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01-21-2020 03:32 PM
I’m really struggling getting the correct answer to this TVM calculation
PV = £75000
annual contribution PMT £5000
return I/YR 5% pa
FV = £500,000
N is saying -144.21
the true answer is 24
Solved! Go to Solution.
01-22-2020 08:41 AM
Some things that you must always keep in mind whenever performing TVM calculations on any financial calculator:
- Sign Convention: should the values entered be positive or negative? In your example, I suspect that two of the TVM variables should be negative, but with no clear problem description we can only guess.
- BEGIN/END mode: Any time recurring payments are involved, you must make sure to set the BEGIN or END mode properly to match the problem's scenario. Since we don't know what the actual problem is, it's difficult to say which would be correct here. My guess: BEGIN mode is probably what you need.
- How many periods per year apply? We have no information that would tell us in your description. Is the interest compounded? If so, how often? Does the compounding period match the payment period? These are important facts to know in every TVM situation, and your description doesn't tell us what's needed here. My guess: 1 period/year if the interest compounding matches the payment frequency.
TVM calculations on the 10bII+ depend on all of the TVM variables (N, I, PV, PMT, FV) as well as payment mode and periods/year. Using the proper sign for the variables and setting the payment mode appropriately will give the proper results.
01-22-2020 09:19 AM
Im sure i have done what you say but here is the senario in the study text .
Client Pension fund worth £75,000 (PV)
Annual Contribution £5000 made at the begining of the year (PMT set to 1)
Pension schemes returns 5%pa (I/YR)
Client wants to know how long it will take for fund to be worth £500,000
So i followed the instructions you mentioned with BEGIN on the £75000 and the £5000 with the £5000 as a minus
then took off the BEGIN for FV of £500,000 and N came back as 65.14 ? which is still incorrect the answer is 24.85 years
Any advice where i am messing this up . You help greatly appreciated
01-22-2020 09:38 AM
Based on the problem description you gave, here's how I would set that up:
- Up-shift C.MEM TVM
- 75000 +/- PV (ie. -75000, which represents the initial investment that came out of your funds)
- Down-shift Beg/End (only if calculator wasn't already set to BEGIN mode)
- 1 Down-shift P/YR (interest compounding and payments both happen once per year -- note that this is the down-shifted PMT key, not the N key which is for xP/YR)
- 5000 +/- PMT (ie. -5000, since you are contributing 5000 per year out of your funds)
- 5 I/YR (the given annual percentage rate)
- 500000 FV (the given FV, ie. what you receive when the account reaches full term)
...then press N to get the final answer: 24.846639231 (which will be rounded to whatever your current display setting is)
Hope this helps!