Hi, I’m a beginner in CFA Level 1 preparation. I was doing some basic questions on calculating the unknown parameter out of: present value, future value, payment (annuity), interest, and years. I observed that while calculating one of PV, FV or PMT, the other two have to be made negative.

Example: PV = 9000, N = 7, I/Y = 3, 1444.55 = , FV = ?

Here, we have to make either PV or PMT negative, or else the value of FV (0 is the answer) is incorrect on the calculator. Please tell me the logic behind this notion. Thanks!

The logic is that they’re cash flow buttons.

If you buy a bond, say, then PV is negative (a cash outflow when you buy the bond), while PMT and FV are positive (cash inflows when you receive coupon payments and when you receive the par value at maturity). If you issue a bond, the signs are reversed: you receive the present value when you issue it, pay the coupons, and pay the par value at maturity.

I encourage you to adopt one point of view (either borrower or lender, either investor or account) and stick with it always; you’ll find that you make very few mistakes in the signs.

Thanks for the clarification, it’s all clear now!

And please read the calculator manual and do the examples!!! You will be amazed by what your calculator can do!!!

My pleasure. Good to hear.

Yes, I’ll do that for sure