- 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
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
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 |