- 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
You are trying to accumulate $5,000 in a savings account at the end of 4 years. The savings account pays 4% per year and you plan to make yearly deposits at the end of each year. How large must the deposits be?
B. $1,250.00
C. $1,377.45
A. $1,177.45
B. $1,250.00
C. $1,377.45
Correct Answer: A
User Contributed Comments 6
| User | Comment |
|---|---|
| KD101 | Simple - 5 payments of B or C will exceed $5,000 and since interest rate > 0% (4%) here - only A can be correct |
| zuke | even more simple to plug it into the calculator and see what the answer is. |
| stefdunk | KD101 - 5 payments of any of the sums will exceed 5000, don't you mean 4 payments? Besides, deductive logic is fine, but I recommend practicing actually working things out, because on the test it might not be quite as easy |
| andyblake | Thank you for the advice KD101. It was very useful! |
| johntan1979 | Agree with stefdunk. The purpose of doing all these exercises is to make sure you get the basics right, know the proper formulas and calculations, NOT trying to be all wise and good at picking answers. It won't be as easy as this in the real exam. |
| Logaritmus | There are no need to use a calculator, B and C is wrong since if interest rates is greater than 0 total payments should be less than $5000. So if C is correct you should pay 4*1377.45 = 5 509.48 > 4*1250 = 5000, B will be correct if and only if I/Y = 0. |