Page 64 - CFA - Day 1 & 2 Course Notes

LOS 6.e: Calculate and interpret the Session Unit 2: The Time Value of Money
future value (FV) and present value (PV)

of a single sum of money, an ordinary

annuity, an annuity due, a perpetuity (PV
only), and a series of unequal cash flows.

FV of an Annuity Due

Example: FV of an annuity due

If you deposit $1,000 in the bank today and at the beginning of each of the next three

years, how much will you have six years from today at 6% interest?

Step 1: Compute the FV of the annuity due at the end of Year 4 (FV4).

BGN mode and compute FV4: N = 4; I/Y = 6; PMT = –1,000; CPT → FV = $4,637.09

Step 2: Find the future value of FV4 two years from Year 4.
.
Enter the relevant data and compute FV6: N = 2; I/Y = 6; PV = –4,637.09; CPT → FV = $5,210.23

Or 4,637.09(1.06)2 = $5,210.23