[Spartans92]

I am so confused on the time value of money. I am confused on the question, I can narrow the answers down but I always choose the wrong answer on the homework questions. I just don’t understand when to use PV or FV or ordinary vs annuity due. Unlike a finance class I have taken it would alway state clearly what is the amount now or in 10 years and plus we have a financial calculator so it makes it much easier. But I don’t get that on the exam. To make matters worse, becker only have 4 questions on this section. I understand its a small one but I don’t want to lose easy points on the exam.

Question:

On March 15, Year 1, Ashe Corp. adopted a plan to accumulate $1,000,000 by September 1, Year 5. Ashe plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually. Ashe made the first deposit on September 1, Year 1. Future value and future amount factors are as follows:

Future value of 1 at 10% for 4 periods

1.46

Future amount of ordinary annuity of 1 at 10% for 4 periods

4.64

Future amount of annuity in advance of 1 at 10% for 4 periods

5.11

Can someone explain why not use the 4.64?

BEC- PASS

[monikernc]

There are some good videos on youtube to help with this topic. Miles, capital budgeting for bec does a 20 minute review shortly after the video starts. In the review his shirt is blue.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Spartans92]

Thanks monikernc! Will definitely check the video out. Good Luck with Reg!

BEC- PASS

[marqzho]

If the first payment is on Sept 1 Year 2 , you will use Future amount of ordinary annuity of 1 at 10% for 4 periods 4.64

If the first payment is on Sept 1 Year 1 , you will use Future amount of annuity in advance of 1 at 10% for 4 periods 5.11

annuity in advance means payment is made at the beginning of the period
ordinary annuity means payment is made at the end of the period

REG 90
FAR 95
AUD 98
BEC 84

[Anonymous]

Think through when the deposits are happening relative to when the final date is. In this case, deposits happen:
September Year 1
September Year 2
September Year 3
September Year 4

There's 4 deposits total, so last deposit is Year 4.

Then they're wanting to have the money there by September Year 5. So, the deposit is happening at the beginning of the period, since the last deposit happens almost a year before they withdraw it, and the periods are a year each.

Does that way of thinking through it make sense?

I'd use that same thought process to approach each such question.

[Author]

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