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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › present value
dear sir help me with this question:
Ayr is planning on paying £300 into a fund on a monthly basis starting three months from now, for twelve months.
The interest earned will be at a rate of 3% per month.
What is the present value of these payments?
A £2,816
B £2,733
C £2,541
D £2,986.
You discount like any normal question, except that the time period is 1 months and the interest is per 1 month.
So……in 3 month periods, the flows are 300 from time 3 to time 12.
The interest rate is 3% per period.
So, use the 12 period annuity factor at 3% and subtract the 2 period annuity factor at 3%, to be left with periods 3 to 12.
Sir I didnt understand it help me please I got exams 2morrow I. Worried
Dear Mr John I tried but get the following
3% 12 years df
(1-12) 9.954
(1-2) 1.913
(3-12) 8.041 * 300 = 2,412.30
pls help – thx
Sorry – my mistake.
It starts in 3 months and is for twelve months in total. So the last payment is in 14 months.
So…… Take the annuity factor for 14 periods at 3% per period less the annuity factor for 2 periods at 3% per period.
Thanks sir now I understand it better
You are welcome 🙂