Multi-Stage RI models

Quick question on how the terminal value of RI would work provided constant growth.

This is mainly concering a question in the wiley guide on pg 280 of Fixed income.

Generally speaking, RI would be +ve provided that ROE - r remains above 0 and stays that way

In this question, It assumes that ROE remains constant, then RI would also remain constan t.

It takes the value of the RI calculated at year 5 end and then assumes the same amount for the next year.

However, isn’t that a bit counter intuitive?

Even, if your ROE remains constant, wouldnt the end of year book value change resulting a different opening book value of equity for year 6. Hence, a different RI as well.

Can some one explain the reasoning behind the exact value being used in both year 5 and the next year ( perpetuity that will be discounted by r)

This isn’t true.

RI will be positive if ROE > r, not if ROE is merely greater than zero.

Sorry for that, i meant the difference between ROE and r. Ill edit that part out. Made a typo.