CFA Practice Question

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CFA Practice Question

What is the present value of the following regular (ordinary, deferred) annuity?

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

A. $981.81
B. $1,840.00
C. $2,000.00
Correct Answer: A

User Contributed Comments 10

User Comment
Nathan TI BAII:

If you don't see the letters BGN at the top of your screen then these key strokes apply ...
*** 2nd [BGN]; 2nd [SET]

2nd [CLR TVM]
100 [PMT]
20 [N]
8 [I/Y]

Remember that 2nd [P/Y] should be set to 1. Otherwise change it before using the TVM registers.
cntosg In this question, you should not use BGN since it is not payments at beginning of each period.
ashok1959 can any one explain answer by using BAii plus.
xyzanand Yes Ashok.. In this case use 2nd CLR TVM and then 2nd Quit.. This erases previous mem.. Remember do not set BGN mode for this question as there is no beginning payment
Then set values
100 for PMT
8 for 1/Y
20 for N

P/Y should be 1

Then CPT PV and you are there

This is for Texas Instruments calci.. its different for HP calcis and I dont know that one.
arkot90 for hp calcultor:
g end for end mode
100 pmt
8 i
20 n
then pv
rivers thank you Arkot90, i am newbee to the HP 12c and was doing everything via formula however your easy explanation has stopped me from throwing the calculator out the window.
Lucas24 xyzanand, assume you are in the exam, running against time, why do you erase everything becuse the inputs are exactly the same as the previous question, all you need to do is to change your calculator from bgn mode to end, then CPT PV then you get the same answer.
johntan1979 IMHO, HP12C is a scam, costing so much more, which none of my Finance professors use or recommend.

I bought both and was instantly able to use TI after only a few sessions.

HP12C sucks, folks! Throw it away!
Frontier17 I prefer HP12C.
ko960531 I will write the key point: the PV of the annuity due is higher than the PV of the regular annuity. It is counterintuitive because I initially thought that the risk of not getting paid early will be paid as a risk premium, thus it would be the other way. However, the inflation is higher in the future, the dollar is higher now, thus early payment is better = annuity due PV is higher.
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