Equivalent Single Amount Calculation for Future Cash Flows | CFA Level 1 Exam Prep

Equivalent Single Amount Calculation

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Question

If your estate were to receive $100 a year, beginning next year, for 100 years, what is the equivalent single amount today that this series of cash flows is equal to, assuming interest is 5% per year, compounded annually?

Answers

Explanations

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Explanation

On the BAII Plus, press 100 N, 5 I/Y, 100 PMT, 0 FV, CPT PV. On the HP12C, press 100 n, 5 i, 100 PMT, 0 FV, PV. Note that the answer will be displayed as a negative number. As a side note, continuing the $100 payments for 10,000 years only increases the PV today by a little over $15. This is because the $100 payments beyond 100 years from now would add very little to the PV today. Make sure the BAII Plus has the value of P/Y set to 1.

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