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What is the NPV of a yearly payment starting at 100 and increasing 2% yearly for 15 years when the discount rate is 4%. ANS b
a. 1,120
b. 1,260 (ANS)
c. 1,470
d. 1,620
SOLUTION
1. Key in the total number of payment periods and press the n key.
2. Key in the payment percentage increase per period expressed as one plus the decimal interest rate and press ENTER . (If there is a percentage decrease, key it in as one minus the decimal interest rate).
3. Key in the discount interest rate per period expressed as one plus the decimal interest rate and press the DELTA% key, then the i key.
4. Key in the amount of the starting payment and press x<>y , ÷ , and PMT .
5. Press PV to calculate the present value of the payment stream.
= -1,263.44
The question here is that the calculation using END mode gives a result of -1,263.44 while the BEGIN mode is -1,724.45. It appears that the correct answer is using END mode although the question seems to indicate it should be BEGIN mode. Can anyone explain why?
a. 1,120
b. 1,260 (ANS)
c. 1,470
d. 1,620
SOLUTION
1. Key in the total number of payment periods and press the n key.
2. Key in the payment percentage increase per period expressed as one plus the decimal interest rate and press ENTER . (If there is a percentage decrease, key it in as one minus the decimal interest rate).
3. Key in the discount interest rate per period expressed as one plus the decimal interest rate and press the DELTA% key, then the i key.
4. Key in the amount of the starting payment and press x<>y , ÷ , and PMT .
5. Press PV to calculate the present value of the payment stream.
= -1,263.44
The question here is that the calculation using END mode gives a result of -1,263.44 while the BEGIN mode is -1,724.45. It appears that the correct answer is using END mode although the question seems to indicate it should be BEGIN mode. Can anyone explain why?
