Hello guys Using Kaplan 2018. In the example just before the “FV of Annuity Due” there’s a Note: PMT & FV must have the same sign. In a Professor’s note in Loan & Amortization it says: Remember the sign convention: PMT & FV must have opposite signs or your calculator will issue an error message. I am confused. Any help is appreciated. Thank You
The only correct general rule is that the TVM buttons are cash flow buttons; the sign depends on whether the cash flow is incoming (+) or outgoing (−).
If you’re depositing money into an account periodically, then taking out the total value at the end, then PMT and FV will have opposite signs because the cash flows are in opposite directions.
If you’re withdrawing money from an account periodically, then taking out the remaining value at the end, then PMT and FV will have the same sign because the cash flows are in the same direction.
So look at rationally in terms of CF inflows/Outflows. Got it. Appreciate it! Zain.
Good to hear.
I advocate that you pick a viewpoint – either that of the investor or that of the account – and always use that same viewpoint. For example, a deposit will be a cash outflow (negative) for the investor but a cash inflow (positive) for the account; withdrawals will be the opposite sign for each. By always using the same viewpoint, you will make very few mistakes on the signs on the cash flows.