Hi, This is a question about payments in advance so for part (ii) I had: PV=12XB where X=monthly payment & B= PV 12thly annuity due for n=23 (i.e. I used the a with the two dots above it). However, the solutions use an annuity certain. I understand the solution working in months & therefore not using a pth-ly formula but don't understand why the annuity certain rather than the annuity due (i.e. why the a without the dots instead of the a with the dots). Particularly, since in the solutions for part (iii) which also requires finding the balance outstanding the annuity due is used again. Thanks!
The loan outstanding is the PV of future payments immediately after the payment just made. Since the next payment is in a month time then we could use a bog-standard annuity. Alternatively we'd need to put a v^(1/12) infront of an annuity due - to get it to start at the right time.
Hi John, Thanks for your reply. However, I'm still confused as I have since found the examiner's report & the solution there is the same as mine. So the examiner's report gives a different solution to the revision book so one of them must wrong or I'm completely misunderstanding something?
