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?
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.
You could draw a time line. Consider a time line with ordinary annuity with the first payment occurring at t=1. The PV of this ordinary annuity locates at t=0.
Now consider an annuity due. With the first payment occurring at t=0, if you use the formula provided by the curriculum, you would find the PV you got locates at t=-1. So you gotta discount that to t=0.