- CFA Exams
- CFA Exam: Level I 2021
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 3. The Future Value and Present Value of a Single Cash Flow

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**CFA Practice Question**

You anticipate that you will receive $4,500 at the end of 5 years. If you had the money today, it could be invested at a rate of 5% per year. What is the present value of the money?

B. 5,743.27

C. 21,428.57

A. 3,525.87

B. 5,743.27

C. 21,428.57

Correct Answer: A

PV = 4500 x (1/1.05)

^{5}= 3525.87###
**User Contributed Comments**
19

User |
Comment |
---|---|

Laurel |
The calculation showed FV=PV(1+r)n How did the FV end up being multiplied by the PV? Why is the 1 divided by the interest rate instead of added to it? |

Deano |
This is rediculous - you cannot rearrange the formula to get PV=FV(1/r)n, they are two completely different formulae. |

Deano |
Actually - DOH! It's simple just rearrange to PV = FV/(1+r)^N this works, really easy actually... |

Iyer |
You dont even have to apply the formula[for this particular question]. I looked at the 4 choice, I know PV should be lower than FV ( at a positive 5% rate]. Since B,C,D are all greater than 4500 they are all wrong. Hope this was useful :) |

vivi |
Good tip Iyer. The formula is : PV = FV (1 + r) ^-n. You're discounting back (negative) since PV is the value at point A and FV is the value at point B. This is the same as : PV = FV (1 / 1 + r)^ n. |

KD101 |
I agree with Iyer - I always first try to eliminate answers and then see if only one is left - and then apply formulas |

jimmymh |
hey guys, it's easier to plug it in the calculator and find the answer. |

Will1868 |
No kidding go by an HP12c and save the headache |

jimlis |
BAII - enter 4500 and hit FV;enter 5 and hit I/Y;enter 5 and hit N;then hit CPT and PV. |

kaliokale |
Dun even use your calculator. You can tell the answer is A by just looing at the numbers. |

SamehHassan |
without the calc, you can tell it is A as it is the only value is less than the future value on the question. others are greater amount. |

CRickert |
You guys are funny. This is day one stuff in any Intro to Finance class. Time to take a break. |

TammTamm |
Why even learn the formula when you can input the numbers in the calculator. FV=4500 I/Y=5 N=5 Compute PV answer: 3525.87 |

Crown01 |
PV<FV therefore, in exam hall, just choose A, -> save your time. :) |

jabran |
why even compute. The first answer is the only logical answer (PV < FV). |

owot |
good 1......... jabran, dats wot i was wandering too |

jorgeman81 |
exactly in the exam you don't have much time, for sure no time to calculate the formula just to input the values in the BAII or the HP, and if you can guess the answer without using the calculator that's even better |

Kaloyan |
unless the rate is negative. Then PV got to be bigger than FV. haha |

johntan1979 |
Lots of wise-***es but the passing rate remains around 40% annually. Go figure. |