CFA Practice Question

There are 410 practice questions for this study session.

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?

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
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