Decreasing annuities.

Discussion in 'CT1' started by teslan26, Aug 8, 2012.

  1. teslan26

    teslan26 Member

    from: sep 2005 q7

    15 years of payments. first of 50, decreasing in steps of 2.

    The examiners answers use a level minus an increasing. Is this not the same as:

    2Da(25) - v(15)*2Da(10) and if not why not?

    I get a pretty large discrepancy in answers. (It also says I would have had to derive the Da formula to get any marks, but C'est la vie)
     
    Last edited by a moderator: Aug 8, 2012
    teslan26, Aug 8, 2012
    #1
  2. bystander

    bystander Member

    One of the best ways you will be able to see what you have valued is use time lines. Do that and play spot the difference
     
    bystander, Aug 9, 2012
    #2
  3. teslan26

    teslan26 Member

    In 15 years I start subtracting payments of 2Da(10) since I have those in excess of the intent, and I have to discount those by 15 years since the Da is discounted only to the start of year 15.
     
    teslan26, Aug 13, 2012
    #3
  4. John Lee

    John Lee ActEd Tutor Staff Member

    Evaluating this at 6% interest using the decreasing annuity values in the Tables, we get:

    2*203.6107 – ((1.06)^(-15))*2*43.9985 = 370.50.

    This matches the answer in the examiners report.
     
    John Lee, Aug 17, 2012
    #4

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