Solving for N

CFA Level I Quant
#1

An investment of €500,000 today that grows to €800,000 after six years has a stated annual interest rate closest to:

  1. 7.5% compounded continuously.
  2. 7.7% compounded daily.
  3. 8.0% compounded semiannually.

The correct answer is C.
How do you solve this question using the calculator?

Solving for Interest Rates, Growth Rates, and Number of Periods
Time Value of Money Quant
#2

2 ways I can see:

  1. P/Y = 1 C/Y = 2 6 N 500,000 PV -800,000 FV CPT I (see if it matches choice 3 ). If not, change C/Y to 365 and CPT I again to see if it matches choice 2. If no match, change C/Y to 525,600 and CPT I to see if it matches choice 1.

  2. P/Y = 1 C/Y = 1 6 N 500,000 PV -800,000 FV CPT I. This will give you the effective annual interest rate, which you will take to the ICONV worksheet. Set EFF as the annual effective rate. Change compounding frequency to 2, 365, or 525,600 and CPT NOM to compare to your answer choices.

I would put in all the key steps, but my BAII just died on me. :frowning:

#3

Note that this type of question is incredibly unlikely on the real exam. The only way you can answer it is to do a calculation for each of the answer choices: three separate calculations. That’s not how they set up exam questions.

That said, it’s good practice. But unrealistic for an exam question.

2 Likes
#4

Thank You!

1 Like
#5

Thanks for the tip!

#6

is the C/Y the same as I/Y cause i cant find the C/Y key on my calculator only I/Y and P/Y

#7

You press:
2nd P/Y and then press the down arrow key, that will take you to the C/Y function.

#8

thanks
i guess there’s too much on the calculator that i do not know off yet