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Author | Topic: PV question? |
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nemke@2010-06-06 12:04:01 |
Please can someone help with this. i have the answer but don't understand how you get to it? 1. Compute the PV of an annuity that pays $1000 per year in semmi annual installments over 5 years, using an interest rate of 12%, compounded semmiannually? Answer is : $ 3680.04 but how? Much appreciated! |

joe3@2010-06-17 10:07:01 |
Hi nemke, I consider this problem as follows. 1. The total payment times(N) is 10 in 5 years. 2. Each time the payment(A) is $500. 3. The semiannually interest(r) is 12%/2=6% then you can get the PV through the formula: PV = A*(1-1/(1+r)^N)/r so you can get PV = 500 * (1 - 1/(1+ 0.06)^10)/0.06 = 3680.04 Wish this could help you. |

TheProfet@2010-06-22 22:01:00 |
using a calculator (as you would on the exam), you would answer this question as follows: (Using a TI BA II Plus Calculator) PMT = -500 (1000/2 for semiannual payments) N = 10 (5 yrs * 2 for semiannual payments) i/y = 6 (12/2 for semiannual payments) [CMPT] [PV] = 3,680.04 and we're done. |