- 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
Congratulations, you have won the lottery! Your prize is 50 payments of $200,000. The payments will be made at the end of each of the next 50 years. You plan to invest the payments at a rate of 7% per year. What is the present value of your lottery prize?
A. $10,000,000.00
B. $2,953,359.71
C. $2,760,149.26
User Contributed Comments 9
| User | Comment |
|---|---|
| mansi | can any one please explain how to do it with the calculator? |
| flobeebhead | PMT = $200,000, n = 50, i = 7, FV = 0, solve for PV |
| CFAlearner | I tried that and get $8,412,918.59. What am I doing wrong? |
| jalbr270 | You must divide i by 12. |
| Allen88 | I used the Present Value Annuity formula and got the correct answer. @jalb, i don't think you need to divide by 12. |
| BmyOwnBoss | I entered in the formula as you noted flobeebhead in baII plus however i get 2,675,027.96 instead.. what could be the problemo? |
| ksnider | if you calculate it using the CF function on the calculator you get the correct answer |
| dipu617 | In the BA II Plus, Texas Instrument: PMT= 200,000; I/Y=7; N=50; [CPT] PV= -2,760,149.26 |
| kingdave | this is a present value of annuity because you have a cash flow received which is reinvested each time at the rate 7%, which is the discounting factor you can get the discounting annuity value by doing, ((1+0.07)^50-1)/(0.07*(1+0.07)^50), and then you multiply it by the cash flow in this case which is 200,000 |