Hi,

Why does the memo accumulate each payment within the first pattern for only one year ? I would think you would need to either put all payments to time 0 or time 4 and then count that as one group altogether .

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The total value of the four payments in the first year is R100 so X=R100 and X/4=R25. The total value of the four payments in the second year is R200 so X=R200 and X/4=R50 etc. The memo has used the annuity formula X[((1+i)^1-1)/i^(4)] where i is the effective interest rate but you would be able to use the other method using X/P and i^(4)/4 too.

The reason that the memo is accumulating each four payment period for a year is to create a perpetuity in arrears of 4 year payments. Each year is considered as one payment and then each four year period is being considered as a "group" of payments that keeps repeating.

Please let me know if you require any further explanation.

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Hi, i understand that we are grouping the 4 payments but what I don;t understand is why we aren't finding the value of the group at the same time point?

For example Q4 of Tutorial 5 I answered it like this: X=100v+200v^2+300v^3=481.59

PV= X x advanced level annuity of 33 years to get 1936.40.

Is it different because we're working with future values?

Thanks for the help Tarryn :)