V
vgvu99
Member
The answer given in ASET and Revision Notes requires a trial & error method (or an iterative process) to find the value of n. i.e. n = 100 ..... n = 110, n = 111 etc...
The following method solves the exact value of n (DPP). Can some1 please verify if it is correct. Thanks.
Please note the notation used: a|n](p) = PV of immediate annuity certain payable pthly for a period of n years.
Also working in £million
Costs: 40 + 36.a|0.5](12) + 2.a|t](12).v^(1/2) @10%
Incomes: 1.v^(5/12) + 12.a|t](12).v^(1/2)
<the idea here is to separate the first payment of the rental income>
And therefore we have the equation of value:
0 = 12.a|t](12).v^(6/12) - 57.50812 - 2.a|t](12).v^(1/2) + v^(5/12)
==> (12.v^(6/12) - 2.v^(1/2)).a|t](12) - 57.50812 + v^(5/12)
==> a|t](12) = 5.9307
==> t = 8.794 years or 105.53 months
==> DPP >= 105.53 + 6 = 111.53 or 112 months.
The following method solves the exact value of n (DPP). Can some1 please verify if it is correct. Thanks.
Please note the notation used: a|n](p) = PV of immediate annuity certain payable pthly for a period of n years.
Also working in £million
Costs: 40 + 36.a|0.5](12) + 2.a|t](12).v^(1/2) @10%
Incomes: 1.v^(5/12) + 12.a|t](12).v^(1/2)
<the idea here is to separate the first payment of the rental income>
And therefore we have the equation of value:
0 = 12.a|t](12).v^(6/12) - 57.50812 - 2.a|t](12).v^(1/2) + v^(5/12)
==> (12.v^(6/12) - 2.v^(1/2)).a|t](12) - 57.50812 + v^(5/12)
==> a|t](12) = 5.9307
==> t = 8.794 years or 105.53 months
==> DPP >= 105.53 + 6 = 111.53 or 112 months.