- 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

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**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

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**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] |