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Advanced Annuities

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Advanced Annuities

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by LMR1006.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 28, 2023 at 8:56 am #694092
    menpagalhoon
    Participant
    • Topics: 73
    • Replies: 35
    • ☆☆

    This is an illustration given on page 69 of the kaplan study text.

    A five-year annuity is starting today. Interest rates are 10%. Find the PV of the annuity.

    Solution:

    This is essentially a standard 4 – year annuity with an additional payment at T0. The PV could be calculated as follows:

    Years cashflow PV factor Present value
    0 600 1 600
    1 600 0.909090909 545.4545455
    2 600 0.826446281 495.8677686
    3 600 0.751314801 450.7888805
    4 600 0.683013455 409.8080732

    In this question, we have paid at the start of the five year period i.e. today. That is why the year 4 in the above table is technically the fifth year of the “five-year” annuity, right??

    Am I right?

    If it said that the first payment is made at start of year 1. then we would have added another year in the solution??

    Also, would we be provided excel to solve such questions (MCQs) in CB exam?

    October 28, 2023 at 8:21 pm #694117
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1511
    • ☆☆☆☆☆

    Yes
    Yes with a 5 year annuity
    Yes you have

    October 29, 2023 at 1:59 pm #694140
    menpagalhoon
    Participant
    • Topics: 73
    • Replies: 35
    • ☆☆

    Ok, thanks!

    October 29, 2023 at 8:20 pm #694154
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1511
    • ☆☆☆☆☆

    Your welcome

  • Author
    Posts
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