Stanley has just been advised of a bequest of a lump sum of 121, 500 from his Aunt's will, but it is not due to be available for him for sixteen years (at t = 16 he will receive 121500). Stanley wants to receive some cash earlier than this.
He is investigating the purchase of a deferred annuity with the first annual cash flow of the annuity is to be paid at the beginning of year 3 (fourteen cash flows).
Assume that the annuity and the lump sum are of equivalent risk and that j_12 = 6.24% pa is the appropriate interest rate (opportunity cost of funds for Stanley). How much is the annual cash flow associated with the annuity?