CFA CFA Level 1 QM – Answer Explanation Re Time Value

QM – Answer Explanation Re Time Value

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    • Avatar of vincenttvincentt
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        • CFA Level 3
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        In my personal opinion, when calculating TVM, it doesn’t really matter whether you have -PV or -FV. That’s just how the calculator works. Just make sure they are not both the same sign, otherwise you’ll get an error.

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        putting the PV as positive makes it more intuitive as @Gary stated (thinking as a transaction).

        If you put -PV, you would have to put -PMT as well.

        PV=-500,000, N=12, FV = 2,000,000, PMT= -12,700 solve for I/Y= 10.816 or B

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        Thanks Channing, Gary, Vincent and Lagarta. Alot of help there

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        @Channing_cox has said it already but on those calculation I think of it as a transaction. The PV is what you pay so on a balance sheet its a negative. The FV is your return so on a balance sheet it would be positive.

        From the other side if PV was positive then it would be money you are receiving ie a loan and the FV would be negative because you would have to pay it back with interest.

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        bc the fv will be withdrawn from the fund so that John Smith could then use it for retirement.

        look at the calc equation from the perspective of the inflows and outflows of money into the investment, not from the perspective of inflows and outflows to Mr. Smith

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