Sign up  |  Log in

I think my solution is correct, but the output is confusing me.

Hello everyone, I am a newbie for CFA level 1.  Currently I am confuse about the answer for the question No.15 at the curriculum (not Schweser Notes) Volume 1 Reading 6, The Time Value of Money. I have my own solution to this question, I think either A or B is the correct answer. Could someone help me to identify where my problem is? Thank you in advance.

Following is the question. 

“For a lump sum investment of ¥250,000 invested at a stated annual rate of 3% compounded daily, the number of months needed to grow the sum to ¥1,000,000 is closest to:

  1. 555.

  2. 563.

  3. 576.

My Answer:

Daily interest rate = 0.03/365   =  0.0082%, Solving for N ( in DAYS) on a financial calculator.

PV = -250,000, FV = ¥1,000,000, I = 0.0082, PMT = 0, CPT->N = 16867.27,

  • if I calculate the MONTHS by dividing the number of days in a month, let’s say 30:

MONTHS = N / 30 =  562.24,  

I should choose B as the correct answer.

  • if I calculate the MONTHS by this:

converted to years, 

YEARS = N / 365 = 46.21

then converted to months,

MONTHS =  YEARS * 12 = 554.54. 

I should choose A as the correct answer. 

So I am a bit confused, which answer is correct? Could you help me? Thank you.

Drill all the fundamentals with Wiley's CFA experts Peter Olinto, Darren Degraaf and others.

There are 30.4167 days in a month, not 30.

That’s the difference between 555 months and 563 (well, 564, actually) months.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Thank you for your reply. I didn’t realized the number of days in a month should obtain through  this calculation 365 / 12  = 30.4167. In my own solution I am using 30 as approximate value.  Now I know why there are differences between these two answers. 

Again, S2000magician, Thank you very much, 

My pleasure.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

So what did the book say the correct answer was?

I used ICONV to turn 3% compounded daily to a monthly rate, which was something like 3.0036%.  For my TVM calc, I used this rate and P/Y=12=C/Y=12.  I don’t have my calculator handy, but I think I came up with A.

“Mmmmmm, something…” - H. Simpson

Hi. The answer from the curriculum is A.