- 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**

Suppose you are considering purchasing a financial asset that promises to pay 10 annual payments of $1,000, with the rate of return quoted as 9% per annum. How much should you pay for the annuity if the first payment is made in one year's time?

A. $5,759.02

B. $6,417.66

C. neither of these amounts

**Explanation:**Using hp-12C:

f CLEAR FIN: 0.00000000

f CLEAR REG: 0.00000000

10 n: 10.00000000

9 i: 9.00000000

1000 CHS PMT: -1,000.000000

g END: -1,000.000000

PV: 6,417.657701

Using TI BA II Plus:

2nd QUIT: 0.00

2nd CLR TVM: 0.00

1000 ± PMT: PMT = 1,000.00

10 N: N = 10.00

9 I/Y: I/Y = 9.00

CPT PV: 6,417.66

Thus, the series of cash flows of $1000 per year is currently worth $6417.66.

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**User Contributed Comments**
2

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

danlan |
N=10, I=9, PMT=-1000, FV=0 ==> PV=6417.66 |

Kuki |
always use the Present value of any series of cashflows to find out its actual worth. |