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I= 10%

Determine the annual equal payment value (A) that makes the pairs of cash flows shown economically equivalent.

User Erotavlas
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Final answer:

The question involves calculating the annual equal payment required to make a series of future cash flows equivalent in present value terms, given an interest rate of 10%. The calculation would typically use the present value of an annuity formula.

Step-by-step explanation:

The student is asking how to calculate the annual equal payment (A) that would make a given series of future cash flows equivalent in present value terms when the interest rate is known as 10%. In this context, the annual equal payment is also referred to as an annuity payment.

To calculate the annual equal payment value (A) when the interest rate (i) is 10%, you would typically use the formula for the present value of an annuity. The formula in your question looks incomplete, but it is usually expressed as:

PV = A * [1 - (1 + i)^(-n)]/i

Where:

  • PV is the present value of the annuity.
  • A is the annuity payment per period.
  • i is the interest rate per period.
  • n is the number of periods.

The goal here is to solve for A given PV, i, and n. This can also be related to bond valuation and opportunity cost when there's a change in market interest rates as mentioned in the context provided.

User Sonu Kapoor
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