- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

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**CFA Practice Question**

A father will have to make the first payment of his son's college tuition of $100,000 in 8 years time. How much does he need to invest now to be able to pay this amount if the interest earns 10 % compounded annually?

A. 46,650.74

B. 46,319.35

C. 64,319.35

**Explanation:**Using Texas Instruments BA II Plus:

100000 ± FV: FV = - 100,000.00

8 N: N = 8.00

10 I/Y: I/Y = 10.00

CPT PV: PV = 46,650.74

Using Hewlett Packard 12 C:

F CLEAR FIN: 0.000000000

F CLEAR REG: 0.000000000

8 N: 8.00000000

10 i: 10.00000000

100000 CHS FV: - 100,000.000

g END: - 100,000.000

PV: 46,650.73802

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**User Contributed Comments**
2

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

chuong |
What is the first payment mean??? then the second payment. May I misunderstand that the father will make 8 payments of 125,000 in 8 years?? |

smillis |
There is just one single payment that will grow to the total needed. In other words, how much does the father need today for that one sum to grow to $100,000? |