For the first example I calculated the annuity for 10 years then discounted the result by 3 years and got the same result.
N
Naveen·
Pardon, meant 2nd example.
Same method works for the perpetuity example. Seems a more logical approach than subtracting.
N
Naveen·
OK, you described this method at the end of the video. Teaches me not to jump the gun before watching the whole video next time! :))
J
John MoffatTutor·
That is true (about jumping the gun) :-)
In the exam you can obviously do it whichever way you find the easiest.
C
Carys·
in section A and B of the exam , do we not get marks if we make rounding errors?
R
Ruth·
Hi John,
Pls can you clarify when we should use annuity table or the present value table. I tried attempting some questions and don’t know which table is applicable to them.
Thank you.
J
John MoffatTutor·
We use the present value table for individual flows. We use the annuity tables to discount when there are equal flows each year.
S
shameela·
how do we calculate the annuity for 2-6 years?
J
John MoffatTutor·
Subtract the 1 year factor from the 6 year annuity factor - exactly the same logic as shown in the examples in the lecture.
D
dar·
Hi John
"
In example 7 "at time 17.52" did you mean 1 / 0.05 interest?
J
John MoffatTutor·
Yes, but I am not going to re-record the lecture because I do 'speak' it correctly and solve the example correctly :-)
S
Sayed Mahdi·
the divorce example made me laugh so hard.. thanks
J
John MoffatTutor·
:-)
J
Jatin·
Than you Sir for all the brilliant lectures.
While calculating the Present Value of the Perpetuity in example 7 from both the approaches, there’s a difference coming in them. Can you please tell me which approach is the best to follow?
And again thank you for all the lectures.
J
John MoffatTutor·
Any difference will just be a rounding difference because of the tables only being to 3 decimal places.
The rounding difference will be irrelevant in the exam.
H
Hamza·
A perpituity of 2000 starting in 6 years time growing at 3% p.a Interest rates are 10%
Find Present Value.
any ones help will be appreciated
J
Jatin·
Is the 2000 amount growing by 3% every year, starting from 6th year?
F
faith20ul19·
Thanks for this one. I personally prefer the second approach used to determine the PV under perpetuity.
J
John MoffatTutor·
You are welcome :-)
J
John MoffatTutor·
cindy1228: The question says that the first flow is at time 4. Therefore the second flow is a time 5, the third flow is at time 6, and so on.
If you carry on counting you will find that the 10th (and last) flow is at time 13.
C
Cindy·
Hi John,
May I ask why its 13 years? since it states 4 years at 20k p.a then 10 years thereafter? thank you
J
Jagmeet·
Hi sir, l didnt understand the second way of calculating the discount factor of the perpetuity in example seven.Perpetuity is where you receive the same amount to infinity so you got the perpetuity from 1 to infinity but then l didnt understand why you multipied by the discount factor for 4 years from the present value table.Thank you
J
John MoffatTutor·
Multiplying by 1/r gives the present value at time 0 if the first flow is in 1 years time.
Here the first flow is in 5 years time, which is 4 years later than in 1 years time. Therefore it gives a PV 4 years later as well - at time 4 instead of time 0. So we have to multiply by the normal 4 year discount factor to get back to a value at time 0.
If you are still unsure then do watch the free Paper MA lectures, because this is revision of MA (was Paper F2).
Same method works for the perpetuity example. Seems a more logical approach than subtracting.
In the exam you can obviously do it whichever way you find the easiest.
Pls can you clarify when we should use annuity table or the present value table. I tried attempting some questions and don’t know which table is applicable to them.
Thank you.
"
In example 7 "at time 17.52" did you mean 1 / 0.05 interest?
While calculating the Present Value of the Perpetuity in example 7 from both the approaches, there’s a difference coming in them. Can you please tell me which approach is the best to follow?
And again thank you for all the lectures.
The rounding difference will be irrelevant in the exam.
Find Present Value.
any ones help will be appreciated
If you carry on counting you will find that the 10th (and last) flow is at time 13.
May I ask why its 13 years? since it states 4 years at 20k p.a then 10 years thereafter? thank you
Here the first flow is in 5 years time, which is 4 years later than in 1 years time. Therefore it gives a PV 4 years later as well - at time 4 instead of time 0. So we have to multiply by the normal 4 year discount factor to get back to a value at time 0.
If you are still unsure then do watch the free Paper MA lectures, because this is revision of MA (was Paper F2).