- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 3. The Future Value and Present Value of a Single Cash Flow

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**CFA Practice Question**

You have $500 that you would like to invest. You have two choices: Savings Account A, which earns 8% compounded annually, or Savings Account B, which earns 7.75% compounded semi-annually. Which would you choose and why?

A. You would choose A because it has a higher effective annual rate.

B. You would choose B because it has a higher effective annual rate.

C. You would choose B because it has the higher quoted rate.

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**User Contributed Comments**
3

User |
Comment |
---|---|

azramirza |
A=540 b=539.5 |

poomie83 |
500 x (1+(.0775/2))^2 = 539.5 |

izzarivera |
To compute the EAR using BA II Plus 2nd 2, Nom=I enter,down arrow twice C/Y = N |