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Financial Calculations
The Time Value of Money
The Time Value of Money (TVM) equation computes the effect of compound
interest on a debt or investment. It applies only when the payment each period is
uniform; if the payment varies, use the —_CFLOW template (see pages 50-52).
1%YR
N
1%YR x S
= 57 vR=100
1%YR
0= p+ (14 TIRES) par x LAOS py (14
P/YR x100
1%YR
P/YR x100
P/YRx100
N is the total number of periods during the loan or investment;
I%YR is the nominal rate of interest (APR or ROI);
PV is the present value of the investment or loan;
PMT is the amount of the periodic payment,
FV is the future value of the loan or investment after N periods
(FV is generally opposite in sign to PV);
P/YR is the number of periodic payments per year;
S is a variable that accounts for the effect of payments made at the
beginning of each period (S = 1), vs. the end (S = 0).
The TVM menu lets you input values for any of the above variables, in order to:
(1) solve the TVM equation for N, I%YR, PV, PMT, or FV; (ii) construct and print
amortization tables; (iii) compare nominal vs effective interest rates.
1. Press (MENU), (T)VM.
2. Enter the number of payments per year and press (F5) (SE).
3. Are the payments made at the beginning of each period (like rent) or at the end
of each period? Press
(ZE3) until the appropriate mode is selected.
4. Enter values for four of the five remaining variables by typing the value and
pressing the appropriate function key.
5. Solve for the remaining variable by pressing its function key. Keep in mind
that you can compare two scenarios (press («€Jand (>) to oscillate between them).
Financial Calculations
45
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