CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

You have received $350 today. You will invest the money at a rate of 8% per year, compounded quarterly. How much will your investment have increased to by the end of 5 years?

A. $490.00
B. $514.26
C. $520.08
Correct Answer: C

FV = ($350) (1.02)20 = $520.08

User Contributed Comments 10

User Comment
synner using the previous problem's formula
EAR=(1+.08/4)^(4*5)=1.4859
FV=PV*EAR = 520.08

using BAII plus, C/Y=4, N=5,I/Y=8,PV=350
CPT FV=520.08.

which proves it's correct to use the calc this way. and in the previous question, just got the wrong answer. don't get it.
timspear In the last question the effective annual rate was just 7% in this one it is (1.02)^4-1= 8.24% because of the strange way americans quote interst rates. In the UK they would just say the rate is 8.24% rather than 8%.
cslee so what is the difference between compounding quarterly and continously compounding?
is continously compounding we are compounding the interest time to time (day to day/minute to minute?)
chuong Simplest way: N= 20 (5*4), I/Y = 2 (8/4) , PV=350 => FV=520.08
peteSP Chuong, why use 2(8/4) .. ?
peterhryb 8% interest rate divided by 4 periods for quarterly compounding
Metalpro Can any one tell the plug in for the TI BA II calculator for this?? Inspite of not needed for this sum.
Sp1993 Metalpro: TI BA II:

[2ND] [CLR TVM]
[350 = PV]
[2 = I/Y]
[20 = N]
[CPT] [FV]
FV = 520.0815
cschulz316 +1 Sp1993 - Don't adjust your P/Y. At some point you will forget to change it back and get everything wrong afterwards.
apoorv11 the continuous compounding means that the compounding occurring in a year is infinity. So, the formula of Continuous compounding is FV = PVe^r*n
If you use this formula you will get the correct answer. Also this formula is given in CFA book.
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