Hi I don't understand why there is an additional term of 1/(1.04) , in this question with an annuity in arrears. Shouldn't the solution just be ax @ 0% Please could someone explain. See first image and then the question
The first payment is 5,000 in one year's time. PV = 5,000/1.04 The second payment is 5,000*1.04 in 2 years' time. PV = 5,000/1.04 The 3rd payment is 5,000*1.04^2 in 3 years' time. PV = 5,000/1.04 Every payment has a PV = 5,000/1.04. We get each payment if we survive a whole year. So EPV = 5,000e65/1.04 Good luck! John
