1. Posts in the subject areas are now being moderated. Please do not post any details about your exam for at least 3 working days. You may not see your post appear for a day or two. See the 'Forum help' thread entitled 'Using forums during exam period' for further information. Wishing you the best of luck with your exams.
    Dismiss Notice

Q&A bank q5.14

Discussion in 'CT1' started by shdh, Aug 15, 2016.

  1. shdh

    shdh Ton up Member

    Hi,

    In q5.14 in question Bank, the question states that the investment in the mills are done at the start of the next 5 years. So in this sense, it means that the first investment is made at time 1 and so on. This we should be calculating the PV at time 0 and not at time 1.

    But in its solution, it appears that the question has taken the first investment at time 0 and not time 1. Accordingly it did the sum.

    So I want to ask that why did we take the PV at the date when the first mill was bought and not one year before it?

    Thanks & Regards
    Shyam
     
    shdh, Aug 15, 2016
    #1
  2. John Lee

    John Lee ActEd Tutor Staff Member

    The start of the first year is time 0.
     
    John Lee, Aug 18, 2016
    #2
  3. shdh

    shdh Ton up Member

    Sir,

    Thank you for your reply.

    I get your point but my query still holds. The question is stating that the first one is bought from the next year (the year start of the next 5 years). So accordingly shouldn't we take the time of purchase as 1 and not 0?

    Thank you for your help!

    Regards,
    Shyam
     
    shdh, Aug 18, 2016
    #3
  4. John Lee

    John Lee ActEd Tutor Staff Member

    "One mill is purchased at the start of each of the next 5 years. The cost of refurbishment is £20,000 per mill and is payable continuously for one year after the purchase. "

    I can't see where you are getting your idea from the start of each of the next 5 years are times 0, 1, 2, 3, 4.
     
    John Lee, Aug 19, 2016
    #4
  5. shdh

    shdh Ton up Member

    Ooh, yes. Got the point. Thank you sir.

    Thanks once again.
    Shyam
     
    shdh, Aug 19, 2016
    #5
    John Lee likes this.

Share This Page