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Annuity question —RRSP account

Alice77Alice77 Windsor Posts: 1 New Hire
Hi guys, 

so glad to join this. 

I am currently preparing for CFA level 1. The question I encountered is : 

currently the RRSP account has a balance of 120000, and this person wanted to start to save $8000 at the end of each year to be able to have $1500000 in 30 years . What’s the interest rate ? 

I understand in the calculator input as $8000 PMT , PV 120000, N 30 years, but FV is -1500000. The answer is r= 6.54%

i don’t understand why FV Input in the financial calculator should be negative. 

Could someone help explain ? 

Thanks 

Comments

  • My understanding is that it should be:

    PV = $120,000 (money PUT IN account)
    PMT = $8,000 (money GOING IN account)
    N = 30 (number of years)
    FV = -$1,500,000 (money COMING OUT of account at the end, or a final 'payment')

    Alternatively, you could view it this way:

    PV = -$120,000 (money LEAVING PERSON to go into RRSP)
    PMT = -$8,000 (money LEAVING PERSON to go into RRSP)
    N = 30 (number of years)
    FV = $1,500,000 (money RETURNING TO PERSON from RRSP)
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