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Basic Question 1 of 3
An investment promises to pay $1,000 one year from today, $1,500 two years from today and $2,000 three years from today. If the required rate of return is 11% compounded annually, what is the value of the investment today?
User Contributed Comments 5
| User | Comment |
|---|---|
| Beret | Or on the HP12C: 0 [g][CF0] 1000 [g][CFj] 1500 [g][CFj] 2000 [g][CFj] [f][NPV] |
| hpersey | Another quick way on the Texas BA II Plus Pro is to solve for individual cash flows, then sum their present values (according to the addivity principal of cash flows) like so: 1000,FV 11,I/Y 1,N CPT PV STO, 1 then 1500,FV 2,N CPT, PV STO + 1 finally 2500,FV 3,N CPT, PV STO + 1 then RCL 1 will give you the answer, 3580.72! |
| johntan1979 | Your "quick" is slower than the CF method, and prone to errors. By right, you SHOULD clear the TVM menu before the next batch of numbers, and you forgot each round to enter the I/Y. |
| chipster | Why would the cash flows not be designated as PMT using a financial calculator, as opposed to a PV? thanks |
| gerdvar | PMT or payment refers to equal payments, ie. multiple yet equal individual cashflows which is PMT or A in your formulas remains A=A and allows the use of expontentials to calculate PV or FV. The calc is programmed to use PMT under this premise, in this LOS these payments or cash flows are not equal, therefore they can't be put under the same definition of PMT or A |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;
CFA® 2024 Level I Curriculum, Volume 1, Module 1.