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Basic Question 16 of 27
You wish to accumulate $500,000 by making annual deposits of $9,869.82 into a money market account. All deposits will be made at the beginning of each year. The account pays an interest rate of 16%. How many deposits will be necessary?
B. 14
C. 50
A. 13
B. 14
C. 50
User Contributed Comments 18
| User | Comment |
|---|---|
| Laurel | Don't understand how to use the calculation to get this answer. |
| tawi | I got 14 but it does not seem practical |
| KD101 | Tawi Power of compounding and 16% return - Imagine you had fund returning 16%. If you just put $100 at the begining - it would be $799 (no more adding any monthly into it) |
| Gina | if by formula:
500,000 = 9869.82*[((1+.16)^N-1)/.16] * (1+.16) 43.67*(.16)=((1.16)^N - 1 7.99=1.16^N log(7.99)/log(1.16)=14.00 |
| geet | i get 13.99.....so doesn't that mean only 13 payments are required and it accumulates to 500000 by time 13.99 so the 14th payment isnt required..? |
| ivot66 | by the solution you are supposed to get n=14.99!!!! |
| ivot66 | oops my bad the PV value has to be "0" |
| cptp | How can I do it using TI Ba2? |
| octavianus | Don't forget to set your calculator to BEGINNING payments for Annuity DUE |
| bobert | I got 51 the first time I calculated it and I don't know why. When I saw the answer was 14 I redid the problem and it worked. Does anyone have any idea where I went wrong so I do not make the same mistake again? |
| StanleyMo | Hello Bobert: that because you have key 0.16 instead of 16 for the I/Y |
| mordja | useing T1 BA2 set BGN mode set P/Y = 1 FV = 500,000 PMT = -9869.82 I/Y = 16 CPT N result 14.00 |
| BMore | Here's how I did it using the formula: 500000 = 9869.82 * (((1.16^n)-1)/.16) * 1.16 43.6719 = ((1.16^n)-1)/.16 (log 7.9875 / log 1.16) = n n ~ 13.99 or 14 |
| johntan1979 | It's actually 13.99999765, not 13.99 which is very sloppy work by any standards. |
| chipster | TI BAII CALC: 2nd BGN 500,000 FV -9869.2 PMT 16 I/Y CPT-->N = 14 |
| msk500 | Each time I try solving for n, I get this error message. Can anyone tell please tell me why? |
| eisenherz | msk500, you always need to enter opposite signs for PV or PMT and FV - if you try entering minus PV, you will not get error |
| mcbreatz | Can someone explain to me why I am wrong but using the equation where LN(7.99)=LN(1.16)n gives us the n for a regular annuity? Since payments are made at the beginning of the year its actually an annuity due and would require one lass payment? Resulting in the correct answer being 13? |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret the present value(PV) of fixed-income and equity instruments based on expected future cash flows
calculate and interpret the implied return of fixed-income instruments and required return and implied growth of equity instruments given the present value (PV) and cash flows
CFA® 2024 Level I Curriculum, Volume 1, Module 2.