- 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
A beginning amount of $75,000 is invested in a money market account. At the beginning of each year (starting from the second year) for the next 30 years, a withdrawal of $8,854.69 is to be made, to pay insurance premiums. What interest rate must the investment pay to support the premium payments?
A. 11.34%
B. 10.28%
C. 13%
Explanation: PV = -$75,000; PMT = $8,854.69; n = 30; CPT i = 11.34%
User Contributed Comments 6
| User | Comment |
|---|---|
| miso | I always get 13%. Can someone expain |
| amak | Don't set BGN. Instead it is ordinary due, since the payment starts from the second year. |
| dimos | since the withdrawal starts from the second year (which means at the end of the first year) it is ordinary annuity. That is why the solution is 11.34%. In order to be annuity due, it should say "starting today..." |
| labsbamb | get it.No BGN. payment start at begining of 2nd year, meaning end of first year. |
| sheenalim | with a Texas BA II Plus I can't compute the answer with a TVM (Time Value of Money) worksheet. Instead the Cashflow worksheet must be used, using the IRR method. |
| rsanfo | BA II Plus ========== 2ND BGN, 2ND ENTER (do this until you see END) 2ND, QUIT 30, N -75000, PV 8854.69, PMT CPT, I/Y (result = 11.33512) |