CFA CFA Level 1 TVM

# TVM

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• 26

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

• 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?

• 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.

• 2

end of year deposits ughh got it. Thanks

• 0

thanks for the explanation

spin the wheel

• 0

Finally I found a proper explanation! thanks a lot

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

• 0

suitable explanation. Thanks a lot!

Minesweeper