- CFA Exams
- CFA Level I Exam
- 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**

A property is bought for $500,000 and sold for $720,000 after 7 years. What rate of interest was earned on the investment over the 7 years?

A. 5.31%

B. 5.32%

C. 5.35%

**Explanation:**Using Texas Instruments BA II Plus:

500000 ± PV: PV = -500,000

720000 FV: FV = 720,000

7 N: N = 7.00

CPT I/Y: I/Y = 5.35

Using Hewlett Packard hp 12 C:

f CLEAR FIN: 0.000000000

f CLEAR REG: 0.000000000

7 n: 7.00000000

500000 CHS PV: -500,000.0000

720000 FV: 720,000.0000

i: 5.34725241

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**User Contributed Comments**
4

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

TammTamm |
Don't forget to round up. I did. :( Simple mistake |

Joel1980 |
Not really interest earnt on the investment... just saying! |

jpducros |
Other solution (not simpler): (720-500)/500=0,44 or +44% in 7 years. Average per year is (1+0,44)^1/7=1,0534 or +5,35% |

Slav |
I get 5.24 with the same inputs |