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Hi John, thank you for your support. Please kindly answer my query. I m not sure part a, calculation of npv of PDur05 for cash i flow from year 4 to 15 as:
970×7.191×1.11^-3
It already x with 11% at year 15 but still discount at year 4.Thank you very much!
You have misread the question.
Although the first flow is at time 4, it will continue for 15 years (and so the last flow will be in 18 years).
To discount 4 – 18, you can either use the annuity factor for 18 years less the annuity factor for 3 years (although then you would have to calculate the 18 year annuity factor yourself because the tables do not go that far).
Alternatively, you use the annuity factor for 15 years (because there are 15 years of flows) but then discount for 3 more years (because the annuity starts three years later at time 4 instead of time 1).
Either way would give the same answer (apart from roundings, which are irrelevant), but obviously the second approach is easier because of being able to use the tables.Hi John, thank you very much. I did misread the question so i thought it was total 15 years instead of 18 years. It is clear now.
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