- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Sampling and Estimation
- Subject 7. Data Snooping Bias, Sample Selection Bias, Look-Ahead Bias, and Time-Period Bias
CFA Practice Question
What monthly payment is required over the next 48 months to pay off a $10,000 debt today, if interest is charged at 14% per year, compounded monthly?
A. $270.30
B. $366.67
C. $116.02
Explanation: On the BAII Plus, press 48 N, 14 divide 12 = I/Y, 10000 PV, 0 FV, CPT PMT. On the HP12C, press 48 n, 14 ENTER 12 divide i, 10000 PV, 0 FV, PMT. Make sure the BAII Plus has the P/Y value set to 1.
Or Annuity = 10000 / {[1 - 1/(1+0.14/12)48]/(0.14/12) x (1 + 0.14/12)} = 270.30
User Contributed Comments 8
| User | Comment |
|---|---|
| octavianus | 48 n, 14 ENTER 12 divide i, 10000 PV, 0 FV, PMT. I'm using an HP 12C and get 273.26, not $270.30. Anyone know why? |
| sudsy | Probably because you have the calculator set to the end of the period i.e and annuity in arrears |
| mishis | I get 273.26 as well. I have it set at end of period. |
| sharpos | Should we have the calculator set to BGN or END as standard This is the first practice question Ive found that i needed it in BGN |
| jpducros | apparently we should use BGN for this question...not sure what is the rationale. It is not explicit that the first payment is to be made today. |
| dipu617 | I also got $273.26. And I chose "A" as it was the nearest. But setting the calculator to "BGN" gives the correct answer though that doesn't make sense. It doesn't say in that the payments are made at the beginning of the periods!!!! |
| mmccoy | I got 270.113 in BGN on BA II Plus and chose "A" as it was the closest. |
| jstid40 | Yeah I don't understand why BGN is used here. Any thoughts? |