Example on page 9 of chapter 7

Hi guys,

I need some help in the example on increasing annuities example given on page 9 of chapter 7.

As we are making the payments on the start of each year, that is on 1st January each year, so why did we use annuity in arrears for the level annuity and not annuity advance?

Thanks for help!

Warm Regards,
Shyam

 

Because we want present value of cashflows at 1st January 2005,with payments starting from 1st January 2006.So the level annuities are considered in arrears and not advance.

 

Okay, I got the point. Thank you for the help!