when the interest is paid every six months, why would it compound?

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    • John Moffat says

      August 12, 2017 at 4:10 pm

      In future please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.

      You would rather receive $6 in 6 months time and $6 in 12 months time, than wait 12 months for all $12. The reason is that you could invest the $6 received in 6 months time for a further 6 months and end up with a bit more than $12 in 12 months time.

      (I am surprised that this is in your book because it is more of a Paper F2 type question)

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  3. caroline22 says

    June 6, 2017 at 7:34 pm

    hello,

    i have noticed in this lecture you are using the present value table instead of the annuity table. Is there any reason for this? I just want to be clear so i understand the correct table to use in the exam.
    thanks

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    • caroline22 says

      June 6, 2017 at 7:36 pm

      hello,

      sorry paused the lecture too soon.

      Thanks

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      • John Moffat says

        June 7, 2017 at 6:41 am

        I am please you sorted it out 🙂

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