calculator usage

Attribution Non-Commercial (BY-NC)

75 views

calculator usage

Attribution Non-Commercial (BY-NC)

- Financial Modeling Chapter - 1
- engineering-economy-lecture-1.pdf
- Week Six Homework ACCT305
- Annuity Investment Calculator 1
- Engineering Economics
- Time Value
- Chapter 4 Quiz Questions & Answers
- HW1- Answer Key
- Compound Interest Table
- Annuity Calculator
- Project Costing and Economics
- time value of money
- Study Unit 3 Exam Questions
- T0_Discounting.docx
- 2. Accounting and Finance for Bankers IIBF 2nd Edition Unknown
- e06ws11finance mcguireheather
- Chapter 5 - Annuities
- 2. Accounting and Finance for Bankers IIBF 2nd Edition Unknown
- Yield Curve
- BusMathsJan2013_L6

You are on page 1of 16

Key Points

The first step in time value analysis is to set up a time line, which will help you to visualize what is happening in a particular problem

0 I/YR CF1 CF2 CF3 Cash flows 1 2 3 Year

1. Time 0 is today; Time 1 is the end of period 1; or the beginning of period 2 2. Negative CF (-CF) are cash outflows

Key Points

FV is the amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate PV is the value today of a future cash flow or series of cash flows Annual Percentage Rate (APR) is the contracted, quoted or stated interest rate. It is equal to periodic interest rate times the number of period per year Effective Annual Rate (EAR or EFF) is the annual interest rate actually being earned (or paid), as opposed to the quoted rate. An EAR is the interest rate expressed as if it were compounded once per year

2

Key Points

Solving time value of money problems using financial calculator TI II Plus is a preferred method Before using a financial calculator, make sure that the calculator is set up as follows:

P/Y

2ND

I/Y

FORMAT

CLR TVM

2ND

.

CLR WORK

2ND

FV

and hit

2ND

CE/C

Always make sure that the interest rate and the time period match. For example, when there are more than one periods in a year, use periodic interest rate (APR/m where m is the compounding frequency per year) and input N= number of periods per year x number of yrs For example, APR =10% and the compounding frequency is twice per year and you enter in the financial calculator as I/Y =5 and then enter N= 2x number of years

3

Key Points

When calculating the PV of an ordinary annuity,

0 10% 100 100 100 Ordinary Annuity 1 2 3 Year

Using a financial calculator input: N = 3, I/Y = 10, PMT =100, FV = 0, and then solve for PV = -$248.69

Key Points

When calculating the PV of an annuity due,

0 10% 100 100 100 Annuity Due 1 2 3 Year

BGN SET

Hit

2ND

PMT

2ND

ENTER

5

Key Points

When calculating the PV of series of uneven cash flows,

0 10% 0 100 300 300

CF

Year

-50

SET INS SET INS

key

SET INS SET

CF

INS

ENTER

SET

INS

100

ENTER

RESET

SET

ENTER

300

ENTER

ENTER

50

+/-

ENTER

SET INS QUIT

NPV

10

ENTER

CPT

NPV = 530.09

6

Key Points

When calculating the FV of series of cash flows when payments occur annually, but compounding occurs each 6 months,

0 I/YR = 10% 100 100 100 1 2 3 4 5 6 period

Here we cant use normal annuity valuation techniques. You can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.)

APR=10%, to compute EAR, using financial calculator, hit

ICONV

2ND

2

SET

INS INS SET INS INS QUIT

10

ENTER

C/y

ENTER

CPT

EAR (or EFF) = 10.25 Finally, enter N=3, I/YR=10.25, P/Yr =1, PV=0, PMT=-100, to find FV=331.80

7

RWJ Chap 5 Q1

First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a $5,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years? The simple interest per year is: $5,000 0.08 = $400 So after 10 years you will have: $400 10 = $4,000 in interest. The total balance will be $5,000 + $4,000 = $9,000 With compound interest we use the future value formula: FV = PV(1 +r)t FV = $5,000(1.08)10 = $10,794.62 The difference is:$10,794.62 $9,000 = $1,794.62

8

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sotheby's sold the Edgar Degas bronze sculpture Petite Danseuse de Quartorze Ans at auction for a price of $10,311,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,377,500. What was his annual rate of return on this sculpture?

1999 ?% -12,377,500 10,311,500 2000 2001 2002 2003

xP/Y

RESET

AMORT

BGN

CLR TVM

4

QUIT

N

P/Y

12377500

+/-

PV

PMT

10311500

FV

CPT

I/Y

I/Y =-4.46%

Although appealing to more refined tastes, art as a collectible has not always performed so profitably. During 2003, Sotheby's sold the Edgar Degas bronze sculpture Petite Danseuse de Quartorze Ans at auction for a price of $10,311,500. Unfortunately for the previous owner, he had purchased it in 1999 at a price of $12,377,500. What was his annual rate of return on this sculpture? To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r)t Solving for r, we get: r = (FV / PV)1/t 1 r = ($10,311,500 / $12,377,500)1/4 1 = 4.46% Notice that the interest rate is negative. This occurs when the FV is less than the PV.

10

RWJ Chap 6 Q24 You are to make monthly deposits of $300 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 30 years?

xP/Y

P/Y

AMORT

RESET

BGN

QUIT

360

CLR TVM

10/12

I/Y

PV

300

+/-

PMT

CPT

FV

FV= 678,146.38

You are to make monthly deposits of $300 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 30 years?

This problem requires us to find the FVA. The equation to find the FVA is: FVA = C{[(1 + r)t 1]/r} FVA = $300[{[1 + (0.10/12)]360 1}/(0.10/12)] = $678,146.38

12

You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $95,000 per year for the next two years, or you can have $70,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10 percent compounded monthly, which do you prefer? Explanation: Since we have an APR compounded monthly and an annual payment, we must first convert the interest rate to an EAR so that the compounding period is the same as the cash flows.

ICONV

2ND

2

SET INS INS SET INS INS QUIT

10

ENTER

C/y

12

ENTER

CPT

13

xP/Y

P/Y

BGN

CLR TVM

QUIT

2

AMORT

10.4713

I/Y

95000

PMT

FV

CPT

PV

xP/Y

P/Y

BGN

CLR TVM

QUIT

2

AMORT

10.4713

I/Y

70000

PMT

FV

CPT

PV

PV= -120,723.549 The present value of the second arrangement =$45,000 + 120,723.549 = 165,723.549

You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $95,000 per year for the next two years, or you can have $70,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10 percent compounded monthly, which do you prefer? Explanation: Since we have an APR compounded monthly and an annual payment, we must first convert the interest rate to an EAR so that the compounding period is the same as the cash flows. EAR = [1 + (0.10 / 12)]12 1 = .104713 or 10.4713% PVA1 = $95,000 {[1 (1 / 1.104713)2] / 0.104713} = $163,839.09 PVA2 = $45,000 + $70,000{[1 (1/1.104713)2] / 0.104713} = $165,723.54

15

You're prepared to make monthly payments of $340, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,000? Explanation: Here we are given the FVA, the interest rate, and the amount of the annuity. We need to solve for the number of payments.

P/Y AMORT RESET BGN CLR TVM QUIT xP/Y

6/12

I/Y

PV

340

+/-

PMT

20000

FV

CPT

N= 51.69

You're prepared to make monthly payments of $340, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,000? Explanation: Here we are given the FVA, the interest rate, and the amount of the annuity. We need to solve for the number of payments. Using the FVA equation: FVA = $20,000 = $340[{[1 + (.06/12)]t 1 } / (.06/12)] Solving for t, we get: 1.005t = 1 + [($20,000)/($340)](.06/12) t = ln 1.294118 / ln 1.005 = 51.69 payments

17

You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 6.35 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,150?

xP/Y P/Y AMORT RESET BGN QUIT CLR TVM

360

6.35/12

I/Y

240000

PV

1150

+/-

PMT

CPT

FV

FV= -368,936.54

18

You need a 30-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 6.35 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,150, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,150? Explanation: The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PVA = $1,150[(1 {1 / [1 + (.0635/12)]360}) / (.0635/12)] = $184,817.42

19

Contd

The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58 [1 + (0.0635/12)]360 = $368,936.54

20

The present value of the following cash flow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow? Year 1 2 3 4 Cash Flow $1,700 ? $2,100 $2,800

21

SET INS SET INS

CF

SET

INS SET INS

CF

INS

ENTER

SET

INS

1700

ENTER

SET INS

ENTER

SET

0

INS

ENTER

SET

2100

ENTER

ENTER

2800

ENTER

SET INS

ENTER

QUIT

NPV

10

ENTER

CPT

Given that the present value of cash stream is $6,550, the present value of year 2 cash flow = $6,550 5035.65=$1,514.35 The value of the missing CF is:$1,514.35(1.10)2 = $1,832.36

The present value of the following cash flow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow? Year 1 2 3 4 Cash Flow $1,700 ? $2,100 $2,800

Explanation: We are given the total PV of all four cash flows. If we find the PV of the three cash flows we know, and subtract them from the total PV, the amount left over must be the PV of the missing cash flow. So, the PV of the cash flows we know are:

23

Contd

PV of Year 3 CF: $2,100 / 1.103 = $1,577.76 PV of Year 4 CF: $2,800 / 1.104 = $1,912.44 So, the PV of the missing CF is: $6,550 1,545.45 1,577.76 1,912.44 = $1,514.35 The question asks for the value of the cash flow in Year 2, so we must find the future value of this amount. The value of the missing CF is:$1,514.35(1.10)2 = $1,832.36

24

Suppose you are going to receive $10,000 per year for five years. The appropriate interest rate is 11 percent. a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due? b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are an annuity due? c. Which has the highest present value, the ordinary annuity or annuity due? Which has the highest future value? Will this always be true?

25

a(i).

xP/Y P/Y BGN CLR TVM QUIT AMORT

11

I/Y

10000

PMT

FV

CPT

PV

PV= -36,958.97

b(ii).

2ND

xP/Y

BGN

SET

PMT

2ND

ENTER

P/Y

BGN

CLR TVM

QUIT

AMORT

11

I/Y

10000

PMT

FV

CPT

PV

PV= -41,024.46

b(i).

xP/Y P/Y RESET BGN AMORT QUIT CLR TVM

11

I/Y

10000

+/-

PMT

PV

CPT

FV

FV= 62,278.01

b(ii).

BGN SET

2ND

PMT

2ND

ENTER

xP/Y

P/Y

RESET

BGN

AMORT

QUIT

CLR TVM

11

I/Y

10000

+/-

PMT

PV

CPT

FV

FV= 69,128.60

c.

Annuity due will have the highest PV and FV.

RWJ Chap 6 Q53 Suppose you are going to receive $10,000 per year for five years. The appropriate interest rate is 11 percent. a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due? b. Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are an annuity due? c. Which has the highest present value, the ordinary annuity or annuity due? Which has the highest future value? Will this always be true?

28

Explanation: a(i) If the payments are in the form of an ordinary annuity, the present value will be: PVA = C({ 1 [ 1/(1 + r)t ] } / r )) PVA = $10,000[ { 1 [1 / (1 + 0.11)5] }/ 0.11 ] PVA = $36,958.97 a(ii) If the payments are an annuity due, the present value will be: PVAdue = (1 + r) PVAdue = (1 + 0.11)$36,958.97 PVAdue = $41,024.46 b(i) We can find the future value of the ordinary annuity as: FVA = C{[(1 + r)t 1] / r} FVA = $10,000{[(1 + 0.11)5 1] / 0.11} FVA = $62,278.01

29

Contd

b(ii) If the payments are an annuity due, the future value will be: FVAdue = (1 + r) FVAdue = (1 + 0.11)$62,278.01 FVAdue = $69,128.60

c.

Annuity due will have the highest PV and FV provided r is positive.

30

- Financial Modeling Chapter - 1Uploaded bybhanu.chandu
- engineering-economy-lecture-1.pdfUploaded byMichael Angelo Jugador Bas
- Week Six Homework ACCT305Uploaded byebonybryant
- Annuity Investment Calculator 1Uploaded byamgnag
- Engineering EconomicsUploaded byDeepak Bangwal
- Time ValueUploaded byanitadas90
- Chapter 4 Quiz Questions & AnswersUploaded byPatrick Forney
- HW1- Answer KeyUploaded bythelasttt
- Compound Interest TableUploaded byspmz
- Annuity CalculatorUploaded byBlueQuill
- Project Costing and EconomicsUploaded byjekos27
- time value of moneyUploaded byvijay_mehta_7
- Study Unit 3 Exam QuestionsUploaded byHeather Skorpen
- T0_Discounting.docxUploaded byJosé Miguel Pellegrini
- 2. Accounting and Finance for Bankers IIBF 2nd Edition UnknownUploaded byनिशीथ पराशर
- e06ws11finance mcguireheatherUploaded byapi-259899422
- Chapter 5 - AnnuitiesUploaded byKPRobin
- 2. Accounting and Finance for Bankers IIBF 2nd Edition UnknownUploaded byNethaji Mudaliyar
- Yield CurveUploaded byNahidHossain
- BusMathsJan2013_L6Uploaded bygglv
- 2. Accounting and Finance for Bankers IIBF 2nd Edition UnknownUploaded byAnurag Sujan
- chapter4.pptUploaded byHay Jirenyaa
- FINANCE WRITTEN REPORT.docxUploaded byKOUJI N. MARQUEZ
- Sample Midterm1Uploaded bymehdi
- Quantitative AnalysisUploaded bysor_68m
- Calculator 1Uploaded byprowednes
- Accounting finance for Bankers-1.pdfUploaded bypriyanka allaka
- simple and compound interestUploaded byアンジェロドン
- Online approach accountingUploaded bypavan
- mathematics_of_investment__syllabus_ay2015-2016_.pdfUploaded byRod

- MKT1003Uploaded byHarmony Tee
- Chinese Lunar Year Consists of 12 New Moons With a Thirteenth New Moon Added Every Twelve YearsUploaded byHarmony Tee
- Bonds C14-3 and P16-6Uploaded byHarmony Tee
- Tutorial 9 S2_2011-12 Segment Reporting and Transfer PricingUploaded byHarmony Tee
- Excel Shortcuts MacUploaded byDayat Khan
- Four Ways to Let Go of the PastUploaded byHarmony Tee
- BSP 2005 NOTES .docxUploaded byHarmony Tee
- Bsp 2005 NotesUploaded byHarmony Tee
- 2013 Tutorial Assignments Business StudentsUploaded byHarmony Tee
- CFA REV 1Uploaded byHarmony Tee
- MCPAUploaded byHarmony Tee
- SubwayUploaded byHarmony Tee
- Classical EconomistUploaded byHarmony Tee
- 02647 12 NAT Director Tools Board Charters_A4_WEBUploaded byHarmony Tee
- 2011 Aug Tutorial 10 Working Capital ManagementUploaded byHarmony Tee
- FIN2004 Session 3Uploaded byHarmony Tee
- R03 - Case No 1_NO v CIT_ITBR_30 Oct 2006.pdfUploaded byHarmony Tee
- Singapore Math Government Secondary Curriculum - 2007Uploaded byDennis Ashendorf
- Items Needed for Dirty GamesUploaded byHarmony Tee
- dsc1007Uploaded byHarmony Tee

- nemesisUploaded byJuan Esteban Afanador
- context cluesUploaded byapi-264572290
- doc_G_1_MG52A202.pdfUploaded byCaspar Heerkens
- lm1871 rcUploaded bybabichem
- A Brief Introduction to Hydrocode Modeling of Impact CrateringUploaded byRichard Hilson
- PID Controller - Wikipedia, The Free EncyclopediaUploaded bydediekos
- DC-injection-motor-brake-instructionsUploaded byprasiva@04
- IP AddressesUploaded byBhaskar Gupta
- TND00488601000000000000DAE01101.pdfUploaded byDinesh Dinu
- Power Walk Main PptfynaleUploaded byRana Begum
- (1985) - THE RELATIONSHIP BETWEEN DEGREE OF BILINGUALISM AND.pdfUploaded byVanessa Contente
- 3701Uploaded byejvdh
- CA64B3D0d01Uploaded bykishor.kokate
- 7 Neurtek DataPhysics Surface ChemistryUploaded bykarkamalus
- CP R77 Gaia AdminGuideUploaded bytoni_saputro
- A TUTORIAL ON POINTERS AND ARRAYS IN CUploaded bynaveen karthikeyan
- trigidentities1.pdfUploaded byWidi Toss Muda Purwodadi
- An Enhanced Hybrid Content-Based Video Coding Scheme for Low BitrateUploaded byBibin Johnson
- Arduino Cheat SheetUploaded byMuhammad Wahyudin
- Vega Users Manual Issue 04 April 2014Uploaded byRaphael Francisco Puttini
- LntUploaded byshubham
- Cluster AnalysisUploaded byAmit Sachdeva
- CTB CitizenUploaded bydgiovannii
- neutrino_oscillation.pdfUploaded byTarcio Fonseca Furtado
- Solid FuelsUploaded byyashvant
- 131211 130605 Concrete TechnologyUploaded byusama elalaoui
- B.E & B.Tech. Syllabs for Electrical Engineering 4 SemesterUploaded byShashi Shekhar Sharma
- 6 Series Mill Operation ManualUploaded byRoobens Chaves
- Antioxidant and Antimicrobial Activities of Tea InfusionsUploaded byImam Yulianto
- M.E. Civil (ConstructionUploaded byAbhishek Malik

## Much more than documents.

Discover everything Scribd has to offer, including books and audiobooks from major publishers.

Cancel anytime.