- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 2. Fixed Income Instruments and the Time Value of Money
CFA Practice Question
Andrea Palmer has saved $25,000 in her bank account. She is thinking of moving it to a money market account that pays a fixed 3.75% stated annual rate, compounded monthly. If Andrea continues to save $600 per month from her salary at the end of every month for the next three years, how much money will she have after three years?
A. $50,912
B. $50,796
C. $46,917
Explanation: Andrea has $25,000 today and will save $600 monthly at the year's end. The latter is an annuity. The future value of both can be computed in one step on a financial calculator. Interest = 3.75/12 = 0.3125%, since compounding is monthly. In the BGN mode: PV = 25,000; N = 36; I/Y = 0.3125; PMT = 600; CPT FV = 50,796.
User Contributed Comments 12
| User | Comment |
|---|---|
| mc25456 | Why the BGN mode? |
| timbball | it's not in BGN mode. |
| rrichmondo | Should be switched to the end mode as the payments are at the end of each month |
| Joel1980 | BGN mode gives the wrong answer. Payments are made end of month, so stick with END mode. |
| kellyyang | can anyone teach how to set END mode at BAII plUS! Thanks! |
| JimmyP | kellyyang 2nd then Enter 2nd PMT Changes from BGN to END or vice versa |
| cebus | JimmyP: you got the order mixed up...although I'm sure kellyyang already figured that out |
| thekobe | kelly think it this way: 25,000 to be invested during three years monthly compounding so we have 27,971 at the end of year 3, and an annuitie of 600 during 3 years so the fv value is 22,824.18 so we add together these two quantities to get 50795.98 |
| lawlee | thekobe can you please explain how you got the 22,824.18 numbe |
| lawlee | got it now |
| lawlee | Why the PV amount is not negative? |
| msabanka | lawlee you can get 22824.18 by PMT = 600, I/Y = 0.3125, N = 36, CPT FV = 22824.1864 |