FAU FIN 3403 Time Value Of Money (Students) - The Time...

The Time Value of Money and Discounted Cash Flows
Calculator Setup (HP 10BII)
1) Change 12 P_Yr to 1 P_Yr.
2) Next, change the decimals shown on the screen to 6 or 8.
Time Value keys :
N: the number of periods
I/YR: the interest rate or discount rate per period
PV: the Present Value or dollar value today
PMT: the payment made each period
FV: the Future value of a sum or stream of money
Other Useful Keys:
STO
RCL
button
← Back Arrow Key
÷/1/x Key
y x key
EXAMPLE OF USING CALCULATOR
What is the future value of $100 deposited today after earning 10% annually for 4 years?
The formula for this is:
FV =PV (1+r) n or in our case: FV = 100(1.1) 4
Using the mathematical functions of the calculator we calculate 1.1 raised to the 4 th
power as 1.4641, then:
 FV
100 x 1.4641 = $146.41
Using the financial calculator functions, we enter numbers into the Time Value keys
typing in the number and then hitting the desired key, so to enter 4 into N, I type 4 and
then hit N. So the key sequence for entering 4 as N, 100 as PV and 10% as r is the
following:
Type 4 and then hit N
Type 100, then hit +/-, then hit PV
Type 10, then hit I/YR
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Finally, to get the answer, hit FV to get the $146.41 above.
Four things to note:
1) Why did I use the +/- key to enter a negative 100 into PV?
You need to know how to enter it as described above.
2) The order you enter this data does not matter.
3) The calculator converts the whole number 10 into a decimal. Using the equation, we
must use the decimal in the formula.
4) Note that in the second row, last column the
BEG/END
MAR
key, which is used below for
Annuity Due calculations . When you hit the 2 nd key and this button a “BEGIN” will
show up at the bottom of the screen. THIS SHOULD ONLY BE USED WHEN
PAYMENTS START TODAY, NOT ONE YEAR FROM TODAY as is commonly
assumed in many problems. If you are getting the wrong answer, make sure BEGIN is
not showing unless it is needed.
Now to the Course Content:
In this set of notes we will examine:
1) Lump Sum Present Value and Future Value – a single cash payment either today
or a number of periods from today.
2) Present and Future Values of Annuities – a stream of constant cash flows for a
fixed number of periods.
3) Present Value of an Annuity Due – a stream of constant cash flows for a fixed
number of periods, where the payments start today.
4) Solving for the interest rate or discount rate in present and future values.
5) Examining alternative compounding intervals.
6) Home and auto loan amortization.
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7) Present value of a perpetuity – which is a stream of constant cash flows per period
forever.