CFA Practice Question

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CFA Practice Question

What is the present value of the following annuity due?

Payment amount = $100
Payment frequency = annual, at the beginning of each year
Number of payments = 20
Interest rate = 8% per year

A. $981.81
B. $1,060.36
C. $1,145.19
Correct Answer: B

User Contributed Comments 13

User Comment
Laurel When you subtract 1 from 1 you get 0 which makes everthing on that side of the equation 0 when multiplied or divided by 0.
Claudio what do you mean, Laurel?
Pooh How can this problem be answered using calculator? (Using TI BAII plus)
tymao TI BAII plus: n=19, I/Y=8, PMT=100, FV=0, CPT PV=960.36, add $100 to make 1060.36
or set as BGN mode.
jaan Set your TI BAII plus in BGN mode: 2nd BGN 2nd [SET], also set 2nd [P/Y] =1 then enter values
n=20, I/Y=8, PMT=-100, FV=0, CPT PV = 1060.3599 if you get negative value that would be due to your PMT, so enter PMT as negative number
suraj PV of annuity due= PV of ordinary annuity *(1+r)

PV =100[1/0.08 -1/0.08(1.08)^20]=981.81
danlan Set the bgn mode or calculate as tymao
mansi Instead of setting the calculator in the BGN mode calculate for ordinary annuity and multiply it with (1+r)
it will give the same answer.
it will bocome a problem for other questions if u forget to change the mode from BGN back to END mode.
ashok1959 can any one tell me how to set calculator from end to bgn mode.
arkot90 for hp calculator just press
g beg to set to bgn mode or g end to return to end mode
olagbami u can jst calculate the ordinary annuity using d default mode of d BA II plus calculator (no need to adjust ur calculator) and multiply ur result by 1+r. That will give u d annuity due.
sogah thanks jaan that helped
EEEEvia can anyone tell me why FV=0??
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