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 (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)
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