- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
Hi Sir,
I would like yo ask a question.
What is the present value of an annuity of $3,000 per annum discounted at 6% per annum if the annuity starts at the end of the third year and finishes at the end of the 10th year?
A. $22,080
B. $16,581
C. $996
D. $14,061The answer is B. But shouldn’t it be D?
I am confused regarding the part mentioned at annuity starts at end of third year. So for annuity should we do annuity of 1-10 minus 1-2 or annuity 1-10 minus 1-3?Thank you
B is the correct answer.
The 10 year annuity gives the total discount factor for years 1 to 10. We need the total for years 3 to 10, so we need to subtract the total for years 1 to 2 (which is the 2 year annuity factor).
I do suggest that you watch my free lectures on this, because I do explain this point with examples.
(The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.)
- You must be logged in to reply to this topic.