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

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The Time Value of Money and Discounted Cash FlowsCalculator Setup (HP 10BII)1)Change 12P_Yr to 1P_Yr.2)Next, change the decimals shown on the screen to 6 or 8.Time Value keys:N:the number of periodsI/YR:the interest rate or discount rate per periodPV:the Present Value or dollar value todayPMT:the payment made each periodFV:the Future value of a sum or stream of moneyOther Useful Keys:STORCLbuttonBack Arrow Key÷/1/xKeyyxkeyEXAMPLE OF USING CALCULATORWhat is the future value of $100 deposited today after earning 10% annually for 4 years?The formula for this is:FV =PV(1+r)nor in our case: FV = 100(1.1)4Using the mathematical functions of the calculator we calculate 1.1 raised to the 4thpower as 1.4641, then:FV100 x 1.4641 = $146.41Using the financial calculator functions, we enter numbers into the Time Value keystyping in the number and then hitting the desired key, so to enter 4 into N, I type 4 andthen hit N.So the key sequence for entering 4 as N, 100 as PV and 10% as r is thefollowing:Type 4 and then hit NType 100, then hit +/-, then hit PVType 10, then hit I/YR1
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,wemust use the decimal in the formula.4) Note that in the second row, last column theBEG/ENDMARkey, which is used below forAnnuity Due calculations.When you hit the 2ndkey and this button a “BEGIN” willshow up at the bottom of the screen.THIS SHOULD ONLY BE USED WHENPAYMENTS START TODAY, NOT ONE YEAR FROM TODAY as is commonlyassumed in many problems.If you are getting the wrong answer, make sure BEGIN isnot 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 todayor a number of periods from today.2)Present and Future Values of Annuities – a stream of constant cash flows for afixed number of periods.3)Present Value of an Annuity Due – a stream of constant cash flows for a fixednumber 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.2
7)Present value of a perpetuity – which is a stream of constant cash flows per periodforever.

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