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Calculating the Future Value of a Lump Sum

The basic steps in calculating the future value of a lump sum are as follows:

  1. Enter the proper payments per year. You first must type in the appropriate number (eg. monthly would be 12, quarterly would be 4, etc.), then push the cream colored key , then the P/YR key.
  2. The order of the next three steps is not important, but I recommend that you follow across the financial tour of your calculator from left to right. If you do this, then the next step would be to enter in the proper number of years. You first type the appropriate number, then push the cream colored key , then the xP/YR key.
  3. Now enter the appropriate interest rate per year. This is done by entering the appropriate annual interest rate as a whole number, not as a decimal (the calculator will convert it to decimal automatically), then pressing the I/YR key.
  4. Next enter the lump sum amount you are beginning with, then press the PV key.
  5. Finally all that is necessary is push the FV key.

Now let's try a problem. Consider that you invest $1000 in a CD earning 8% annual interest for 3 years. What would your CD be worth at the end of the three years?



First let's see what we know. We know that the CD worth $1000 today. That indicates that the present value (PV) of that CD is $1000. We know that the number of years (xP/YR) is 3. We know that the annual interest rate is 8% (8 is the I/YR). Finally, we may assume that the periods per year is one since we are not told it is monthly, quarterly, etc. (If the payments per year would have been, for example, monthly, the problem would have read, ". . . earning 8% annual interest, compounded monthly.")

Now let's compute the problem:

  1. First we must enter the appropriate payments per year by pushing 1, then the P/YR key.
  2. Next we will enter the number of years by pushing 3, then the cream colored key , then the xP/YR key.
  3. Now we will enter the interest rate per year by pushing 8 and then pressing the I/YR key.
  4. Next we enter the Present Value by pressing 1000, then the key (to show that this is paid to the bank), and then the PV key.
  5. Finally, we press the FV key to compute the answer. The display then shows 1259.71 if the display was set to show two decimal places. Note that the answer is positive. This indicates that the direction of the cash flow is in. (This is logical since we pay $1000 now in order to receive $1,259.71 in the future.)


Would you like to review the mathematics of this calculation?


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Copyright 2006  Dr. Jerry D. Belloit