- CFA Exams
- CFA Exam: Level I 2021
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

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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?

B. $30,981.87

C. $34,069.78

A. $19,980.00

B. $30,981.87

C. $34,069.78

Correct Answer: C

(Or use the formula to calculate.)

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.)

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**User Contributed Comments**
8

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 PMT=1500 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. |