Calculator, HP 10 BII, Single Payment TVM

Finance Calculator
HP 10BII

Single Payment Time Value of Money Problems:

a. FV or Future Value Problem: If $500 investment earned an annual interest rate of 10 percent with annual compounding what would its' value be in five years?

Note:
All the Time Value of Money keys are on the first row of the calculator.
Always press the number first before pressing the Time Value of Money Keys.

Step 1: Clear time value of money memory: Orange key, C ALL (below the orange key)
Step 2: Proper compounding: press 1, the orange key, and then P/YR (which is on the first row fourth column below the PMT key).

Step 3 (Calculation):

Enter number of years: N = 5 (press 5 and then N)
Enter interest rate: i (I/YR) = 10 (press 10 and then I/Y)
Enter amount of investment: PV = 500 +/- (press 500 and then +/-)
Not using payment key: PMT = 0 (press 0 and then PMT)
Calculate unknown: Press FV, answer is $805.26

Another way of doing this problem,
Step 1: Clear time value of money memory: Orange key, C ALL
Step 2: Change the compounding: 12, orange key, P/YR (first row fourth column). This is to change from monthly payment to annually payment.

Step 3 (Calculation):

Enter number of years: N = 5 (press 5 and then N)
Enter interest rate: i (I/YR) = 120 (10*12)
Enter amount of investment: PV = 500 +/- (press 500 and then +/-)
Not using payment key: PMT = 0 (press 0 and then PMT)
Calculate unknown: Press FV, answer is $805.26

b. PV or Present Value Problem: What amount would have to be invested for five years, earning an annual interest rate of 10 percent, to have $805.26? In other words, what is the present value of 805.26 discounted back five years at an annual rate of 10 percent.

Step 1: Clear time value of money memory: Orange key, C ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1

Step 3 (Calculation):

Enter number of years: N = 5
Enter interest rate: i = 10
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press PV, answer is 500+/-

Step 3 (Calculation):

Enter number of years: N = 5
Enter interest rate: i = 120
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press PV, answer is 500+/-

c. Unkown: N. How long must $500 remain invested, earning a 10 percent annual return, to grow to $805.26?

Step 1: Clear time value of money memory: Orange key, C ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1

Step 3 (Calculation):

Enter interest rate: i = 10
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press N, answer is 5.

Step 3 (Calculation):

Enter interest rate: i = 120
Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Not using payment key: PMT = 0
Calculate unknown: Press N, answer is 5

d. Unkown: i (I/Y). What annual percentage rate must $500 earn to grow to 805.26 at the end of 5 years.

Step 1: Clear time value of money memory: Orange key, C ALL
Step 2: Compounding should remain at P/Y = 1 and C/Y = 1

Step 3 (Calculation):

Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Enter number of years: n = 5
Not using payment key: PMT = 0
Calculate unknown: Press i (I/YR), answer is 10 percent

Another way of doing this problem,
Step 1: Clear time value of money memory: Orange key, C ALL
Step 2: Change the compounding: 12, orange key, P/YR (first row fourth column). This is to change from monthly payment to annually payment.

Step 3 (Calculation):

Enter Present Value: PV = 500+/-
Enter Future Value: FV = 805.26
Enter number of years: n = 5
Not using payment key: PMT = 0
Calculate unknown: Press i (I/YR), answer is 120 percent. But since this is the annual payment, divide the result by 12 to get the monthly payment of 10 percent.

Last Updated on 1 May 2002, e-mail any comments to: robert.balik@wmich.edu