Future Values of Investments with Annual Compounding | CFA® Level 1 Exam

Future Values of Investments

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Consider the following three investments with annual compounding:

Present value years interest rate

1.$22,500 56% per year

2.$10,000 75% per year

3.$15,000 38% per year

The future values of the 3 investments, at the ends of their investment periods, are:

A. $26,454, $12,067, $17,181

B. $23,850, $10,500, $16,200

C. $30,110, $14,071, $18,896

D. $16,813, $7,107, $11,907

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A. B. C. D.

Future value = Present value*(1+r)^N for annual compounding. Therefore,

Present value years rate Future value

1.22,500 56% 22,500*(1.06)^5 = 30,110

2.10,000 75% 10,000*(1.05)^7 = 14,071

3.15,000 38% 15,000*(1.08)^3 = 18,896

Note that the future value must always be greater than the present value.

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