Monday, December 8, 2008

Book report, T.V.M. solver

With the help of my trusty internet friend, I have found that the T.V.M. solver (Time value of money) functions to analyze financial instruments, such as loans, mortgages, leases and savings.
To get to the T.V.M. solver on your calculator, hit "apps" then "finance" and that leads you right to the "t.v.m. solver"

Now you need to fill in the blanks on your calculator, but before you can do that you need to know what the letter symbols beside each blank means.
N= The number of payment periods
I%= The interest rate
PV= Present value
PMT= Payment amount
FV= Future value
P/Y= Payments per year
C/Y= Compounding periods per year

(remeber to ender cash inflows as positive numbers, and cash outflows as negative numbers)

Examples:
Financing a car.
You have found a car you would like to buy. The car costs $9,000. You can afford payments of $250 per month for four years. What annual percentage rate (APR) will make it possible for you to afford the car?

Enter the T.V.M. solver
Enter known values:
N=48;
PV=9000;
PMT=M250 (Negation indicates cash outflow.);
FV=0;
PpY=12 (computes an annual percentage rate);
CpY=12;
PMT=END.

Example 2
Calculaing interest on a fixed payment.
At what annual interest rate, compounded monthly, will $1,250 accumulate to $2,000 in 7 years?

Enter the T.V.M solver.
Enter known values:
N=7;
PV=M1250 (Negation indicates cash outflow or investment.);
PMT=0;
FV=2000 (future value is cash inflow or return);
PpY=1;
CpY=12;
PMT=END.
Place the cursor on the I% prompt and solve to get your interest rate.

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