I'm sure its me being stupid but can someone spot my error please with Q1.29 part (iii) of the Q&A Bank. The interest rate is 12% p.a. convertible monthly --> i = 12.68250301% In part (i) it gives you a few annuities and you have to work out their combined Present Value. The solution given is £5,487 Part (ii) then says that there is a level annuity payable continuously for 10 years and having the same Present Value as the annuties in Part (i) i.e. £5,487 Part (iii) Then asks what is the Accumulated Value after 7 years of the level annuity payable continuously I can't see why it is not the PV rolled up for 7 years i.e £5,487 x 1.1268250301^7 = £12,656.99 The solution given is £10,287 Thanks
Hi Phil When you roll up the PV, you are including the monies earned in years 7-10. For the accumulation in year 7 you need to do a roll-up of the PV of a 7-year continuous annuity. Hope that helps. Good luck tomorrow.
howdy.... you first solve 5487 = Xa_bar_10 => X = 939.978 then the PV of 7 years worth of this is PV = 939.978a_bar_7 then you can roll this up... 4459.508*(1.1268250)^7 = 10287 if you try rolling up the 5487, this like the earlier reply indicated, includes the 8th 9th and 10th payments, you could roll up like you did $12,656.99 then subtract the present value of a 3 year continual annuity 939.978*a_bar_3 = $2370.138 $12,656.99 - $2370.138 = $10,287 hope this helps good luck
