CFA CFA Level 1 Annuity question —RRSP account

# Annuity question —RRSP account

• Author
Posts
• Alice77
Participant
• Undecided
0

Hi guys,

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

Participant
• CFA Level 2
3

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)