Residual Income Discounting

CFA Level II
#1

If a question states that continuing residual income is 0 after 4 years, why is year 4 residual income discounted to year 3 to get the PV of continuing residual income instead of using the year 5 residual income?

Isn’t that technically ignoring year 4 residual income?

#2

help?

#3

Since your given that the residual income ceases to exist after year 4, the terminal value for year 3 must be

RI4/ (1 + r) / (1+r)^3 = RI4/(1+r)^4