Is the answer correct if yes would you please explaine the h

Is the answer correct? if yes,

would you please explaine the highlighted numbers in yellow and pink? (should I just subtract one from the original value?)

I also highlighted number 6 (in green).. why did we choose this number?

this equation could be useful

Problem 3: (25 points) Assume that you have payments of2.000 QAR in year three and increasing by 5% per year through year 8. Find the equivalent uniform payments in years five through eight at an interest rate of 10% per year Answer: Compute the Pg in year 2 Pg--2.000* { 1-[( 1 + 0.05)/( 1 + 0. I 0)19 /(0. I 0-0.05)--9.742.04 Pg 9,742.04 in year 2 should be converted to year 4(F/P,10%,2) Py-9,742.04 (1.21)--11,787.87 Then, A-PAP. 10%,4)--11 ,78 7.87 (0.31 547)--3,7 18.72

Solution

Your answer, 3718.50 is correct.

The question says payment of 2000 is in year 3 and payments continue till year 8 with 5% increase every year. So, effectively payments have to brought to year 0 (i.e. today), to do so we are discounting payments of 6 years ( no of payments) for 8 years (span of investment) (because year 1 and year 2 have no payments)

In the given solution, Present value of 6 payments is calculated at the end 2nd yaers is calculated. then the resultant value is again discounted for 2 yaers to bring it to year 0 (which is termed in solution as bring year 2 to year 4).

The Ultimate present value of payments is divided by the sum of pv factors for years 4 to 8 @ 10%.

I am giving you the excel answer for better understnding.

Please comment for any further explanation.

Year	Cashflow	Present value@10%	Discounted cashflow
1	0	0.909	0.00
2	0	0.826	0.00
3	2000.00	0.751	1502.00
4	2100.00	0.683	1434.30
5	2205.00	0.621	1369.31
6	2315.25	0.564	1305.80
7	2431.01	0.513	1247.11
8	2552.56	0.467	1192.05
		Present value	8050.56
		Anuity factor from Year 5 to 8	2.165
		Equal annual payments	3718.50