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#1
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PV(), FV() confused by sign expected
given
annual rate = 10% periodic rate = 0.8333...% nper=12 pv=100,000 pmt=100 type=0 FV() returns -$111,727.86 Why a negative value? If I have a balance of a positive $100, 000 and add to it $100 each month, I would expect to have a positive $111,727.86 On the other hand, if I assume the same facts as above except change the payment to a -100.00 then Excel's FV() returns -$109,214.75 I also don't understand this either, in that I start with a balance of $100,000 and I believe I'm subtracting (-100.00) each month. Why's the balance not 98,800.00 plus the impact of interest? So my question is, how do I interpret the sign when using the financial functions. TIA. |
#2
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Hi Karl,
With financial calculations you must remember that two parties are always involved: a lender and a borrower. When you take out a loan clearly you are the borrower and the bank is the lender. Not so clear is the case of a savings: you must treat the bank as the borrower and you are the lender. Normally we call ourselves depositors when we put money in the bank. Most people use + for money flowing in and - for money out. If you use +100,000 and +100 for PV and PMT then "you" are the bank (money flows to you). At the end of the NPER periods, the you (the bank) owes the depositor 111,727.86. The sign from the FV function is negative since the bank must pay up! If you use -100,000 and -100 for PV and PMT, then "you" are the depositor - money flows from you. At the end, FV is positive since money flows back to you. best wishes Bernard "Karl" wrote in message ... given annual rate = 10% periodic rate = 0.8333...% nper=12 pv=100,000 pmt=100 type=0 FV() returns -$111,727.86 Why a negative value? If I have a balance of a positive $100, 000 and add to it $100 each month, I would expect to have a positive $111,727.86 On the other hand, if I assume the same facts as above except change the payment to a -100.00 then Excel's FV() returns -$109,214.75 I also don't understand this either, in that I start with a balance of $100,000 and I believe I'm subtracting (-100.00) each month. Why's the balance not 98,800.00 plus the impact of interest? So my question is, how do I interpret the sign when using the financial functions. TIA. |
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