- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. The Time Value of Money
- Subject 6. Calculate the Effective Annual Rate

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**CFA Practice Question**

Which of the following amounts is closest to the end value of investing $100,000 for 5 years at an effective annual interest rate of 12% compounded annually.

B. $172,000

C. $176,234

A. $182,212

B. $172,000

C. $176,234

Correct Answer: C

End value = 100,000(1+0.12)

^{5}= $176,234.17###
**User Contributed Comments**
12

User |
Comment |
---|---|

KD101 |
If compunded annually, no need to adjust for effective rates |

jimlis |
BAII - enter 100,000 and hit PV;enter 12 and hit I/Y;enter 5 and hit N;hit CPT then FV. |

chuong |
Another way using BAII to calculate through the Effective annual rate Nominal rate = 60 (12% x 5 years C/Y = 5 -> Effective rate = 76,234.17 Ending vaue = (1+ 76,234.17) x 100,000 = 176,234.17 |

Nathan |
The fastest way for such a simple problem is to use (1 + 0.12) ^ 5 and you can immediately see which of those answers is your answer, 1.76234, with a decimal adjustment. |

mordja |
Just use the TVM functionality. PV -100,000 N 5 I/Y 12 CPT FV result is 176,234.17. |

amarchinta |
I am getting 176,170 by doing TVM in BA II Plus as suggested by mordja? |

johntan1979 |
There is no way you can get 176,170 by following exactly. Only possibility is your calculator is faulty or you forgot to clear your TVM before attempting this. |

mbowa |
Guys, what an i missing?, if i use the T1 BA calculator & hit the buttons ur recommending, i get 105,738.814...Am i doing anything wrongly? |

Rachelle3 |
do this ( 1 + 0.12) ^5 = 1.7623416832 simple! |

Rachelle3 |
(1 + rate ) to the power of the years |

Chl4072 |
NOM=? C/Y=? EFF=? |

nadiahalus |
Thanks, dear Jimlis and Mordja. The quick and correct approach was used! |