AuthorTopic: Annuity Problem
banik
@2014-04-13 18:40:36
Two years from now, a client will receive the first of three annual payments of $20,000 from a small business project. If she can earn 9 percent annually on her investments and plans to retire in six years, how much will the three business project payments be worth at the time of her retirement?

timeline is like this:
beg of year 2 receives 20000
beg of year 3 receives 20000
beg of year 4 receives 20000
fv of these cash flows can be calculated for the beg of year 4 or end of year 4 which leaves 2years and 1 year in hand respectively to find the fv again at the beg of year 6. IS MY INTERPRETATION RIGHT??
jon01
@2014-04-19 09:36:56
I believe that this should be an ordinary annuity problem, which means:

timeline:
end of year 1: cf1=20000
end of yr2: cf2=20000
end of yr3: cf3=20000
FV: n=2, i=9%, PV =65,562
According to the readings, unless the problem specifies that the payment is at the beginning of the year, you should assume it is an ordinary annuity. Hope this helps.

CFA Discussion Topic: Annuity Problem

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