CT5- Revision Notes -April 2010, qus.8

[Bharti Singla]

Hi all
In this qus., part(i) is saying to show that the AV of the fund at the time of retirement is £7,240. But it comes out to be £7266 in the solution.
Then again in part(i), when we need to use this value of AV of fund, they have taken £7240.
Seems there is a mistake in the qus. or the solution.
Could anyone please clarify this?
Thank you

 

[Robert Chadburn]

The ActEd solution uses some different formulae from the Examiners' solution. In particular, we use D/D functions whereas the examiners use (1+i)^n / nPx. The annuity-due is also calculated differently in the two solutions. There is nothing wrong with either of the two solutions. However, the tabular values for both annuities and D-functions are quite heavily rounded, and using alternative methods often gives slightly different answers - ie entirely due to the rounding effects. In the exam you will hopefully think of a correct method and a correct formula - you don't need to worry about whether you have used the examiners' approach. Any correct approach will earn full marks.
The % difference in the two answers is only 0.4%. This level of difference should not worry you, if this happens in the exam. Obviously, if they have said it should be "about" 7,240, then that is the figure they would like you to use in the next part, regardless of the value that you actually got - so this is what the ActEd solution does.

 

[Bharti Singla]

The ActEd solution uses some different formulae from the Examiners' solution. In particular, we use D/D functions whereas the examiners use (1+i)^n / nPx. The annuity-due is also calculated differently in the two solutions. There is nothing wrong with either of the two solutions. However, the tabular values for both annuities and D-functions are quite heavily rounded, and using alternative methods often gives slightly different answers - ie entirely due to the rounding effects. In the exam you will hopefully think of a correct method and a correct formula - you don't need to worry about whether you have used the examiners' approach. Any correct approach will earn full marks.
The % difference in the two answers is only 0.4%. This level of difference should not worry you, if this happens in the exam. Obviously, if they have said it should be "about" 7,240, then that is the figure they would like you to use in the next part, regardless of the value that you actually got - so this is what the ActEd solution does.

Thankyou so much for clarifying.
BTW, I checked both solutions. In examiner's report it is £7240 in the solution to part(i) and in revision notes, it is £7266. Yes, the difference is due to that D/D v/s Vⁿ.npx approach and one more is that in the examiner's report, they have taken 52 weeks in a year and in revision notes, this figure is 52.18.
Though not a big differnce.
I'm a bit curious which should be more appropriate approach taking 52 or 52.18 in general?

 

[Robert Chadburn]

I would choose 52.18. Clearly, the examiners are not going to mind which you use!