TVM Calculations

[Modups]

Hello,

Happy easter everyone.I use the TI BA plus calculator and use scheweser notes for my study, I am however confused as to how to use the PMT,FV functions.

During the annuity session in quants , the professor says "ensure your PMT and FV FIGURES HAVE OPPOSITE SIGNS",while in Bond valuation, he says" PMT and FV should have the same signs".

Can somebody help me as I am confused on why there's no standard format for this functions?

 

[testami]

I use the HP 12C but I bet the sign conventions is the same.

Think about the TVM keys this way (this ALWAYS works):

any time you pay money out, the sign should be negative
any time you receive money the sign should be positive

Let's say you borrow $100,000 for a home loan.....since you are receiving the money from the bank you would input it into PV as a positive number. Note that when you solve for payment it will be negative......because you are paying those payments out (i.e. back to the bank).

Now as to bonds:

If you use the normal TVM keys to solve bond problems just apply the same line of thinking. If you want to buy a bond and need to find out the purchase price (i.e. the PV) that means you are really trying to find out the present value of all future cash flows. In this case both the PMT and the FV would be positive because:
-you will be receiving the interest pmts (so PMT would be positive)
-at maturity you will receive the principal (so FV would be positive)

note that in this example the purchase of the bonds (PV) is negative becuase you are paying cash out to buy the bonds.

 

[Modups]

Thanks a lot, this really helped