Page 77 - CFA - Day 1 & 2 Course Notes

LOS 6.f: Demonstrate the use of a Session Unit 2: The Time Value of Money
time line in modelling and solving

time value of money problems..

Example: Computing the number of periods in an annuity
How many $100 end-of-year payments are required to accumulate $920 if the discount rate is

9%?

Answer:
I/Y = 9%; FV = $920; PMT = –$100; CPT → N = 7 years

Example: Computing the number of years in an ordinary annuity

Suppose you have a $1,000 ordinary annuity earning an 8% return. How many annual end-of-year
$150 withdrawals can be made?

Answer:

I/Y = 8; PMT = 150; PV = –1,000; CPT → N = 9.9 years