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. $14,061
The 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
Ask the Tutor ACCA MA
Annuity
8y ago#1B 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.)
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