Time value of money (goals based mvo)

CFA Level III Portfolio Management
#1

I am having trouble remembering how to calculate this question using my financial calculator. Could you please refresh my memory on how to properly input this info. Do I need to use bgn mode?

The question reads: Goal 2- 99% chance of being able to maintain current annual expenditures of $100,000 for the next 10yrs, assuming annual inflation rate of 3% from year 2 onward. (2.2% - the correct discount rate for the example)

I can find the right answer when I do out the math out as shown below, but otherwise I can’t seem to calculate the right answer using my N, I/y, Pv, pmt, fv keys.

The math is as follows:

100,000/(1.022)^1 + 100,000(1.03)^1/(1.022)^2 + 100,000(1.03)^2/(1.022)^3 … 100,000(1.03)^9/(1.022)^10

Please help if you can, thank you!

#2

The correct PV in the answer key comes out to be $1,013,670

#3

Use 100000/1.03 = 97087.378 as PMT and ( 0.022 -0.03)/1.03 = -0.776699% as I. N=10 CPT PV 1,013,669.773. Good night!

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#4

Watch Example 2 (at time 10:55) to see the I/Y and PMT that should be used as inputs in your financial calculator

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#5

Thank you very much. This helped a ton my brain was scattered.

#6

Thank you!

1 Like
#7

Mark