- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 2. Fixed Income Instruments and the Time Value of Money
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
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
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
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? |