Question: TVM

CFA Level I Quant
#1

M.T. just celebrated her 22nd birthday. When she is 27, she will receive a $100,000 inheritance. M.T. needs funds for the downpayment on a co-op in Manhattan and has found a bank that will give her the PV of her inheritance amount, assuming an 8.0% stated annual interest rate compounded continuously. Will the proceeds be sufficient to cover her downpayment of $65,000?

My Calc:

  1. e^0,08 = 1,083287068 2. 1/(1,083287068^5) * $100,000 = $67,032.00

Answer at Schweser:

A) $68,058 B) $67,028 C) $61,878

Anyone an idea why my answer does not match any of the answers?

Thanks, Oscar

#2

This can be solved as follows : PV =? , FV = 100000 , Rate = 0.08 , t=5

So , 100000=PV * e^ 0.08*5

PV = 67032 ans

Your ans is correct . The closest figure is 67028 (B) is the answer.

#3

Ok, thanks, so my calc was correct.

One general question: Is it in the exams really the case that you have closest answers instead of correct answers? This can be somtimes a bit confusing…

#4

In the exam it is general practised that question are asked in this manner only .

Like " He will get the amount closest to________ " . And you have to tick the closest choice.

I hope it is clear …

Thanks…

#5

You get the 67,028 if you use for I/Y 8,33 instead of the 8,328. But I too find it tricky to have not the exact result in the answers. Makes me think I miscalculated, which I sometimes do.