An investor wants to receive $10,000 a year for 10 yrs with the first payment starting 5 yrs from today. If the investor can earn 14% annual return, the amount that she will have to invest today is a $27,091 b 30,884 c 52,161 d 73,667
B PMT=10000 I/Y=14 N=5 CPT PV = 52,161.16 Since it’s annuity due = 52 161.16*1.14 = 59463.72 Then discount back 5 yrs: 59463.72*(1.14)^-5 = 30,884
why did you multiple the value needed at T5 by 1.14?
Because I didn’t change the mode to BGN. I usually stick with the END mode.
I see…thast probably why i came out with answer A…CURSES!
lol…that’s exactly why I decided to stick with the END mode, because I’m pretty sure I would forget to change modes in the “heat” of the exam.
i fell for the trap Picked A at first, but now I realize it’s B. I usually look for begin or begining in the wording of the question for annuity due. I guess “first” is also a good indicator.
You could also solve this problem as PMT=10000 N=10 I/Y=14 PV = 52161 Now this is present value at the end of year 4 So for the actual “pv” today FV = 52161 N=4 (NOT 5) I/Y = 14 CPT PV = 30883.59 …> 30884 Draw a time line. The PV of the first 10 payments becomes end of year 4, beginning of year 5. So you know the next has to be only for 4 periods.
Or you can just look at it as a normal annuity at the end of year 4 (since end of year 4 is pretty much identical to begining of year 5!) So you’d go: PMT=10000 I/Y=14 N=5 CPT PV = 52,161.16 Then discount back 4 years 52161.16/1.14^4 = 30884 many ways to flay a moggy.
Hey i tried entering the PMT, I/y and N as mentioned and I get my PV value as 34330.81… i dunno wats wrong with my calc… it was working fine till yesterday… please help… damn i dont want this to screw up now…
- You may be in BEGIN Mode. 2. You may not have performed a 2nd ClR TVM (the FV button) on your TI BA Calc. so old values are being persisted. CP
tried checking both…even reset the calculator. and my p/y is also set to 1. Still get the same errors
That’s because N should be 10. Good spot - I’d just copy and pasted the first bit. Answer is still right though.
Ok Solved now. I started panicking for a second. I think i followed the wrong calculation mentioned by Kevin and entered N = 5 instead of 10 and hence got the wrong value. Sorry for the previous posts…Thanks CPK and chrsmaths