Chartered F***in’ Analyst on the Time Value of Money

by Johnny Debacle

Time Value of Money Sample CFA Exam Question

Larry Ellison, CEO of Oracle, is deciding how much to tip at his local Benihana. He comes to the conclusion that the fried rice was so delicious and the onion ring volcano flamethrower so impressive, that he is going to tip with a large interest bearing note. The note will have a future value (FV) pf $9,107,369. The rate of interest on it is 9%, and it compounds monthly until it comes to term 6 years in the future. What is the present value (PV) of the interest bearing note? Bonus what does the number spell out on your calculator when your calculator is vertically inverted?.

A) $5,318,007
B) $5,318,009
C) $5,318,008
D) ¥256

Explanation:

The correct answer is C. The questions gives us this informtion

FV = 9107369; I/Y = 9/ 12 = .75; N = 6 × 12 = 72.

Using your non-HP12C but still CFA approved calculator you should utilize these key strokes to achieve success:

-9107369 [FV] [Enter] .75 [I/Y] [Enter] 72 [N] [Enter] [CPT] [PV]

*Bonus Answer is contained within the comments.

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