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Q4. One investment plan that you can buy on 1st December 2020 promises to give you...

Q4.

One investment plan that you can buy on 1st December 2020 promises to give you certain payment of Rs.5000 on 1st December 2022. Then the payment will grow at 10% per annum. Six such payments will be made, and the last payment will be made on 1st December 2027.

a)

Draw the cash flow diagram.

(1)
  1. What is the price you would pay to buy such a product if your required rate of return is 10% per annum?
  2. What is the equivalent equal annual cash flow amount if the amount is paid for 7 years (1st December 2021 to 1st December 2027) in seven equal installments instead of six growing installments?

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Expert Solution

jeff jeffy answered 2 years ago
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