- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 4. Annualized Return
CFA Practice Question
Which of the following amounts is closest to the end value of investing $100,000 for 5 years at an effective annual interest rate of 12% compounded annually.
B. $172,000
C. $176,234
A. $182,212
B. $172,000
C. $176,234
Correct Answer: C
End value = 100,000(1+0.12)5 = $176,234.17
User Contributed Comments 12
| User | Comment |
|---|---|
| KD101 | If compunded annually, no need to adjust for effective rates |
| jimlis | BAII - enter 100,000 and hit PV;enter 12 and hit I/Y;enter 5 and hit N;hit CPT then FV. |
| chuong | Another way using BAII to calculate through the Effective annual rate Nominal rate = 60 (12% x 5 years C/Y = 5 -> Effective rate = 76,234.17 Ending vaue = (1+ 76,234.17) x 100,000 = 176,234.17 |
| Nathan | The fastest way for such a simple problem is to use (1 + 0.12) ^ 5 and you can immediately see which of those answers is your answer, 1.76234, with a decimal adjustment. |
| mordja | Just use the TVM functionality. PV -100,000 N 5 I/Y 12 CPT FV result is 176,234.17. |
| amarchinta | I am getting 176,170 by doing TVM in BA II Plus as suggested by mordja? |
| johntan1979 | There is no way you can get 176,170 by following exactly. Only possibility is your calculator is faulty or you forgot to clear your TVM before attempting this. |
| mbowa | Guys, what an i missing?, if i use the T1 BA calculator & hit the buttons ur recommending, i get 105,738.814...Am i doing anything wrongly? |
| Rachelle3 | do this ( 1 + 0.12) ^5 = 1.7623416832 simple! |
| Rachelle3 | (1 + rate ) to the power of the years |
| Chl4072 | NOM=? C/Y=? EFF=? |
| nadiahalus | Thanks, dear Jimlis and Mordja. The quick and correct approach was used! |