- 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 expect to receive a series of annual payments of $6572.89 forever. The present value of this series of payments is $45,000. At what rate of interest can these payments be invested?
B. 6.85%
C. 14.61%
A. 1.461%
B. 6.85%
C. 14.61%
Correct Answer: C
r = A/PV
User Contributed Comments 9
| User | Comment |
|---|---|
| Laurel | I got an answer of 6.84%. Need to alter the equation before plugging in the information. |
| Claudio | r = 6572.89/45000 = 0.1460642 |
| zuke | just divide the payent by each of the four options until you get 45,000 |
| Nathan | It's easiest and fastest to divide the payment by the present value. You have to know the equation r=A/PV to understand your calculation whether you're trying each answer or whether you're finding the best option to fit what you know is right. |
| SamehHassan | easy and tricky if u r not focused , formula is help put everything on papaer dont do it on the fly bcz u might choose wrong answer |
| assiduous | Again, the key word in this is "forever." Think of it this way... You have $45,000 today. You would like to live off of the interest from this money "forever." You decide $6,572.89 is the amt of interest you want the $45,000 to return to you every year. So you simply ask yourself, "what interest rate (i.e. rate of return) will get the job done?" 6,572.89/45,000 = 14.61% (see my comment on question 12) |
| jjh345 | Not sure... if PV=A/r, then r=PV/A, hence 6.85% |
| wpaxtonn21 | @jjh345 you must be a mathematician or something |
| kimmykim23 | PV=A/r PV*r=A r=A/PV r=6572.89/45,000 r=.14606 |