Hey guys, i have a doubt in the following question of future value of annuity due in quants section If u deposit 1000 in a bank today and at the beginning of each of the next three years, how muchwill u have 4 years from today at 6 percent interest … ANSWER as per schewer is put calc in BGN mode and insert N =4 Interest = 6 PMT = 1000 compute FV and answer of FV is 4637.09 MY DOUBT is why dont we put PV as 1000 as we deposited today and PMT as 1000 and N= 4 and interest as 6…… please guys help me out……
You’re putting in 1000 today, so PV is -1000.
You’re putting in -1000 every year for the next three years, so Pymt = -1000 and N=3.
Interest = 6%
Solve for FV. FV will equal 4,374.616. This represents the value in three years.
But the problem asked for the value at the end of four years. So take your $4,374.616 and grow it at 6%, either with the TVM buttons or with math. (I would take 4,374.616 x 1.06.) Your answer is $4,637.09.
If you do what you said, PV = 1000 and Pmt = 1000 and N = 4, then that shows $5000 of deposits, which is not correct. You only deposited $4,000.
Thank u so much…
u indeed relieved me…
thks a lot
BTW, I think you should post lvl 1 related questions in CFA Level I Forum.
Listen to Eddie.