Page 10 - FINAL CFA SLIDES JUNE 2019 DAY 2

LOS 6.e: Calculate and interpret the FV & PV of a Session Unit 2: The Time Value of Money
single sum of money, an ordinary annuity, an annuity
due, a perpetuity (PV only), and a series of unequal
cash flows.

Example: PV of a bond’s cash flows

A bond will make coupon interest payments of 70 euros (7% of its face value) at the end of each year
and will also pay its face value of 1,000 euros at maturity in five years. If the appropriate discount rate is
8%, what is the present value of the bond’s promised cash flows?

Answer: N = 5; PMT = 70; I/Y = 8; FV = 1,000; CPT PV = –960

Note that the PMT and FV must have the same sign, since both are cash flows paid to the investor (paid by the bond issuer).
The calculated PV will have the opposite sign from PMT and FV.