- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 5. The Future Value and Present Value of a Series of Uneven Cash Flows
CFA Practice Question
The following end-of-month payments of $400, $700, and $300, respectively, are due. Given a stated annual interest rate of 3.60 percent, the minimum amount of money needed in an account today to satisfy these future payments is closest to ______.
B. $1,327
C. $1,368
A. $1,391
B. $1,327
C. $1,368
Correct Answer: A
The monthly interest rate is 3.6/12 = 0.3. The present value is $1,391.48 = $400.00/(1 + 0.3%) + $700.00/(1 + 0.3%)2 + $300.00/(1 + 0.3%)3.
Using a financial calculator: CF1 = 400, CF2 = 700, CF3 = 300, I= 0.3 Compute PV, PV = 1,391.48
User Contributed Comments 8
| User | Comment |
|---|---|
| tomalot | Method one gives a NPV of 1,322.709. Method 2 seems correct. Confused! |
| lordcomas | Does anyone has an idea where to find a tutorial for using cashflows with the TI BAII plus? |
| bwhitele | Why is the solution using i = 0.3 and not 0.36? |
| myron | because it's the monthly interest rate @bwhitele |
| ashish100 | Yeah, issue as lordcomas. How do i add the "I" on BAII plus? Thanks in advance. |
| IvanRios | 3.6%/12months = .3/per month. That is why I = 0.3 |
| Sagarsan88 | I get an npv of 1396.11...i used the CF method on calc....any clue why the nos don't match...thank you |
| nadiahalus | For BA II: 2nd.CF. CF0=0. ARROW DOWN. C01=400.ENTER.F01=1. C02=700.ENTER.F02=1. C03=300.ENTER.F03=1. PRESS NVP.I=0.3.ENTER.ARROW DOWN.NVP=1391.94 CORRECT ANSWER A. |