- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 4. Annualized Return
CFA Practice Question
Which of the following investments will grow to the largest future value?
I | 8.40% | Monthly
II | 8.60% | Quarterly
III | 8.64% | Semi-annually
Investment | Stated Annual Interest Rate | Frequency
I | 8.40% | Monthly
II | 8.60% | Quarterly
III | 8.64% | Semi-annually
A. I
B. II
C. III
Explanation: Use the EAR (effective annual rate) to compare the investments:
II. (1 + .086/4)4 - 1 = 8.88%
III. (1 + .0864/2)2 - 1 = 8.83%
I. (1 + .084/12)12 - 1 = 8.73%
II. (1 + .086/4)4 - 1 = 8.88%
III. (1 + .0864/2)2 - 1 = 8.83%
Investment II has the largest EAR.
User Contributed Comments 1
User | Comment |
---|---|
Mels08 | Also use the Calculator BAII Plus 2nd ICONV NOM 8.4 C/Y 12 CPT EFF 8.73 Do the same with the rest |