CFA CFA Level 1 Annuity question —RRSP account

Annuity question —RRSP account

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    • Alice77
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      Hi guys, 

      so glad to join this. 

      I am currently preparing for CFA level 1. The question I encountered is : 

      currently the RRSP account has a balance of 120000, and this person wanted to start to save $8000 at the end of each year to be able to have $1500000 in 30 years . What’s the interest rate ? 

      I understand in the calculator input as $8000 PMT , PV 120000, N 30 years, but FV is -1500000. The answer is r= 6.54%

      i don’t understand why FV Input in the financial calculator should be negative. 

      Could someone help explain ? 

      Thanks 

    • rutadaniel
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      My understanding is that it should be:

      PV = $120,000 (money PUT IN account)
      PMT = $8,000 (money GOING IN account)
      N = 30 (number of years)
      FV = -$1,500,000 (money COMING OUT of account at the end, or a final ‘payment’)

      Alternatively, you could view it this way:

      PV = -$120,000 (money LEAVING PERSON to go into RRSP)
      PMT = -$8,000 (money LEAVING PERSON to go into RRSP)
      N = 30 (number of years)
      FV = $1,500,000 (money RETURNING TO PERSON from RRSP)

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