CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

A beginning amount of $75,000 is invested in a money market account. At the beginning of each year, a withdrawal of $7,073.07 is to be made, to pay insurance premiums. The money market account pays an interest rate of 8%. How many withdrawals will this account support?
A. 21
B. 20
C. 17
Explanation: BGN; PV = -$75,000; PMT = $7,073.07; i = 8%; CPT n = 20

User Contributed Comments 12

User Comment
flemato347 when trying to solve this problem by using the present value annuity equation I arrive at: 75000=7073.07{1-(1/1.08)^n)/.08); that can be condensed to 10.60={1-(1/1.08)^n)/.08} but where would you go from here to solve for the ln of n? thanks.
topdan I get 24,5...
tanyak me too...I don't really get this END function on the Texas calculator...can someone explain how to solve this on the calculator?
AlexYuen 75,000 = 1.08 x PV (OA)
75,000/1.08 = PV(OA)
Hence, PV = 75,000/1.08, PMT=7073, FV=0,I=8
wuyi Note: Cash withdraw is at the beginning of each year!
coolnan Texas BAII plus:
2ND BNG
2ND SET
2ND QUIT
7037.07PMT
8 I/Y
-75000PV
CPT N = 20.25
Profache If the problem states witdrawns/deposits are made in the BEGINING of the period, you set the BEGIN funciton in the calculator. If made at the end of each year, set the function to END
phillyj on BA-II, how do you change to a annuity due setting?
nishanttcs Earlier I too got 24.5 as the answer. However there is a trick here. The time we deposit 75000, we take out 7073.07 to pay 1st installment. Now are left with 67926.93 (PV). Use i = 8%, PMT = 7073.07. You get NPER = 19 (exactly). Hence total installments supported are 19+1 = 20
rjdelong i also used nishanttcs method, but then I didn't know how to set my calc to use BGN... so this was how to compensate
merc10112 Do not work these problems out by hand...use your calculator instead. Save your time for other questions
Lolalolita nishanttcs, excellent trick! setting the ba ii to BGN mode saves you time.
You need to log in first to add your comment.