PV on Annuity question investor, receive, question, first

manchester88

#19 on Schweser Exam 1 morning session.
Q:An investor wants to receive $10,000 annually for ten years with the first payment 5 years from today. If the investor can earn 14% annual return, the amount she will have to invest today is closest to:
A. 27,091
B. 30,884
C. 52,161
A:This problem involves determining the present value of an annuity followed by finding the present value of a lump sum. Enter PMT = 10,000, N = 10, and I = 14. Compute PV = 52,161.16. That is the present value of the 10year annuity, four years from today. Next, we need to discount that back to present for four years to find the amount of the investment today. Enter FV = ?52,161.16, N = 4, I = 14, PMT = 0. Compute PV = 30,883.59.
My question is about drawing the timeline  Do you start at #0 or #1. “4 years from today” at 0 would bring you to year 4 and year 5 for starting at #1.
This really throws me off in getting the right answer  any tips on how to draw the timeline for this one?

Swanand

OKay yea that makes sense, thanks! The wording in the answer confused me when it says “4 years from today” and “discount that back to present for 4 years” instead of 5.. still confusing but going your route makes sense.
I got a 61% =(. Frustrating b/c I’ve been scoring low 70’s to low 80’s on Q bank tests but blew this one and the CFA mock.

SpyAli

Hi. I did this morning session last night (and this problem, etc.).
The way to think about it is in 2 segments.
0 Yrs – 5 Yrs (Payments begin)  15 Yrs (Payments end).
I start with second segment and calculate the value of an annuity into my TI BA II Plus.
N=10 Yrs.
PV=0 (he will have no money left after the $10,000 payments end)
PMT = $10,000
INT = 14%
Solve for PV (how much money he needs at start when these payments begin).
Then I take that # and discount it back 5 years (1.14^5) to get the number for today.
How did you do on this practice exam?