CFA Practice Question
There are 410 practice questions for this study session.
CFA Practice Question
A beginning amount of $75,000 is invested at 13% per year. At the beginning of each year for the next 30 years, a withdrawal is to be made, to pay insurance premiums. What is the largest premium this investment will support?
Explanation: BGN, PV = -$75,000; n = 30; i = 13%; CPT PMT = $8,854.69
User Contributed Comments 11
|LRS24||Is this the correct answer, I may be reading it wrong but $75k earns $9750 per year meaning $8,854.69 will easily be provided for without impacting the principle|
|Eckhardt1978||at lrs24: -75k makes 10,004.4345, the largest premium is 8,854,69 because of 10,005.80 is impossible without impacting the principle.|
|chenchow||I am not sure whether I did it wrong, but I typed PV = -75K, n=30, i=13% into my calculator, and compute PMT, I get $10,005.80 .
Anyone in the same shoe?
|vstolin||Read again: BEGINNING of the year. Switch your calculators to "BEG" and you'll get 88854|
|george2006||Watch out for "Begining"... and set BGN on your calculator!|
|dg18sox||not sure why but I pressed Beginning of the year PV =-75k, n=30, i=13 and compute pmt and I get $8,419.70 anyone else have that problem?|
|bwbarksdale||perhaps you still had something loaded in as FV from doing a previous problem.|
|aakash1108||The basic formula for Annuity is:
PV = A[1- (1/(1+ r)^N)/r]
Take PV = 75000-A (as 1st Annuity is already paid and cannot be discounted.
N = 29 (because the first annuity is already paid, remaining annuities = 29)
R = 0.13
With this we get:
(75000-A)=A[ 1 - (1/(1.13)^29/0.13)]
0.13(75000-A)=A[1-(1/34.615838)] (Moved 0.13 to the left hand side and simplified (1.13)^29)
9,750 - 0.13A = A (1 - 0.02889)
9,750 - 0.13A = 0.97111A
9,750 = 0.97111A + 0.13A
9,750 = 1.10111A
A = 9,750/1.10111
A = 8854.70
|malikhwa||On BAII PLUS
Clear Previous Work: (2ND)(CLR WORK)
Set to Beginning: (2ND)(BGN)
|thekobe||just be sure to read the instructions, as the problem indicates you have to set the TI to 2nd set and then BGN mode!|
|davcer||just remember to reduce tne periods to n-1 while doing your calculations and finally adding one annuity to your previous answer when the question says begining of the year.|