Suppose that you have $100 to invest for a period of 5 years at an interest rate of 10% per year. How much will you have accumulated at the end of this time period?
In this problem, the $100 is the present value (PV), N is 5, and i is 10%. Before entering the data you need to make sure that the financial registers (each key is nothing more than a memory register) are cleared. Otherwise, you may find that numbers left over from previous problems will interfere with the solution to this one. Press f then X>
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, and PV) and had to solve for the 4th (FV). To solve these problems you simply enter the variables that you know in the appropriate keys and then press the other key to get the answer.
- The order in which the numbers are entered does not matter.
- When we entered the interest rate, we input 10 rather than 0.10. This is because the calculator automatically divides any number entered into the i key 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 the PV key as a negative number. This was on purpose. Most financial calculators (and spreadsheets) follow the 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 the CHS (change sign) key.
- 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 into the N key and solve for FV. You willl find that the answer is 259.37.
Updated On: 12.09.20