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Dear tutor
could you please help me to understand AF rate, ?
BPP 2018-2019, has questions relating to pick up correct AF rate
question 102&103: because the net cash flow is in advance, so use AF 0-4
question 109: someone tries to save now to buy holiday villa in 5 years time at $1.5m, 10% interest per annum compound. started immediately, so we use AF 0-4, 1+ AF1-4 rate
on question 107: lease, because there is the income is in the following year, so we AF 1-4however, when look at the receive, question 100, it turns to AF 1- 7 as we never receive annuity in year 0?
is my logic correct here? how we decide AF rate?
many thanks
For DCF calculations, we are looking at points in time that are 1 year apart.
Time 0 is the start of the first year.
Time 1 is the end of the first year / start of the second year,
Time 1 is the end of the second year / start of the third yearand so on.
I really do suggest that you watch the free Paper MA (was Paper F3) lectures on interest and investment appraisal because this is essential revision from Paper MA.
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