What is the present value of $350 per year for 10 years, with the first cash flow occurring today, rather than 1 year from now? Assume interest is 8% per year, compounded annually.
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A. B. C. D. E.C
Recognize that this question is an annuity due situation, since the first cash flow occurs immediately or at the beginning of each period. Annuities where the first payment occurs 1 period from today (or at the end of each period) are called "ordinary" annuities. This requires placing the calculator into "Begin" mode prior to solving the question. NOTE: Be sure to place the calculator OUT OF annuity due mode after this question before going on to subsequent questions, or you will get the wrong answers! On the BAII Plus, press 2nd BGN. If the display shows END, then press 2nd SET and then 2nd Quit. This will place the BAII Plus into annuity due mode (you can tell this because the BAII Plus will display BGN in small letters). Now press 10 N, 8 I/Y, 350 PMT, 0 FV, CPT PV. Place the calculator back into
End mode (for ordinary annuities) by pressing 2nd BGN and then if the calculator is displaying BGN, press 2nd SET and 2nd Quit. The BGN letters should disappear from the display. On the HP12C, press BlueShift END, which is the blue function on the front of the 8 digit key. This places the HP12C into Begin mode
(the HP12C shows the word BEGIN in the display when in this mode). Then press 10 n, 8 i, 350 PMT, 0 FV, PV. To place the HP12C back into ordinary annuity mode (or END mode), press BlueShift BEG (the blue function written on the front of the 7 digit key). Note that the answer is displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.