• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

April 2017 CT1 Q10

D

dan r

Member
An individual aged exactly 65 intends to retire in five years’ time and receive an annuity-certain. The annuity will be payable monthly in advance and will cease after 20 years. The annuity will increase at each anniversary of the commencement of payment at the rate of 3% per annum.

The individual would like the initial level of annuity to be £20,000 per annum. The price of the annuity will be the present value of the payments on the date it commences using an interest rate of 7% per annum effective.

(i) Calculate the price of the annuity.

why is it a1 and not a20 when calculating the annuity?
 
Within each year it is upload_2017-8-29_17-56-13.png as the amount is payable monthly in advance. This brings value of all 12 monthly payments made during each year to the beginning of that year. However, this happens every year for 20 years with an increase of 3% at each anniversary. This value is reflected by multiplying with G.P series ( 1+1.03V+...............20 years in total). Attached timeline
April 2017-Q7.jpg
 
Last edited by a moderator:
You must log in or register to reply here.
Back
Top