- CFA Exams
- CFA Level I Exam
- 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**

What is the present value of the following annuity due?

Payment frequency = annual, at the beginning of each year

Number of payments = 20

Interest rate = 8% per year

B. $1,060.36

C. $1,145.19

Payment amount = $100

Payment frequency = annual, at the beginning of each year

Number of payments = 20

Interest rate = 8% per year

A. $981.81

B. $1,060.36

C. $1,145.19

Correct Answer: B

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**User Contributed Comments**
13

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

Laurel |
When you subtract 1 from 1 you get 0 which makes everthing on that side of the equation 0 when multiplied or divided by 0. |

Claudio |
what do you mean, Laurel? |

Pooh |
How can this problem be answered using calculator? (Using TI BAII plus) |

tymao |
TI BAII plus: n=19, I/Y=8, PMT=100, FV=0, CPT PV=960.36, add $100 to make 1060.36 or set as BGN mode. |

jaan |
Set your TI BAII plus in BGN mode: 2nd BGN 2nd [SET], also set 2nd [P/Y] =1 then enter values n=20, I/Y=8, PMT=-100, FV=0, CPT PV = 1060.3599 if you get negative value that would be due to your PMT, so enter PMT as negative number |

suraj |
PV of annuity due= PV of ordinary annuity *(1+r) PV =100[1/0.08 -1/0.08(1.08)^20]=981.81 PV(Due)=981*1.08=1060.35 |

danlan |
Set the bgn mode or calculate as tymao |

mansi |
Instead of setting the calculator in the BGN mode calculate for ordinary annuity and multiply it with (1+r) it will give the same answer. it will bocome a problem for other questions if u forget to change the mode from BGN back to END mode. |

ashok1959 |
can any one tell me how to set calculator from end to bgn mode. |

arkot90 |
for hp calculator just press g beg to set to bgn mode or g end to return to end mode |

olagbami |
u can jst calculate the ordinary annuity using d default mode of d BA II plus calculator (no need to adjust ur calculator) and multiply ur result by 1+r. That will give u d annuity due. |

sogah |
thanks jaan that helped |

EEEEvia |
can anyone tell me why FV=0?? |