Q&A Bank 2.16 - trouble with understanding accumulated interest on debt

Hi there

I don't really undertstand why in part 2, the statement "Since the interest rate here equals the accumulation rate here, the starred annuity factor is calculated at 0%".

Could someone please simplify the explanation for just that part (the accumulated value of the debt) as I've been trying to wrap my head around it for ages without success.

Thanks for any help!

 

Nah, it's CT1.

My understanding of it at this point in time is that the growth rate of the payments is 7%. However, the discount rate is 7%. Therefore you are just summing raw payments where all the adjustment factors are cancelled out.

\[ (1.07 * $5,000)\] would be the first (inflated) payment which is discounted by 7%

i.e. \[ (1.07 * $5,000)/1.07\] and so forth.

Please let me know if my understanding is correct.