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Basic Question 17 of 27
At the end of 15 years, you wish to have accumulated $500,000. You plan to accumulate this money by making annual deposits of $10,003.93 into a money market account. All deposits will be made at the beginning of each year. What interest rate must the account pay each year?
B. 12%
C. 14%
A. 8%
B. 12%
C. 14%
User Contributed Comments 12
| User | Comment |
|---|---|
| tawi | Can't seem to work this out |
| KD101 | If you did question - 4 and got answer to 14 years - I would have ruled out the other choices as for both FV is same and Annuity is only approx. 10% higher in this Question - so the interest rate could be approx. slightly more than 10% lower - hence 16 to 14% is more likely than other. |
| Mario612 | Can someone tell me the keystrokes to get this answer. |
| Mario612 | on the BA II Plus calculator |
| Done | On TI BAII+ [2nd]BGN [2nd]SET [2nd]QUIT FY= -500,000 N= 15 PMT= 10,003.93 [CPT] [I/Y] The answer come to 14% |
| HBomb | I haven't as yet bought a financial calculator so does anyone know how to do this the old fashioned way by using the formula? I simplify it down to the point where 49.98 = {(1+r)^15}/r but can go no further as i dont know how to get the denominator and numerator r's together. Cheers for any help on this matter. |
| gullan | This is just some change to explanation by user *Done* PMT should be negative as payments are made and FV should be pocitive. However answer will remain the same in both the cases. |
| rivers | HBomb 10,003.93 x ((1.14^15/.14)-1) x 1.14 = 500,049 i just picked one and substituted, very long way to do it but never fails to get the right answer (if you are not using one of these calculators) |
| josie491 | need to set calculator to BGN mode first. Pls look out for key words "beginning of each year" or "end of each year". Calculator mode BGN = beginning of each year. END = end of each year. |
| VikramJ | Rivers and HBomb, I dont have my financial calc at work so I've been using Excel for these and plugging in. Using the formula you wrote, I actually get a answer of 570,000. You have to be careful about the parentheses - most importantly putting the brackets around the [(1+r)^N-1]. I used =10003.93*(1.14^15-1)/0.14*1.14 to get 499,999 |
| mcbreatz | I keep tripping myself up with these beginning v ending questions. The way the question is phrased wouldn't using n as 15 give you the interest rate to find a value of 500,000 at the beginning of year 15 vs the end of year 15? |
| Yannetta | how to calculate it using end mode on texas? |
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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.