Need some clarification for this probelm. Q. What is the present value of four $100 end-of-year payments of the first payment is to be received three years from today and the appropriate rate of return is 9%? Ans (Schweser) Input the relevant data and solve for pv2. N=4; I/Y=9’PMT= -100 PV2 = $323.97 My doubt why is N=4 and not N=3?
There are 4 payments, so N is 4. This seems to solve for the value at t=2 of a stream of 4 end-of-period payments. Maybe that’s what they call “PV2”. You then need to do an additional 2-yr discounting to arrive at today’s (t=0) PV.
Thanks for your response. So the first payment is at t =0 followed by t=1,t=2 and t=3. My doubt is if the payment is at the end of the year how come there can be a payment at t=0.
first payment is at t=3 (per the problem). If your calculate is set to end-of-period payments (the default) then PV calcs will be relative to one period before the first cash flow; so here, t=2.
I got the second part of using t=2 to get the PV. I am confused about getting the base PV (t=3) to get the pv at t=0. Can you please solve this for me. I think that will make things clear.
I got it now. Thanks for your help.
Is 272.6808 the correct answer to the Question above? - Dinesh S
Dinesh - That’s what I calculated. Student101? Darien?
Yes you are correct.
can you explain a little bit more? I’ve had problem with the wording of TVM questions like this before…
draw a timeline 0 1 2 3 4 5 6 100 100 100 100