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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceAn investment pays RM5,000 at the end of each year for four years. At a discount rate of 5% a year, what is its present value?
The present value of an ordinary annuity = payment × [1 − (1 + r)⁻ⁿ] ÷ r = 5,000 × (1 − 1.05⁻⁴) ÷ 0.05 = 5,000 × 3.54595 = RM17,729.75. Treating the payments as made at the start of each year (an annuity due) multiplies by 1.05 and gives RM18,616.24. Adding the payments without discounting gives RM20,000.00. The future value of the annuity, 5,000 × (1.05⁴ − 1) ÷ 0.05 = RM21,550.63, values the payments at year four instead of today. Source: SIDC M7 Study Outline Topic 4 Section B.1 Time Value of Money and B.2 Compounding and Discounting Techniques; CFA Institute Level I, 'The Time Value of Money' (as at October 2026).
Using the annuity-due or future-value formula. Payments at the end of each year, valued today, call for the ordinary annuity PV factor.
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