Hi, could somebody help me with part 1 of this sheet. I attempted it and would like to know if my answers are correct.
My answers for part 1(i) 5.66%, (ii) 5.81 (iii) 5.87 (iv) and i couldn't get an answer for this part
Look at it as 2 bank accounts:
one in which the payments are deposited
one where the initial amount is deposited
Their values in 20 years must equal each other: OK?
i = .10 (annual rate)
j = .057692 (payment annual increase)
n = 20 (number of years)
f = 1000 (first payment)
p = present (or purchase) value (?)
u = future value of p (?)
v = future value of payments (?)
u = p(1+i)^n
v = f[(1+i)^n - (1+j)^n] / [(1+i) - (1+j)]
Since u = v:
p = v / (1+i)^n
Substitute the values in there: result will be p = 12849.005132....