- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 2. Fixed Income Instruments and the Time Value of Money

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**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

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**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 |