ct1 chapter 7 question 7.17

[rishabh581991]

In solution the amount who's present value is to be calculated is 1200. Why so? Why not 400 for first 4 months n same for next 4 months, because the question says, " 5 year annuity consisting of payments of 100, starting on Jan 2005 and payable on the first day of each month with an R in its name."

 

[John Lee]

In solution the amount who's present value is to be calculated is 1200. Why so? Why not 400 for first 4 months n same for next 4 months, because the question says, " 5 year annuity consisting of payments of 100, starting on Jan 2005 and payable on the first day of each month with an R in its name."

Apologies that this slipped through our net. If you don't get a reply then do email the tutor currently responsible for that forum.

When you use annuities the three numbers (X, n and p) need to be consistent:

\(\require{enclose}{}Xa_{\enclose{actuarial}{n}}^{(p)}\)

Since we're working in years n = 4/12 of a year, p = 12 payments a year and X = £1,200 a year.

Since the annuity only runs for 4/12 of a year we will only get the £400.

 

[Swati Balasubramanian]

Hi,
Plz guide me if I am wrong.
PV= 800* 1-v^5/d(12)
Am I doing something wrong?

 

[Darrell Chainey]

your formula implies 800 pa paid monthly in advance, ie 800/12 every month. We've got 100 each month with an R in it.
Your might be a reasonable approximation but not an accurate formula.

 

[Swati Balasubramanian]

How can I modify my answer to get an accurate answer?

 

[Admin]

Sorry, I don't think you can easily. I'd start again valuing the payments in Jan-Apr and then Sept-Dec as they do in the solution. the solution is pretty comprehensive and so I can't add much to that.