CFA CFA Level 1 FV issue driving me nuts

FV issue driving me nuts

  • Author
    • Avatar of ensenmasonensenmason
        • CFA Level 2

        This may seem basic and it should be but…

        Schweser has a FV example, in part, calculate the future value of -1,000 over 5 years. Solution is given as
        PV = -1,000; I/Y = 10; N = 5; CPT FV = -1,610.51

        All well and fine except my BA II reports the solution as 1,610.51, no negative. I checked with an online calculator and it backs up Schweser. What gives?

      • Up

        The negative sign is basically used to indicate cash inflow and outflow. Don’t worry too much about it in FV except when calculating the rate. If I remember correctly the sign matters then. I think the reason is you are entering a negative in your calculator already. This is why the answer is coming out as a positive. I think what Schweser is trying to say is to spread out an outflow over 5 years which is why they are showing the negative sign in the answer. Did you check the errata sheet by any chance?

      • Up

        @CFAcharterwannabe‌ beautifully put.

        ‌ The calculator calculates it as an investment, i.e. you’re telling it you’ve PAID IN $1000 at the start, so at the end you should be PAID OUT $1,610. So the signs are opposite to each other (i.e. you enter in -1000, FV comes out as +1610).

        Since you’re simply calculating the future value of a payment, the signs are the same.

        So I’d use conceptual knowledge to double-check on what the signs should be. Just treat it as cashflow as @CFAcharterwannabe‌ and you’ll be alright 🙂

      • Up

        @fabian thanks just glad I didn’t mess up.

    Viewing 3 reply threads
    • You must be logged in to reply to this topic.