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Hello students, here is a question.
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You have won $10 ,000 today, 20 ,000 three years from today and 60 ,000 eight years from today.
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As an alternative, you can receive your winning as 10 years annuity with a first payment received four years from today.
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If you required 6 % return on your investment, how much how much must the annuity per you each year for you select that option? so, this is our question.
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Let us start solving this.
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So, let us solve the problem.
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We have two alternatives to solve this.
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So, alternative one will be the columns period cf pvf at 6 % pvf of cash flows.
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So, the periods are 0, 3, 8 and cfs are 10 ,000, 20 ,000 and 60 ,000.
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So, pf factor for first is 1 and the second is 0 .8396 for 6 % and third is 0 .6274.
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So, the pv cash will be 10 ,000, 16 ,792 .39, 37 ,644 .74.
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So, the total comes to 64 ,437 .13.
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So, this is a pv of cash flow.
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So, the pv of cash flow for the first alternative is this.
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Now, we will calculate for the second alternatives.
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Alternative 2.
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So, that will be 10 years annuity payment starting for 4 from today.
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So, the future value will be future value is equal to present value into 1 plus r to the power n.
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So, which gives us 64 ,437 .13 into 1 .06 to the power 4...