MA Chapter 24 Questions Interest
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Dear John,
I realize that Q2) & Example 8 is Quite similar in concept.
However, I’m getting an Answer of $8,770 for Q2)
I am confused on how you got a total of 10Years.
Since the Receipt only arises every 3 years shouldn’t the last Receipt be cut off at the 9th Year instead of the 10th Year?
My Calculations are;
1y to 9y = 7.108
(-)1y to 3y =(2.723)
= 4.385 x $2,000
Thanks!
The first receipt is in 3 years time. The second receipt is in 4 years time. If you carry on counting you will find that the 8th receipt is in 10 years time.
Please Sir, which formula has been used to get 7.722( 10 year annuity discount factor)
I assume you are referring to question2.
The annuity factor is got from the tables that are provided in the exam. (The formula is shown on the tables and is explained in my free lectures, but you do not need to use the formula given that the tables are provided.)
Did you watch my free lectures before attempting the test questions?
Sir,
In question 5 the initial cashflow 6000 is added with the PV 63158.
But, in lectures in question 9 you didnt add initial cashflow 5000 with PV 41667.
What is the difference between both questions??
It is because in question 5 the first cash flow is immediate (i.e. time 0) and the PV of 6,000 immediately is 6,000.
In question 9, the first cash flow is in 1 years time.
in 3rd que formula given in kaplan book is
(1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods) – 1
why here is different
It is not different at all !! (apart from the fact that you have missed off a ‘)’ and should have typed the formula as:
(1 + (nominal rate / number of compounding periods)) ^ (number of compounding periods)) – 1
Had the question given the nominal yearly interest rate then you would have divided by 12 to get the nominal monthly rate. However since the question gives the nominal monthly rate as 1.5% (0.015) there is obviously no need to divide by 12.
So the answer is ((1 + 0.15)^12) – 1 = 0.1956 (or 19.56%)
Did you not watch the free lectures before attempting the test?
Sir for the 5th question the working it is assumed FV as $1 nah cant we assume it as $100?
The workings do not assume that anything is $1, and there are no assumptions to be made. The receipt is $6,000 per year in perpetuity and so I really have no idea what you mean.
Sir for the 4th question why is (600×(1+0.05)^(3))+(600×(1+0.06)^(5)) wrong??
Because what you have written would have $600 being invested twice. It is only invested once and earns interest for 8 years.
Did you watch the free lectures before attempting the test?
sir for question 1.. if em trying to use the annuity table my answer is coming wrong?
3000 x 8.559=17118
but with formula it’s 3000x 1/(1+0.08)15=945
This is not an annuity. An annuity is when the amount is received every year, which is not the case here.
Dear Sir,
I have a question on Qn5, I worked it out in a different way.
I interpreted the question as
1) get p.v that is received in a year time at the interest of 9.5% : 6,000 x (1+9.5%) = 6,570
2) get p.v of perpetuity using (1) : 6,570 x (1/9.5%) = 69,158
As a non native English, I’m afraid that I might have miss understood the question.
I saw your explanation and I clearly understand it.
I wonder how I got the same answer in the above way.
Thank you!
What you have done is fine – it is not a coincidence 🙂
Sir because its asking for present value why we haven’t done it like this
6000* (1+0.095)^-1? =5479
And then divide it 5479/9.5%=57674 please could you explain me this sir
Because 6,000 is the amount receivable immediately, and so 6,000 is the PV of the first receipt.
Hi John,
Could you explain how to do Q2 using the formula A(1-(1/(1+r)^n/r
I show how to use the formula in my free lectures.
But why on earth do you want to use the formula anyway when you are given the discount factors in the exam?!!
Can u please email me the extra ma questions with answers
I do not know what extra questions you are referring to.
You need to buy a Revision Kit from one of the ACCA approved publishers – they are full of exam standard questions for practice, and practice is vital to passing the exam.
HI sir, I am unable to undestand question no;4 as it says the payment is recieved for 8 yrs time and in the answer you are taking 10 yrs then how You calculated the answer i am not getting it sir …
No – I am not taking 10 years.
There is 5% interest for the first 3 years and so we multiply by 1.05 three times.
There is then 6% interest for the remaining 5 years and so we multiply by 1.06 five times.
So the amount in 8 years is 600 x (1.05)^3 x (1.06)^5.
(Did you watch the free lectures before attempting the test? 🙂 )
Hi Sir,
I am unable to understand in question 3 where its says what is annual rate of credit card?
as per the lecture formula is =P(1+r)n I got wrong in a practice question as i did (1+0.015)12 why I have to -1 please help me with this.
Thank you
1 + the annual rate = (1 + the monthly rate) ^12
I do explain the reason for this in the lecture (and this is the formula I give in the lecture also).
Hi John,
Question 5 i followed the formula shown in your lecture on perpetuity, however in your lecture you didnt add on the original amount when you got the answer 41667 from what i remember? Question 5 they have added that back? Which is the correct method?
The formula for a perpetuity apples when the perpetuity starts in 1 years time (as I explain in the lecture). In this question the perpetuity starts immediately and so we therefore need to add on the amount received at time 0.
dear sir. Why 6000 is added to the 63158 to get the final answer in question 5?
Because the first receipt is immediate (i.e. time 0) and the present value of an immediate 6,000 is 6,000.
Multiplying by 1/r discounts a perpetuity where the first receipt is in 1 years time, as explained in my free lectures.
how is it that last receipt is in 10 years? it said receivable in 8 years in the question.
I assume you are referring to question 2? (In future please do say which question you are asking about 🙂 )
The question says there are 8 receipts, but that the first receipt is in 3 years time.
So the second receipt is in 4 years time, the third receipt is in 5 years time, and so on. The 8th receipt will be in 10 years time.
The wording of this question is standard for the exam (and is the wording I used in the examples in my free lectures).
Don’t worry sir lv managed to work it out.
I am pleased that you have worked it out 🙂
Dear Sir
I don’t understand the answer to question 4. If l multiply all those numbers m getting 10017 as the answer. Please help.
Melissa