Manka wishes to choose the best of two equally costly cash flow streams: annuity X and annuity Y. X is an annuity due with a cash inflow of Tshs.9,000 for each of 6 years. Y is an ordinary annuity with a cash inflow of Tshs.10,000 for each of 6 years. Assume that Manka can earn 15% of her investments.

REQUIRED:

(i) On a purely subjective basis, which annuity do you think is more attractive? Why?

(ii) Find the future value at the end of years 6 for both annuity X and Y.

(iii) Use your findings in part (ii) to indicate which annuity is more attractive. Compare your findings to your subjective response in part (i).