TVM doubt

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PSRs900

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Hey guys,

i have a doubt in the following question of future value of annuity due in quants section

If u deposit 1000 in a bank today and at the beginning of each of the next three years, how muchwill u have 4 years from today at 6 percent interest …

ANSWER as per schewer is

put calc in BGN mode and insert N =4 Interest = 6 PMT = 1000 compute FV and answer of FV is 4637.09

MY DOUBT is

why dont we put PV as 1000 as we deposited today and PMT as 1000 and N= 4 and interest as 6…..

please guys help me out…..
 
You’re putting in 1000 today, so PV is -1000.
You’re putting in -1000 every year for the next three years, so Pymt = -1000 and N=3.
Interest = 6%
Solve for FV. FV will equal 4,374.616. This represents the value in three years.
But the problem asked for the value at the end of four years. So take your $4,374.616 and grow it at 6%, either with the TVM buttons or with math. (I would take 4,374.616 x 1.06.) Your answer is $4,637.09.
If you do what you said, PV = 1000 and Pmt = 1000 and N = 4, then that shows $5000 of deposits, which is not correct. You only deposited $4,000.
 
Thank u so much……
u indeed relieved me…..
thks a lot
 
BTW, I think you should post lvl 1 related questions in CFA Level I Forum.
 
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