- This topic has 5 replies, 5 voices, and was last updated Apr-1712:22 am by GraemeA.
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Hello everyone,
May someone please help me with respect to the following question? It is:
Jack Long, CFA, is evaluating the retirement account of John Smith. Smith currently has $500,000 and will retire in 12 years. Smith plans to contribute $12,700 per year. If Smith needs $2 million at retirement, the return required is closest to:
a.10%
b.11%
c.12%It seemed simple but I was not getting any of the answers when doing it with my Texas BAII Plus.
The answer is B and the calculator entries are: N=12 PV=500,000 PMT=12,700 FV= -2,000,000… solve for I/Y… I was inputting the PV as negative instead of the FV. Why is the FV required to be negative in this instance instead of the PV??
Thanks in advance,
Graeme
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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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