Basics of Time Value of Money Calculations
To solve time value of money problems, there are five of six things you will need to determine to work most types of problems. These are the number of payments per year, the number of years, the interest rate per year, the present value, the amount of any annuity, and the future value.
If you know the number of payments per year and any four others, the HP10B will calculate the fifth. To prepare for solving a time value of money problem it is often best the clear your calculator. The first step in solving all time value of money problems is to enter the number of payments per year. After this, the order the data is entered into the calculator is not important. However, you may find it helpful to begin with the N key and move from left to right to avoid forgetting to enter some item. When you have entered all of the known information, all that is need to solve the problem is to press the key for the unknown variable.
The HP10C calculator also makes it easy to check your work for mistakes.
--This actually the number of times per year interest is paid (compounded) or charged (discounted). If the problem mentions monthly payments or interest earned monthly, then the payments per year is 12. Semi-annually would indicate 2 payments per year; quarterly would indicate 4 payments per year; bi-monthly would indicate six payments per year (every other month); bi-weekly would indicate 26 payments per year (every other week); and weekly would indicate 52 payments per year. back to the top of page
--The HP10B needs to know the number of periods. The number of periods is simply the number of years multiplied by the payments per year. The HP10B calculator provides for easy computation of the number of periods by simply requiring that the user input the number of years, hit the cream colored key, then the X P/YR key. This automatically will multiply the number of years by the number of payments per year and then enters the resulting number into the number of periods register (N). back to the top of page
--This is the interest rate
that is charged per year on an annual basis. It is entered as a whole number.
For example, a 12% annual interest rate is entered as 12 then I/YR, not .12.
--This is the value at the earliest point in time. All recurring payments and any future lump some would come at a later point in time. If this amount is to be paid, the amount would be entered as a negative amount to reflect that is a cash outflow. back to the top of page
--This is the amount of any equal payment that occurs every period. This is called an annuity. If this amount is to be paid, the amount would be entered as a negative amount to reflect that is a cash outflow. Most time value of money problems expect that the payments are received at the end of the period. For example, if you make payments on a car, the payment you make this month includes the charge for last month's interest. However, some payments are paid in advance, such as rent payments. If you are working a problem that has payments which are paid in advance, you must hit the cream colored key and then the BEG/END key before you calculate the answer. Note that when the BEG/END key is activated, a tiny BEGIN appears in the bottom of the display. To return the calculator to computing end of period problems, once again hit the cream colored key and then the BEG/END key. The BEGIN in the display will disappear. CAUTION!!: For most problems, you will be dealing with end of period payments. If you have the BEGIN in the display, you must hit the cream colored key and then the BEG/END key to remove it. Failure to do so, will often result in an incorrect answer! As a personal habit, I check the display for the BEGIN code before I start every problem. back to the top of page
In order to check your work, you can hit the RCL key and then any of the keys which make up the financial tour. (). This will display the contents of that particular register. The RCL key also works if you want to check on the number you entered for P/YR or for the number of years xP/YR . To view the contents of those registers, you need to hit the key, the cream colored key, and then either the P/YR or xP/YR key. Anytime you get a strange result in a problem, you should take time to recall (RCL) each of the registers in the financial tour, even if you did not think that you used one of them. back to the top of page
When working a time value of money problem, the HP12C calculator keeps track
of the direction money is flowing. For example, if money is being received, that
amount is indicated as a positive number. If, on the other hand, the money is
being paid, that amount is indicated as a negative number. Thus, money received
is positive and money paid is negative (just like real life!). When working a
problem, you may need to tell the calculator the direction of the cash flow. To
change a number in the display from positive to negative or from negative to
positive, all you need to do is press the
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