CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

You have $10,000 to invest. Bank A offers a 5 year, 9% CD with interest compounded annually, and Bank B offers a 5 year, 9% CD with interest compounded monthly. Which would you prefer? Why?
A. You would choose Bank A because the FVA is $15,386.24.
B. You would choose Bank B because you will be $270.57 better off at the end of five years.
C. You would choose Bank B because you will be $302.23 better off at the end of five years.
Explanation: FVA = ($10,000)(1.09)5 = $15,386.24
FVB = ($10,000)(1.0075)60 = $15,656.81
FVB-FVA = $15,656.81 - $15,386.24 = $270.57
By choosing Bank B, you will be $270.57 better off at the end of 5 years.

User Contributed Comments 2

User Comment
Spain81 Why is interest rate of bank B 7,5% when the question states it's 9% for both.
Spain81 Never mind I just realized that you have to put the interest rate in terms of months...
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