Original practice · fully worked
Original variant: four biennial archive grants
A digital archive will receive four grants of 10 at years 2, 6, 10, and 14. The discount rate is 4% effective annually. Calculate the present value rather than expressing it as a symbolic annuity factor.
- A
25.80 - B
27.10 - C
29.68 - D
31.20 - E
34.00
Answer and calculation
Summing the four spaced discount factors gives present value 29.68, choice C.
Setup
Setup
The grants are four years apart after the first year-two payment, so v to the fourth power is the geometric ratio.
PV=10(v2+v6+v10+v14),v=1/1.04 Model
Model
Factor out the first discount term and sum four terms of the resulting geometric progression.
PV=10v21−v41−v16 Compute
Compute
At 4%, the explicit sum equals 29.67910.
PV=29.67910 Answer
Answer
The archive grants are worth 29.68 today, which is choice C.
PV=29.68(C) Calculator reproduction
BA II Plus keystrokes
- CF; 2nd CLR WORK; CF0=0; C01=0; C02=10; C03=0; F03=3; C04=10; C05=0; F05=3; C06=10; C07=0; F07=3; C08=10; NPV; I=4; CPTNPV = 29.68The worksheet period is one year; the three-zero frequencies place grants at years 2, 6, 10, and 14.