Hi,
I am going through the PV , FV calculation in the presence of annuities.
I am using the revision books by Kaplan (The Schweser notes), and it does not fully explain when to use -ve or +ve PMT’s.
On some examples of calculating PV’s they’ve used -ve and on some +ve PMT’s.
Can somebody give me a clear-cut explanation about the signs?
Thank you!
Hi,
The easiest way to look at it is think of the cashflows.
If you buy an annuity or bond or anything alike, you first invest $X dollars, cash OUTflow, and then each period you receive interest, cash INflow, and at the end of the term you get the principal back, also cash INflow.
So you can set your calculator to have PV as negative, pmt and FV as positive to reflect the cashflows.
ALTHOUGH the convention is to have PV as positive and pmt and FV as negative, it makes no difference in terms of actually deriving the answer, as long as you keep them consistent. Personally if you struggle with the signs, it’s better to think of yourself being an investor and your cashflows.
I hope it helps!
NANA 
To add to NANA’s reply, I encourage my candidates to pick one viewpoint and always stick with it: either the borrower, or else the lender.
If you take the borrower’s viewpoint, then the PV is positive (you get the loan at the beginning), the payment is negative (you pay interest and maybe some principle), and the FV is negative (you repay the remaining principle).
If you take the lender’s viewpoint, then the PV is negative (you make the loan at the beginning), the payment is positive, and the FV is positive.
Either viewpoint is valid. If you always take the same viewpoint, it saves you some effort in remembering which numbers are positive and which are negative, because they’re always the same.
Thank you Nana, S2000magician! Really appreicated.
That clears things a bit!
My pleasure.
Glad to hear it.
Hey when you are borrowing something it means you are recieving some amount ( here you need to put + sign with PV and - sign with FV ). And just do reverse when you are lending.