Consider the following two cash flow series of payments: Series A is a geometric series increasing at a rate of 8% per year. The initial cash payment at the end of year 1 is $1,000. The payments occur annually for 5 years. Series B is a uniform series with payments of value X occurring annually at the end of years 1 through 5. You must make the payments in either Series A or Series B. Solve, a. Determine the value of X for which these two series are equivalent if your TVOM is i = 6.5%. b. Given the value of X from part a, if your TVOM is 8%, would you be indifferent between these two series of payments? If not, which do you prefer? c. Given the value of X from part a, if your TVOM is 5%, would you be indifferent between these two series of payments? If not, which do you prefer?
Consider the following two cash flow series of payments: Series A is a geometric series increasing at a rate of 8% per year. The initial cash payment at the end of year 1 is $1,000. The payments occur annually for 5 years. Series B is a uniform series with payments of value X occurring annually at the end of years 1 through 5. You must make the payments in either Series A or Series B. Solve, a. Determine the value of X for which these two series are equivalent if your TVOM is i = 6.5%. b. Given the value of X from part a, if your TVOM is 8%, would you be indifferent between these two series of payments? If not, which do you prefer? c. Given the value of X from part a, if your TVOM is 5%, would you be indifferent between these two series of payments? If not, which do you prefer?
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