- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

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**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

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**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 |