Hey guys
I had a simple doubt on when do we add a -ve sign in the calculator to calculate FV. Normally, when we are receiving a payment we take a +ve sign in the calculator…so is it when we put in more money in the portfolio every year…we take it as a -ve…is my logic right…or is there something else.
These are cash flow buttons: a cash inflow in positive, and a cash outflow is negative.
You can look at it from the investor’s viewpoint, or the account’s viewpoint.
If you look at it from the investor’s viewpoint, money added to the account is a cash outflow and money withdrawn from the account is a cash inflow. If you look at it from the account’s viewpoint, money added to the account is a cash inflow and money withdrawn from the account is a cash outflow.
You have inflows and outflows at each investment form, so you only have distinguish between these. For first you may put + and for another put -. You may due the opposite as well and thus the outcome with have opposite prefix which shouldn’t be a problem to interpret.
Example
You have purchased coupon bond, thus your inflow CFs are coupon payments (PMT) and principal as bond matures (FV), you may add + prefix. Thus initial CF in the form of purchasing is with - prefix (PV). Same may be applied on each similar pattern with fixed CFs.
Basically there are three variables, PV, PMT and FV. You just have to decide whether PMT is aligned with PV or FV. So for example
-PV, -PMT and +FV is the same as
+PV, +PMT and -FV