Elementary compound interest problems

[Josie_C]

Hi,

I'm slightly embarrassed because I can't follow the first example within this chapter (Example 12.1, page 4, CT1-12 combined materials pack). Here is the question.



This is some of my working...

I'm clearly making a basic mistake. I've tried using i(p) to calculate the annuity (where I've used 0.08 above). This didn't help.

If someone could clarify my error here, I'd be really grateful.

Very best,

Josie_C

 

[Adam Ahmed]

Hey Josie,

The issue is that you're using the coupon rate in your calcs rather than the yield. If you use 10% in your calcs, you'll get the correct answers.

While the rest of working is fine, I would also suggest using the tables to obtain the annuity values, in the exam you won't have time to do detailed calcs.

Hope that helped.
A

 

[Josie_C]

Hi Adam,

Thanks so much for your input. You're absolutely right, as you know. I'll take a look at the tables now to confirm where I'd find the details needed.

Huge thanks,

J