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

CFA Level I Quant
#1

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.

1 Like
#2

There are 30.4167 days in a month, not 30.

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

#3

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,

#4

My pleasure.

#5

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.

#6

Hi. The answer from the curriculum is A.