CFA Practice Question

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CFA Practice Question

You have invested in an annuity that pays you $1,500 per year. Payments are always made at the end of the year. If each payment is invested at the rate of 11% per year, what is the total amount you will have accumulated (payments plus interest) by the end of 12 years?

A. $19,980.00
B. $30,981.87
C. $34,069.78
Correct Answer: C

FV = 1,500.00(1.11)11 + 1,500.00(1.11)10 + 1,500.00(1.11)9 + ... + 1,500.00(1.11)1 + 1,500.00(1.11)0 = $34,069.78
(Or use the formula to calculate.)

User Contributed Comments 9

User Comment
lna1717 why 1500(1.11)^0 if the first payment occurs at the end of the first period , n from 1 to 12?
fuller for the first payment, the future value is 1,500.00(1.11)^11, for the second one, the future value is 1,500.00(1.11)^10, and for the last one, the future value is 1,500.00(1.11)^0.

so the answer is correct.
suraj FV=1500[1.11^12 -1]/0.11=34069.78
FV=PMT[(1+r)^n -1]/r
Will1868 On HP12c:

n = 12
i= 11

Calc. FV = 34,069.78 or D.
anish On BA plus:
12 -> N
11 -> I/Y
1500 -> PMT
CPT -> FV = 34,069.78 ;)
Kaloyan A question regarding the use of 12c. If we set the PMT to +1500 dollars, why the FV comes with a negative result of - 34,069.78? Feels like after 12 year we need to pay that amount?
nabilhjeily so why did this one worked and the question before didnt ????? why should we multipy it by 1+r
bidisha Kaloyan, think of - sign as withdrawing/getting. I think of pmt as something we GET, so I enter it with a (-), like -1,500 for this example and the future value comes out positive 34,069.78.
ko960531 Guys, just put (-) sign for PMT like habutally.
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