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Sir i have a question and i’m getting confused about ‘the first paid immediately’
find the present value of ten annual payments of $700 the first paid immediately and discounted at 8%..
a) 4697
b) 1050
c) 4435
d) 5073i’m getting ‘a’ as an answer !!
If the first payment is immediately, then the present value of this payment is 7,000.
There are then 9 more payments of 7000, so for them multiply by the annuity discount factor for 9 years.Then add the two together.
Thank you sir 🙂
i got the answer 😉
Can u also explain to me how we should proceed to the answer if in the question it is mentioned that ‘ the first being paid in three years’….. in the context of the above question??
If the first payment is in 3 years and there are 10 payments, then the last payment is in 12 years.
So take the annuity factor for 12 years and subtract the annuity factor for 2 years. This will leave you with a discount factor for years 3 to 12.
Have you watched my free lecture on this? 🙂
ok 😉
yes i have watched.. but i was still confused :/
now i’m getting it clearly 🙂
thank you again sir 🙂
gn
john what’s the answer to the first question. I tried following the instructiion u give but i am not coming up with an answer
Sir,
How do we know we have to use Annuities Table or Present Value Table. I am a bit confuse with like this questions!Thanks in advance.
You can always use the present value tables.
However, if there are equal flows each year (i.e. an annuity) then it is much quicker to use the annuities table.I do suggest that you watch our free lectures on this, because they explain it in detail.
(Our free lectures are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.)
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