- 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 always invest the rent payments at a rate of 6% per year. What will be the accumulated value of the invested payments at the end of 5 years?

A. $5,356.51

B. 4,481.49

C. $3,975.00

**Explanation:**FV = 750.00(1.06)

^{5}+ 750.00(1.06)

^{4}+ 750.00(1.06)

^{3}+ 750.00(1.06)

^{2}+ 750.00(1.06)

^{1}= $4,481.49

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**User Contributed Comments**
6

User |
Comment |
---|---|

hitutokio |
Check to see why FVa formula did not get same answer. |

wollogo |
Should give the same answer - remember payment is at the beginning of the year! |

Lamkerst |
BA II PLUS: BGN -750 [PMT] 6 [I/Y] 5 [N] [CPT] [FV] |

uformula |
Why doesn't using the future value of an annuity due make more sense here? |

jdcfa987 |
if we are starting at t=0 wouldnt we use N=6? or even 7? It seems that if we started at t=0, we would have invested rent pmts at t=0, t=1, t=2,t=3, t=4, t=5..the end of year 5 would effectively be t=6 where you have one more pmt. Can someone help? |

ttomljenov |
i've done this with FV calculation as N=5, PMT=750, I/Y=6% and calculate FV = 4,227.82 and then multiply by 1.06 ... this is how schweser says BGN TVM calculations should be calculated in END mode |