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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Comments

  1. October 12th, 2006 | 11:01 am

    The bonus answer is “Boobies” or “Oo Boobies” if you take it out to two decimal places.

  2. jc
    October 12th, 2006 | 12:23 pm

    are you sure this is correct?

  3. October 12th, 2006 | 12:32 pm

    Are you sure this is wrong?

  4. October 12th, 2006 | 12:35 pm

    Here is little online version to check it against.

    http://people.hofstra.edu/faculty/Stefan_Waner/realWorld/Summary10.html Middle of the right side there is a little calculating script.

    It is correct.

  5. jc
    October 12th, 2006 | 12:40 pm

    damn pos MS-calculator 😉

  6. Mike
    October 12th, 2006 | 2:56 pm

    I got 5,318,010, which spells out olobles.

  7. Mr Juggles
    October 12th, 2006 | 3:07 pm

    Jahooblies?

  8. Mike
    October 12th, 2006 | 3:13 pm

    Jahooblies indeed.

  9. October 12th, 2006 | 3:26 pm

    “Jahooblies” is a winner!

    I will be bringing it into common parlance this afternoon.

    In fact, I will work “Jahooblies” into every conversation I have today!

  10. NoPostion
    October 12th, 2006 | 5:57 pm

    Fellas – Used a little reverse polish to get my oo.boobies. 🙂 Mike and other non-pros should be sure you they are defaulting to end of period rather than beginning of period.

  11. ps
    July 17th, 2011 | 10:05 pm

    Hello , i like your blog very much, i will be taking lvl 1 this dec.

    can u pls tell me why hv v taken bgn period instead of end period?

    thanks a lot!

  12. Sir Equity Go
    March 1st, 2014 | 10:11 pm

    In keeping with the current pattern, I am posting a comment roughly three years after the previous posted comment regarding this article. My quants flagged this on their algorithms. yeah, they did.
    Sir Equity Go, the original anonymous staff writer for LoS, is not dead and in a nostalgic moment, re-read these posts. It occcrs to me that the real tragedy of this historic series on the C F******’ A is not that this post is still relevant to the lost souls who wander research dungeons; the real tragedy is that those lost souls were born in the 90’s. They think RoboCop is a bad tv series, not a wonderful piece of American cold war fighting propaganda.
    While LoS is currently long a bi-annual posting cycle, the Sir believes a quatra-annual posting schedule more accurately reflects the time between when he forgets that this blog existed and the brief moments he remembers it. And loves it.

  13. March 11th, 2015 | 10:53 am

    We love you, too. Robocop is not about coldwar propaganda though; it’s about modernity and the singularity and sex with machines.