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Hi, I have doubt in 1 qstn which is in kaplan kit are as follows.
A seven year annuity of 450$ starting in five year time. Interest rate are 11%
Kaplan kit answer is here.
For 7 yr time AF 450*4.712 = 2120.40$
This give annuity for T4
Than 2120.40* 0.659= 1397.34I don’t understand that how 0.659 came?? From where and how it came. Can you please explain me. Thanks In advance.
It is the 4 year discount factor at 11% from the tables.
2,120.40 is the PV in 4 years time, so it needs discounting for 4 years to get the PV ‘now’.
Alternatively you could subtract the 4 year annuity factor from the 11 year annuity factor to get a factor for 5 to 11 and use that instead. It would give the same answer (apart from rounding, which is irrelevant).
This is all explained in my free Paper FM lectures (and Paper MA lectures also because this is revision from Paper MA (was F2)). The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam.
Thank you sir I understand your explanation. And thank you so much for your reply. Ok sir noted will see videos to understand more in depth.
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