Advanced Annuities

This is an illustration given on page 69 of the kaplan study text.

A five-year annuity is starting today. Interest rates are 10%. Find the PV of the annuity.

Solution:

This is essentially a standard 4 – year annuity with an additional payment at T0. The PV could be calculated as follows:

Years cashflow PV factor Present value
0 600 1 600
1 600 0.909090909 545.4545455
2 600 0.826446281 495.8677686
3 600 0.751314801 450.7888805
4 600 0.683013455 409.8080732

In this question, we have paid at the start of the five year period i.e. today. That is why the year 4 in the above table is technically the fifth year of the “five-year” annuity, right??

Am I right?

If it said that the first payment is made at start of year 1. then we would have added another year in the solution??

Also, would we be provided excel to solve such questions (MCQs) in CB exam?