Mr Riches Has Inherited a Commercial Building That Is Expected

question 25

Multiple Choice

Mr Riches has inherited a commercial building that is expected to yield the following cash flows for the next 5 years: However,Mr Riches would rather receive the same cash flow each year and he approached CDM Bank Ltd to sell the building in return for a fixed cash flow each year for 5 years.CDM Bank Ltd has agreed to this arrangement.If CDM Bank Ltd is using an interest rate of 10% p.a.compounded monthly to value the building how much would they be willing to pay Mr Riches each year?

• A)$2,663,498.55
• B)$2,687,456.15
• C)$2,648,984.45
• D)$2,653,899.02

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Definitions:

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