Hi. OK yes I see the required calc now. However your answer falls short of the 1.55% that it states in the question? Also the lump sum effective charge is quite short of 2.5%... I can appreciate you've done it annually not monthly but still...?
I interpreted the situation in the question as saying you could replace the initial and annual charges with an effective 1.55% pa charge and get to the same place at t = 5. So you'd roll up the lump sum at a factor (1-1.55%)*1.05 each year.... in other words £10,000*[(1.05)(1-1.55%)]^5 = £11,804. This does not match the £11,856 in the question, which confused me.
It seems also only on the final roll up to t = 5 does the annual payment's charges exceed the lump sum charges. Not exactly intuitive... hang on, shouldn't cell B27 be applying the annual % charge i.e. D5 not D4? When I make that correction the lump sum deducts more charges than the annual... (907 vs 721)
Last edited by a moderator: Oct 12, 2016