A Couple of Notes
- Every time value of money problem has either 4 or 5 variables (corresponding to the 5 basic financial keys). Of these, you will always be given 3 or 4 and asked to solve for the other. In this case, we have a 4-variable problem and were given 3 of them (N, I/Y, and PV) and had to solve for the 4th (FV). To solve these problems you simply enter the variables that you know on the appropriate lines and then scroll to the line for the variable you wish to solve for. To get the answer press . Be sure that any variables not in the problem are set to 0, otherwise they will be included in the calculation.
- The order in which the numbers are entered does not matter.
- Always make sure that the (payments per year) and (coupons per year) are set to 1. At least this is what I prefer. Since these are visible on the screen at all times, it is not strictly necessary. If you can remember to change these to the appropriate values for each problem (1 for annual compounding, 12 for monthly compounding, etc) then you'll have no problems.
- When we entered the interest rate, we input 10 rather than 0.10. This is because the calculator automatically divides any number entered on the line by 100. Had you entered 0.10, the future value would have come out to 100.501 — obviously incorrect.
- Notice that we entered the 100 in Cash Flow Sign Convention. This is simply a way of keeping the direction of the cash flow straight. Cash inflows are entered as positive numbers and cash outflows are entered as negative numbers. In this problem, the $100 was an investment (i.e., a cash outflow) and the future value of $161.05 would be a cash inflow in five years. Had you entered the $100 as a positive number no harm would have been done, but the answer would have been returned as a negative number. This would be correct had you borrowed $100 today (cash inflow) and agreed to repay $161.05 (cash outflow) in five years. Do not change the sign of a number using (the "minus" key). Instead, use . as a negative number. This was on purpose. Most financial calculators (and spreadsheets) follow the
- We can change any of the variables in this problem without needing to re-enter all of the data. For example, suppose that we wanted to find out the future value if we left the money invested for 10 years instead of 5. Simply enter 10 and then solve for . You'll find that the answer is 259.37.