Hi, Could someone please help with this question... An initial investment of 100,000 the following interest payment streams are offered over the next 10,5 years: Stream 1: half yearly payments of 6,770.78 in arrears for full term. Stream 2: quarterly payments in advanced 3,222.64 full term. Stream 3: X after 1 week, Y after two years (from start), then five payments of Z annually in arrears after Y. Final payment of V at end of 10 years (from start). Interest rate of 14%, capital is returned after 10,5 years. Determine X,Y,Z,V to make Streams 1,2,3 equivalent without calculation the present value of any stream. Payment X is simple? But how does one do this or continue?
I think it's more the case that everyone is sitting the exam - and so is not in the forums - it'll be quiet for some time until study starts up again towards the end of May. This is so a university question rather than a CT1 exam question, ie solving esoteric fiddly questions rather than application to useful situations! I find myself confused by what you mean by equivalent - do you mean the same PV? Also do all streams have the capital returned at the end? Seems like we're missing some information here...
It certainly appears that information is missing, making the first step of understanding the question difficult, without attempting to answer it. For eg, only variables are in stream 3, which gives one "equation" for 4 variables, ie no "solution" per se.
I think he means that there will not be a unique solution. For example, X=Y=Z=0 and V = 277,063.55 seems to work, unless I have misunderstood the question.
