- 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
You expect to receive annual payments of $425 per year forever. If these payments can be invested at the rate of 11% per year, what is the present value of this perpetuity?
Correct Answer: $3,863.64
PV = 425/0.11
User Contributed Comments 4
| User | Comment |
|---|---|
| Ratego | PV=A/r A=425 r=.11 |
| 8thlegend | After going through 11 of these problems, I wished that all the CFA questions were like these. |
| Yrazzaq88 | BA calculator: PMT = -425 I/Y = 11% N = 100 =3863.52 |
| assiduous | Another way to look at it.... Suppose you were living off of interest. If your money was invested at an annual rate of 11%, how much money would you need TODAY in order to yield $425 every year forever? The answer is always: [desired amt per period] / [rate of return per period] |