Korongo Mbaka wishes to choose the best of two equally costly cash flow streams: Annuity A and
annuity B. A is an annuity due with a cash inflow of Tshs.9,000,000 for each of 10 years. B is an ordinary
annuity with a cash inflow of Tshs. 10,000,000 for each of 1 years. Assume that Korongo can earn 15 per
cent on his investments.
Required:
On a purely subjective basis, which annuity do you think is more attractive? Why) (3 marks)
Find the future value at the end of year 6 for both annuity A and 8.
(3 marks)
Use your findings in part b (ii) to indicate which annuity is more attractive. Compare your
findings to your subjective response in part b (i). (4 marks) (Total: 20 marks)