CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

Your rich aunt has offered to give you $150 at the end of each of the next 30 months. You plan to put the money into your savings account, which pays an interest rate of 5.5% per year compounded monthly. How much do you expect to have at the end of the 30 months?

A. $4,500.00
B. $4,747.50
C. $4,812.26
Correct Answer: C

Use the time value of money functions of your calculator:
n = 30
i = 5.5/12 = 0.45833
PV = 0
PMT = 150

CPT FV => FV = $4,812.26

User Contributed Comments 13

User Comment
Hamma This is what i did: =150*[1+(0.055/12)]^30 =172.0567... confused.. anyone can comment?
jminard Hamma:
you are calculating the future value of ONE payment only, but the question asks for the sum of 30 payments!
lna1717 =150*((1+5,5/12%)^30-1)/5.5%/12=4812.26
stefdunk BAII
p/y=12, c/y=12
i/y = 5.5
pmt = -150
n = 30

cpt fv = 4,812.26
monicaATL also... if you don't want to switch your settings on your BA II...

i/y=0.4583 (5.5%/12)
n=30
pmt=-150
=4,812.24
mansi why are we not calculating the EAR here??
smillis Let's say we do use EAR...
EAR = (1+.055/12)^12-1=5.64%

N=30 months
i=5.64%/12 (monthly compounding)
pmt= -150
FV=4820.56

hmm...is the difference a more "accurate" interest rate used? Comments?
JKiro smillis - I prefer using EAR this way:
{1+r)^n - 1; r=rate;n=# of compounding periods in a year:
(1+0.055)^(1/12) -1 = 0.447;
using HP12c:
150[CHS][PMT]; 0.45[i](rounded); 30[n]; [FV]= 4812.02
hillrat If you don't use a calculator what is the actual formula? Is this essentially an annuity?
Raok I like the word rich aunt
BMore Here's the formula I used:

FV = 150 * (((1+(.055/12))^30)/(.055/12)) - 1
nabada0419 FV=150 * [(1+.055/12)^30-1]/(.055/12)= 4812.261132
plammar71 Cy 12 py12
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