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Please help!!!!!! I just saw a question now with an interest rate of 21%. I never knew we could have a rate greater than 20%. I am scared. Please how do I treat such. How do I get the present value and the annuity figure.
Thanks
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Hi, you simply will not have interest rates of +20% featuring in the exam – so don’t worry.
In the case of 21% the df is calculated by dividing 1 by 1 + the int rate
For example, 21% implies a discount factor of 1/1.21 = 0.8264 for year 1, or
1/(1.21)2 = 0.6830, or 1/(1.21)3 = 0.5645, etc.,
or, 10% implies 1/(1.10)1 = .9090, or 40% implies 1/(1.40)1 = .7143Good luck tomorrow,
Kevin
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Thanks alot
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