CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

You are the landlord of a small office building. The rent is $750 per year, paid at the beginning of each year. You expect to sell the office building after 12 years. What is the present value of the rental payments at a rate of 3% per year?
A. $8,737.86
B. $8,483.36
C. $7,689.47

User Contributed Comments 6

User Comment
maria15 Can someone please explain? Thanks!
agreene seconded...I get around 6300 when plugging in n=12 i/y=3 fv=9000 (12X$750) pmt=0 (cpt)pv

I have my calculator set to BEG
dream007 the rent is $750 per YEAR not MONTH, so no need to multiply by 12.
dream007 so, n=12, i/y =3, PMT= 750. cpt PV.
kingdave actually this is to find the present value of annuity. the trick here is that it is at the beginning of the here and it is very important to highlight that. so here the present value of annuity discounting factor will be:
((1+0.03)^12-1)/(0.03*(1+0.03)^11)
now when you get the present value of annuity discounting factor you just multiply it by your cash flow which here 750. now you get the result.
bblach n=11, i/y=3, PMT = 750, cpt PV

PV = 6,939.47

then add $750

= $7,689.47
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