CFA CFA Level 1 TVM

TVM

  • This topic has 7 replies, 7 voices, and was last updated Jan-2412:55 pm by pcunniff.
  • Author
    Posts
    • pcunniff
      Participant
        • CFA Level 1
        Up
        32
        ::

        Why on this question are you taking 4000 by the power of 6 vs 8? Refer to the solution below. I am confused as to why they are using 6 vs the power of 8. Can someone help?

        A saver deposits the following amounts in an account paying a stated annual rate of 4%, compounded semiannually:

        Year End of Year Deposits ($

        1) 4,000

        2) 8,000

        3) 7,000

        4) 10,000

        Q. At the end of Year 4, the value of the account is closest to:

        $30,432$30,447$31,677

        B is correct. To solve for the future value of unequal cash flows, compute the future value of each payment as of Year 4 at the semiannual rate of 2%, and then sum the individual future values, as follows:

        YearEnd of Year Deposits ($)FactorFuture Value ($)

        1 4,000(1.02)^6 =4,504.65

        2 8,000(1.02)^4 =8,659.46

        3 7,000(1.02)^2 = 7,282.80

        4 10,000(1.02)^0 = 10,000.00

        Sum =30,446.91

      • hhamad
        Participant
          • CFA Level 1
          Up
          3
          ::

          I tried to solving it by the BA calculator through cf button, but it doesn’t show the right answer; I got a total of A. $30,432. can someone explain?

           

        • cfachris
          Participant
            • CFA Level 3
            Up
            2
            ::

            Because at the END of year 1, 2 semi annual periods have actually passed, so there are 3 years left to end of year 4, i.e. from end of year 1 to end of year 4 is 3 years, i.e. 6 semi annual periods.

          • pcunniff
            Participant
              • CFA Level 1
              Up
              2
              ::

              end of year deposits ughh got it. Thanks

            • IsabelTyson
              Participant
                • FRM Part 1
                Up
                0
                ::

                thanks for the explanation

                spin the wheel

              • brendonbill
                Participant
                  • FRM Part 1
                  Up
                  0
                  ::

                  Finally I found a proper explanation! thanks a lot

                   
                  <p style=”text-align: right;”>gamblorium</p>

                • SaintOtis12
                  Participant
                    • CFA Level 3
                    Up
                    0
                    ::

                    suitable explanation. Thanks a lot!

                    Minesweeper

                  • maldiv097
                    Participant
                      • FRM Part 1
                      Up
                      0
                      ::

                      B is correct. To solve for the future value of unequal cash flows, compute the future value of each payment as of Year 4 at the semiannual rate of 2%, and then sum the individual future values, as follows:

                  Viewing 7 reply threads
                  • You must be logged in to reply to this topic.