# Present value with annuity

An investment pays €300 annually for five years,n with the first payment occurring today. how is the present value (PV) of the investment discounted at a 4% annual rate is closest to €1,389?

I can find answer closed to €1,336. why is it multiplied by 1.04?

thank you!

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Because it’s an annuity due: the first payment occurs today.

Put your calculator in Begin mode.

Simplify the complicated side; don't complify the simplicated side.

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It is a beginning period and not an ending period annuity.

you need to change the way your calculator is doing annuities by setting it on “BGN”

another way (that I personally prefer) is to modify the calculation.

PMT + annuity end period(N-1) = Annuity beginning period

300 + Annuity end period (4 periods)

300 + 1089 = 1389

Hey man,

Try this out in your financial calculator, whilst taking into consideration the advice provided above.

1. [2nd][BGN][2nd][SET] > Puts in BGN Mode.
2. [2nd][QUIT] > Returns to Standard Calc.
3. [2nd][CLR TVM] > Clears TVM work sheet > 0.
4. 5 [N] > Five year periods > N=5.
5. 4 [I/Y] > IR > I/Y = 4%.
6. 300 [PMT] > Set payment annually to > PMT = 300.
7. CPT [PV] > Gives you the PV > 1,388.97.

I hope this helps, if you need me to explain anything, let me know.

Also, I posted a video in the forum for TVM financial calculations… check it out!

Best,
RH x

Hi, if you’re using the BAII calculator switch to BGN mode by pressing 2nd BGN(PMT) button then inter the numbers as giving in the question above You get the correct answer of \$1,389 /-or also you can treat the question as ordinarily annuity and add back the \$300 fst  payment to the answer you have got.

plugin the bellow will give the right answer: N =4,I\¥ =4 ,PMT =\$-300,FV =0 ,Calculate PV then add to the answer the \$300 which the investor received all ready.

I hope this helps

Hi

All depend on the time of receiving cash flow.if the first CF is received today it will not be bcbg discounted.

https://www.udemy.com/master-corporate-finance-with-practical-exercices/...

Because it is an annuity due, you do not discount the first payment (occurring in t=0). Therefore:

• t=0, €300 (no discounting)
• t=1, €300/(1+4%)1 = €288
• t=2, €300/(1+4%)2 = €277
• t=3, €300/(1+4%)3 = €267
• t=4, €300/(1+4%)4 = €256

If you sum it all : €300 + €288 + €277 + €267 + €256 = €1,389

If it is an ordinary annuity, you do discount the first payment (occurring in t=1). Therefore:

• t=1, €300/(1+4%)1 = €288
• t=2, €300/(1+4%)2 = €277
• t=3, €300/(1+4%)3 = €267
• t=4, €300/(1+4%)4 = €256
• t=5, €300/(1+4%)5 = €247

If you sum it all : €288 + €277 + €267 + €256 + €247 = €1,336