CFA Practice Question

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CFA Practice Question

What is the future value of the following annuity due?

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

A. $2,000.00
B. $4,576.20
C. $4,942.29
Correct Answer: C

FV = 100(1.08)20 + 100(1.08)19 + 100(1.08)18 + ... + 100(1.08)2 + 100(1.08)1 = $4,942.29
(Or use the formula to calculate.)

User Contributed Comments 21

User Comment
Laurel Huh? Why would you use the long way instead of the formula? Can't get the formula to give me the right number.
tawi I am not getting the correct answer using the formula
Jeden The formula gave me 4,610.73 FV20 =100(1 + 0,08)^20 + FV19 formula for regular annuity fon N-1 payment What's wrong?
nic306 The formula for annuity due for both FV and PV is the same as regular annuity but multiplied by (1+r) Annuity due = ordinary annuity formula x (1+r)
KD101 I get $4576 from a formula FV = A x [{(1+r)^N - 1}/r] = 100 x [{(1.08)^20 - 1}/0.08] = $4,576 Multiply it with 1+r = 1.08 and we get $4942.29 The multiplcation is due to the fact annuity due starts from t=0.
tymao the future value of annuity due is at the end of 20 or beginning of 21, the same place as 20 normal annuity. that's way 4942 instead of 4576
lna1717 I ve got 5042 ...using the maths formula A*((1+R)^(N+1))/R FOR N from o to N. whats wrong ?
or 4576 + 1,08^20=5042
timspear The question does not really say at what date in the future it wants the value for. At the time of the last payment you would have 4576 and one year later you would have 4942.
Sandy69 Use Calculator : Set BEG , N= 20, PMT =-100, 1/Y = 8 FV = 4942.29
suraj FV (ordinary)=PMT[(1+r)^n -1] *1/r
FV (Due) =FV (Ordinary)*1+r
Will1868 No kidding - buy the calculator they let you use them!
hagi10 why do you loose time with these formulas? it took me 14 seconds to find the answer on the calculator....
Done Read the question, "Annuity Due" which means BGN on calculator!
chuong set the BGN mode
N=20, PMT=-100, I/Y=8, PV=0=>FV=4942.29
Nathan To avoid adjusting the settings of your calculator to annuity due (2nd [BGN] 2nd [SET]. You can perform the calculation and then multiply by (1 + r).
SamehHassan it is very easy by calc :)
Sumit14 Future Value of Annuity Due = Future value of Ordinary Annuity * (1+r)

So for above question
I/Y = 8
PMT = -100
CPT FV = 4576.20 (i.e. FV of ordinary annuity)
multiply it by (1+r) = 1.08
so FV of Annuity Due = 4576.20 *1.08 = 4942.29
Emily1119 I still can't not find the anwser.
How to set the BGN mode and then get the anwser of 4942.29?
nabilhjeily after we get the fv how do we calculate it on the hp i put the answer x 1.08 & then what
lordcomas Don't forget to (CLR TVM) before entering the values. then solve.
Sm7272 Can we not compute just by pressing FV and changing mode to beg on HP 12 c ? All the other values were entered while solving Q2. I get 0 if I CPT without clearing the registers. Does HP 12C not retain values once PV is computed ?
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