Please Solve

[Anjum]

Hi Team,

Please Solve the equation of cash inflows for the below question:-

Project A: Initial payments of Rs. 2 million at time zero and Rs. 4 million at time 2 are made. In return a sum of Rs. 900,000 per annum is paid continuously from time 5 to time 25.

A per the equation will be 0.9 * continuous payable annuity for 21 years * v^4

whereas the solution is 0.9 * continuous payable annuity for 20 years * v^5
in the question if its mentioned payable from time 5 to time 25 why will we not include 5th year.

 

[Jammy]

Because it's from "time" 5 to 25 and not from 5th year to 25th year or otherwise.

Note that 5th year denotes time 4yrs 1day to 4 years 365 days.

When they say it starts paying a continuous annuity at time 5 they mean it starts from 5 years 0 days to 25 years 0 days, which is a total of 20 years.