10. Find the value of X that makes the following two cash flow diagrams equivalent when the interest rate is 1% per period. 7 5000 LI + 10 8 64 9 7000 11 12 + 8 X 9 X 10 X 11 12

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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10. Find the value of X that makes the following two cash flow diagrams equivalent when the interest
rate is 1% per period.
+
7
5000
8
9
10
7000
11
12
7
+
8
X
9
X
10
11
12
Transcribed Image Text:10. Find the value of X that makes the following two cash flow diagrams equivalent when the interest rate is 1% per period. + 7 5000 8 9 10 7000 11 12 7 + 8 X 9 X 10 11 12
Expert Solution
Introduction

An annuity is a financial product that provides a series of payments to an individual over a specified period of time. Typically, an annuity is purchased by an individual from an insurance company or financial institution in exchange for a lump sum payment or a series of payments.

Here, X is the annuity, since they are all of equal amount. Future value annuity of X at the end of 12th period should be equal to the future value of 5000 for 4 periods and 7000 for 1 period.

i = 1%

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