Ronald Trump has just inherited a commercial building that is expected to produce the following cash flows
Question:
Ronald Trump has just inherited a commercial building that is expected to produce the following cash flows for the next 8 years:
Year 1: $100,000; Year 2: $200,000; Year 3: $300,000; Year 4: $400,000;
Year 5: $500,000; Year 6: $600,000; Year 7: $700,000; Year 8: $800,000.
However, Ronald Trump would rather receive the same cash flow each year and as such, he approached a bank to sell the commercial building in return for a fixed cash flow each year for the next 8 years. The bank has agreed to this arrangement, based on an interest rate of 12% p.a. compounded monthly applied to the valuation of the commercial building.
If this arrangement goes ahead, how much will Ronald Trump receive each year?
Introduction To Mathematical Statistics
ISBN: 9780321794710
7th Edition
Authors: Robert V., Joseph W. McKean, Allen T. Craig