…there is a question in the EOC of CFAI where we need to calculate the required return. it says: in 18 years we need 2,000,000 , currently we have 1,235,000 and annual expenses are 26,000. if i put this in my calculator i dont get the 4.427%, what am i doing wrong? thanks.
HP12C or whatever enter PV= -1235000 PMT = 26000 FV= 2000000 n= 18 i= ? Did you enter signs correct? Are you in “Begin” mode by any chance?
no but i might confuse something. i always entered the 26000 as a negative, because this cash goes away. i mean how would the calculator know if this 26000 are an expense or an income? thanks!
You contributed 1.235M and used the negative symbol to represent the initial contribution so 1.235 Beg Value is input in as -1.235M. If you continued making annual SAVINGS you would include the payments as a negative number. If you continue having annual expenses that deplete your portfolio, you use a positive number for the pmts. A little counterintuitive I know, but I just memorized it this way and it seems to work. This starting with -1.235M, if you save annual, you add more negatives to this so use -26k as PMT. If you have annual expenses, these are cash flows having the opposite effect of the -1.235M initial starting point so use the opposite symbol which makes it positive.
thank you so much skipe99!!