Present Value of Annuity Due Using Financial Calculator?
I am going over a question that provides somewhat of a solution, but I can’t figure out what I need to punch into my financial calculator to give me the same answer.
1. Your cousin just came home from a poker tournament in Las Vegas and is now trying to
pay off a gambling debt of $5,000. You have agreed to pay off the debt for him today,
and in return he has agreed to pay you $250 per month over the next two years with
payments beginning immediately. What is the effective annual interest rate you are
charging him?
A) 19.75%
B) 19.86%
C) 21.77%
D) 22.26%
E) 23.45%
Answer C
5,000 = 250 x PVIFA (i,24) x (1+i) because it is an annuity due
Solve for i using your financial calculator: i = 1.6550%
EAR = (1 + im )m -1 = (1.01655)12-1 = 21.77%
Yes the solution is provided, but I can’t figure out how to solve for i using my financial calculator.
Hey, i have to same exam on sunday:
You should change your calculator in begin mode to calculate I/Y cause its an annuity due.. Make sure you put (-) sign in present value (-5000)
To change the setting to begin mode:
To change to Begin Mode, press 2nd PMT. You should see that it says END on the screen. Now, press 2nd ENTER to change that to BGN and finally press 2nd CPT to exit from setting the calculation mode.
.. Good luck! 
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