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Unformatted text preview: D1 Using Financial Calculators Appendix D Business professionals, once they have mastered the underlying concepts in Appendix C, often use a financial (business) calculator to solve time value of money problems. In many cases, they must use calculators if in- terest rates or time periods do not correspond with the information pro- vided in the compound interest tables. To use financial calculators, you enter the time value of money variables into the calculator. Illustration D-1 shows the five most common keys used to solve time value of money problems. 1 N FV PMT PV I Illustration D-1 Financial calculator keys where N H11005 number of periods I H11005 interest rate per period (some calculators use I/YR or i) PV H11005 present value (occurs at the beginning of the first period) PMT H11005 payment (all payments are equal, and none are skipped) FV H11005 future value (occurs at the end of the last period) In solving time value of money problems in this appendix,you will generally be given three of four variables and will have to solve for the remaining variable.The fifth key (the key not used) is given a value of zero to ensure that this variable is not used in the computation. Use a financial calculator to solve time value of money problems. S T U D Y O B J E C T I V E 1 After studying this appendix, you should be able to: 1 Use a financial calculator to solve time value of money problems. S T U D Y O B J E C T I V E 1 On many calculators, these keys are actual buttons on the face of the calculator; on others they appear on the display after the user accesses a present value menu. PRESENT VALUE OF A SINGLE SUM To illustrate how to solve a present value problem using a financial calculator, as- sume that you want to know the present value of $84,253 to be received in five years, discounted at 11% compounded annually. Illustration D-2 pictures this problem. PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark The diagram shows you the information (inputs) to enter into the calculator: N H11005 5, I H11005 11, PMT H11005 0, and FV H11005 84,253. You then press PV for the answer: H11002 $50,000.As indicated, the PMT key was given a value of zero because a series of payments did not occur in this problem....
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This note was uploaded on 01/30/2011 for the course ACT 240 taught by Professor Janson during the Summer '08 term at N. Michigan.
- Summer '08