- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

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**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?

B. $4,747.50

C. $4,812.26

A. $4,500.00

B. $4,747.50

C. $4,812.26

Correct Answer: C

n = 30

i = 5.5/12 = 0.45833

PV = 0

PMT = 150

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

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**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 |